HE 


V.I 


UNIVERSITY  of  CAIJFORN't 

AT      . 

LOS  AJSGEL&S 
LIBRARY 


PROCEEDINGS  OF 

The  FEDERAL  ELECTRIC 
RAILWAYS  COMMISSION 

Held    in  WASHINGTON,  D.  C.,  during  the    months 
of   July,    August,    September,    and    October,    1919 


together  -with. 


Final  Report  of  the 

Commission  to  the 

President 


IN  THREE  VOLUMES 

VOL.  1 


WASHINGTON 

GOVERNMENT  1'RINTING  OFFICli 
1920 


HE 


N/.l 

INTRODUCTORY  STATEMENT. 

The  Federal  Electric  Railways  Commission  was  appointed  by  the 
President  of  the  United  States  in  response  to  a  suggestion  outlining 
to  him  the  need  of  such  a  commission  in  the  following  letter  from  two 
members  of  his  Cabinet,  the  Secretaries  of  Commerce  and  of  Labor : 

WASHINGTON,  D.  C.,  May  15,  1919. 

DEAR  MB.  PRESIDENT  :  The  electric-railway  problem  to  which  your  attention 
has  been  called  on  several  occasions  has  recently  assumed  such  serious  na- 
tional proportions  as  to  warrant  the  prompt  attention  of  the  Federal  Govern- 
ment. Already  50  or  more  urban  systems,  representing  a  considerable  per- 
centage of  the  total  electric-railway  mileage  of  the  country,  are  in  the  hands 
of  receivers.  The  communties  affected  are  among  the  most  important — New 
York,  Providence,  Buffalo,  New  Orleans,  Denver,  St.  Louis,  Birmingham,  Mont- 
gomery, Pittsburgh,  Memphis,  Ft,  Wayne,  Des  Moines,  St.  Paul,  Spokane, 
Chattanooga. 

Other  large  systems  are  on  the  verge  of  insolvency,  for  the  industry  as  a 
whole  Is  virtually  bankrupt.  The  continued  shrinkage  in  the  value  of 
hundreds  of  millions  of  electric- rail  way  securities  held  by  savings  banks> 
national  banks,  life-insurance  companies  and  by  the  public  at  large  threatens 
to  embarrass  the  nation's  financial  operations.  Furthermore,  the  withdrawal 
of  this  industry's  buying  power,  which  is  said  to  rank  third  in  magniture, 
Involves  the  unsettlement  of  collateral  indiistries,  naturally  entailing  labor 
dislocation  that  will  affect  hundreds  of  thousands  of  employees. 

The  return  to  normal  conditions  is  being  hampered  and  the  efforts  of  the 
Government  to  avert  strained  conditions  in  finance,  labor  and  commerce  are 
being  less  fruitful  of  satisfactory  results  than  should  be  expected,  if  some 
solution  of  the  electric-railway  problem  were  in  view. 

What  the  solution  is,  may,  we  believe,  be  evolved  by  a  thorough  investiga- 
tion  of  general  franchise  and  operating  conditions  in  their  relation  to  rates, 
including  service-at-cost  plans,  State  and  municipal  taxation,  local  paving 
requirements,  and  internal  economies  that  may  be  effected. 

We  therefore  propose  and  recommend  the  appointment  by  you  of  a  Federal 
board  or  commission,  whose  duty  it  shall  be  to  study  and  report  upon  the  entire 
problem,  in  order  that  the  State  and  municipal  authorities  and  others  eon- 
cerned  may  have  the  benefit  of  full  information  and  of  any  conclusions  or 
recommendations  that  may  be  formulated.  Such  a  study  will,  in  our  opinion, 
exert  a  helpful  and  constructive  force  in  this  critical  period  of  the  industry's 
existence,  and  will  aid  in  the  readjustment.  If  you  would  make  such  an  ap- 
pointment before  June  30.  your  contingency  fund  could  be  used  to  defray  the 
expenses,  which  would  be  about  $10,000. 

The  National  Association  of  State  Commissioners  has  always  invited  Federal 
aid  in  this  matter  and  the  recent  Conference  of  Governors  and  Mayors  adopted 
a  resolution  recommending  Federal  consideration  of  the  problem  of  preventing 
the  financial  disaster  threatening  this  industry. 

We  projtose  that  such  a  commission  shall  be  made  up  of  one  representative 
of  each  of  the  following  groups : 

Treasury  Department  or  War  Finance  Corporation,  Department  of  Com- 
merce. Department  of  Labor,  National  Association  of  State  Commissioners, 
American  Cities  League  of  Mayors,  Amalgamated  Association  of  Street  &  Elec- 
tric Hailwny  Employees,  American  Electric  Railway  Association,  Investment 
I  Stinkers  Association  of  America. 

Wt»  respectfully  urge  your  authorization  for  such  a  commission,  to  be  fol- 
lowed by  your  formal  proclamation  upon  the  selection  of  personnel. 
Cordially  yours, 

(Signed)  WILLIAM  C.  REDFIELD, 

Secretary  of  Commerce 
(Signed)  W.  B.  WILSON, 

Secretary  of  Labor. 
ill 


IV  PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

On  May  20,  1919,  the  President  cabled  his  approval  of  the  fore- 
going plan  for  the  creation  of  a  Federal  commission  to  investigate 
and  report  on  the  condition  of  the  electric-railway  industry  of  the 
United  States ;  and  on  June  1,  1919,  the  commission  was  accordingly 
created  by  the  President  and  the  folloAving  members  appointed  to 
serve  thereon  without  compensation : 

Charles  E.  Elmquist,  representing  National  Association  of  State 
Public  Utility  Commissioners. 

Edwin  F.  Sweet,  representing  Department  of  Commerce. 

Philip  H.  Gadsden,  representing  American  Electric  Railway  As- 
sociation. 

Royal  Meeker,  representing  Department  of  Labor. 

Eugene  Meyer,  jr.  (alternate,  Louis  B.  Wehle),  representing  War 
Finance  Corporation. 

Charles  W.  Beall,  representing  Investment  Bankers  Association 
of  America. 

William  D.  Mahon,  representing  Amalgamated  Association  of 
Street  &  Electric  Railway  Employees. 

George  L.  Baker,  representing  American  Cities  League  of  Mayors. 

The  new  commission  met  on  June  4  and  organized  by  electing  Mr. 
Elmquist  as  chairman  and  Mr.  Sweet  as  vice  chairman.  The  an- 
nouncement was  at  once  made  that  the  commission  would  attempt 
to  determine  the  general  principles  which  should  govern  the  regu- 
lation, operation,  and  service  of  electric  railways,  but  that  the  com- 
mission was  without  authority  to  hear  and  determine  specific  local 
controversies,  and  that  it  would  not  interfere  in  any  way  with  the 
functions  of  State  commissions  or  of  municipal  authorities.  The 
purpose  of  the  commission  is  rather  to  investigate  and  study  the  con- 
dition of  the  electric-railway  industry,  including  franchises,  rates, 
taxation  and  assessments,  economies  of  operation,  public  rela- 
tions, etc. 

The  commission  on  June  28  appointed  Charlton  Ogburn  as  its 
executive  secretary  under  a  contract  which  obligated  him  "  to  conduct 
a  thorough  investigation  into  the  condition  of  the  electric-railway 
industry  of  the  United  States,  both  urban  and  interurban,"  employ- 
ing the  necessary  experts  to  aid  him. 

The  commission  gathered  its  evidence  in  three  ways:  First,  by 
means  of  public  hearings  at  which  large  numbers  of  witnesses  testi- 
fied ;  second,  by  a  series  of  questionnaires  sent  to  every  city  in  which 
there  is  an  electric  or  interurban  railway,  addressed  to  the  electric 
railways,  the  mayors,  the  chambers  of  commerce,  and  the  central 
labor  unions,  and  also  to  all  of  the  State  public-utility  commissions ; 
and  third,  by  a  personal  investigation  on  the  part  of  the  executive 
secretary. 

The  first  public  hearing  was  held  in  New  York  on  June  19,  and  the 
first  witness  Avas  ex-President  William  Howard  Taft.  The  next  hear- 
ing was  held  in  Washington  on  July  15,  lasting  two  weeks,  during 
which  time  the  witnesses  on  behalf  of  the  railway's  presented  the  evi- 
dence under  the  direction  of  the  Committee  of  One  Hundred  of  the 
American  Electric  Railway  Association  and  its  counsel,  Mr.  Bentley 
W.  Warren.  The  next  hearing  was  held  in  Washington  beginning 
August  11  and  lasting  one  week,  at  which  time  testimony  Avas  offered 
on  behalf  of  the  public,  chiefly  by  representatives  of  the  municipali- 
ties and  of  State  public-utility  commissions.  The  last  hearing  began 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.  V 

in  Washington  on  September  29  and  lasted  one  week,  at  which  time 
testimony  was  offered  by  still  further  witnesses  representing  the  pub- 
lic and  by  witnesses  on  behalf  of  labor,  represented  by  the  Amalga- 
mated Association  of  Street  &  Electric  Railway  Employees  of  Amer- 
ica. All  of  these  hearings  ran  through  day  and  night  sessions,  be- 
ginning at  10  a.  m.  and  usually  running  until  10  or  11  p.  m. 

Three  separate  questionnaires  were  sent  out,  copies  of  which  are  in- 
cluded in  these  Volumes.  The  first  was  a  general  questionnaire  deal- 
ing with  all  phases  of  the  situation.  The  last  two  were  special  ques- 
tionnaires seeking  traffic  figures,  month  by  month,  for  the  past  three 
years;  that  is,  number  of  revenue  passengers,  amount  of  passenger 
revenue,  fare  charged,  and  a  statement  of  any  occurrences  affecting 
traffic,  such  as  strikes,  influenza  epidemics,  etc. 

At  the  conclusion  of  the  final  public  hearing  the  commission  en- 
gaged the  services  of  Dr.  Delos  F.  Wilcox  to  aid  in  analyzing  the 
testimony  gathered  and  engaged  Dr.  Milo  R.  Maltbie  and  Dr.  Wilcox 
to  advise  with  the  commission  relative  to  its  report.  Dr.  Wilcox 
made  a  very  comprehensive  analysis  of  the  evidence.  The  final  meet- 
ing of  the  commission  was  held  in  June,  1920,  at  which  time  its 
report  was  made  to  the  President. 

All  of  this  work  was  done  on  an  appropriation  of  $10,000  allotted 
by  the  President  for  this  purpose. 

CHARLTON  OGBURX, 
Executive  Secretary. , 


William  H.  Taft. 

J.  H.  Pardee 

G.  C.  Cummin__ 
J.  H.  Pardee 


Page. 

1 

28 

31 

62 

B.  W.  Warren 66,  200 

G.  E.  Tripp 67 

James  W.  Welsh 70 

W.  J.  Clark 135 

G.  E.  Tripp 146 

Harold  L.  Stuart 184 

Henry  G.  Bradlee 201 

William  J.  Clark 228 

Mortimer  E.  Cooley 247 

W.  D.  George 289 

Francis  H.  Sisson 314 

A.  H.  Ford 354 

C.  L.  S.  Tingley 364 

John  G.  Barry 380 

M.  B.  Lambert 393 

William  H.  Heulings,  jr 395 

Henry  L.  Doherty 403 

Lucius  S.   Storrs 422 

Luther  R.  Nash 466 

W.  C.  Culkins 471 

Walter  A.  Draper 498 

Louis  Pellissier 514 

Job  E.  Hedges 519 

Samuel  Reading  Bertron 537 

J.  K.  Newman 553 

Homer  L.  Ferguson 580 

John  J.  Stanley 590 

Charles  A.  Fagan 610 

W.  B.  Head 627 

Charles  J.  Bullock__ 637 

L.  R.  Nash 662 

Charles  L.   Henry 696 

Charles  W.  Kellogg 730 

Frank  J.  Sprague 750 

James  D.  Mortimer 764 

Eugene  N.  Foss 791 

James  D.  Mortimer 808 

James  L.  Quackenbush 817 

James  O.  Carr 843 

Richard    Schaddelee 857 

Henry  J.  Pierce 873 

Frederick  B.  de  Berard 875 

John  H.  Pardee 882 

W.  E.  Creed 883 

Harlow  C.  Clark 896 

Jeremiah  W.  Jenks 918 

Thomas  Con  way,  jr 941 

Hal  ford  Erickson 967 

Newton  D.  Baker..  UU5 


Page. 

C.  W.  Kutz 1037 

Roger  W.  Babson 1053 

John  P.   Fox 1073 

Carl  H.  Mote 1086 

Richard  T.  Higglns 1107 

Carl   H.   Mote ^ 1118 

F.  F.  Ingram 1120 

James  Couzens 1134 

William  C.  Bliss 1168 

Zenas  W.  Bliss 1195 

Charles  P.  Gillen 1198 

Delos  F.  Wilcox 1202 

Lewis  Nixon 1277 

William  P.  Burr 1303 

Irving  Fisher 1319 

Grenville  S.  MacFarland 1342 

Thomas  L.  Hall 1:550 

Alexander  T.  Connell 1377 

William  D.  B.  Ainey 13y4 

Dugald  C.  Jackson 1413 

Frederick  J.  MacLeod 1435 

Fielder  Sanders 1457 

John  J.  Walsh 14155 

Marion  M.  Jackson 1481 

C.  J.  Joyce 1513 

Thomas  L.  Sidlo 1585 

Walter  Jackson 15S9 

R.  S.  Bauer 1(522 

Homer  Loring 1640 

John  A.  Beeler 1661 

Morris  L.  Cooke 16S7. 

C.  L.  Delbridge 1703 

W.  Jett  Lauck 1731 

Carey  Ferguson 1733 

William  M.  Rea 1748 

Arthus  Stiiriris 1767 

William  F.  Ogburn 1795 

Lelfur  Magnusson 1832 

Stiles  P.  Jones 1842 

W.  Jett  Lauck 1877 

E.  V.  Babcock 189S 

Charles  K.  Robinson 1913 

W.  Jett  Lauck 1927 

James  D.  Mortimer 1970 

C.  J.  Joyce 2002 

Stiles  P.  Jones 2012 

Marion  M.  Jackson 2014 

Joseph  B.  Eastman 2055 

Milo  R.  Maltbie— 2088 

Edward  W.  Bemts 21O5 

Lawsou  Purdy 2124 

C.  Oscar  Beasley 2129 

VII 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 


NEW  YORK  CITY,  June  19,  10  W. 

The  commission  met,  pursuant  to  notice,  at  10  o'clock  a.  in. 

Present:  Charles  E.  Elmquist  (chairman),  Edwin  F.  Sweet  (vice 
chairman),  Royal  Meeker,  C.  W.  Beall,  L.  B.  Wehle,  and  Philip  H. 
Gadsden,  commissioners. 

Appearances:  Lewis  Nixon,  commissioner,  Public-Service  Commis- 
sion, first  district,  State  of  New  York;  John  H.  Pardee,  represent- 
ing the  American  Electric  Railway  Association. 

PROCEEDINGS. 

The  CHAIRMAN.  This  hearing  is  called  by  the  Federal  Electric 
Railways  Commission  for  the  purpose  of  hearing  evidence  bearing 
upon  the  general  public-utility  problem.  A  number  of  witnesses 
have  been  notified  to  be  present  and  the  commission  at  this  time  de- 
sires to  know  who  are  here  and  who  wish  to  be  heard. 

Mr.  TAFT.  Mr.  Chairman,  I  am  here;  though  I  do  not  come  under 
the  latter  class,  I  am  here  very  willing  to  be  subjected  to  examina- 
tion on  what  I  know,  without  professing  to  know  much.  I  report, 
therefore,  here. 

The  CHAIRMAN.  We  will  hear  from  you,  Mr.  Taft,  as  soon  as  the 
other  appearances  have  been  entered. 

Are  there  any  other  appearances? 

Mr.  PARDEE.  I  am  present,  Mr.  Chairman,  representing  the  Ameri- 
can Electric  Railway  Association,  and  at  your  convenience  I  desire 
to  make  a  statement. 

The  CHAIRMAN.  Are  there  any  other  appearances  to  be  noted? 
[No  response.] 

Now,  Mr.  Taft,  we  shall  be  glad  to  hear  from  you. 

STATEMENT  OF  HON.  WILLIAM  H.  TAFT. 

Mr.  TAFT.  Mr.  Chairman,  I  am  at  your  disposition. 

I  had  a  call  from  Mr.  Wehle  saying  that  your  commission  would 
like  to  have  an  expression  of  opinion  from  me  as  to  the  present  situ- 
ation of  the  transportation  public  utilities,  so  far  as  I  had  observed 
them. 

My  chief  opportunity  for  observing  the  condition  in  which  those 
utilities  now  are  has  arisen  from  the  work  of  the  National  War 
Labor  Board,  of  which  I  have  been  one  of  the  joint  chairmen.  That 
board  was  created  for  the  purpose  of  maintaining,  so  far  as  possible, 
maximum  production. in  war  supplies,  and  our  jurisdiction  extended, 
by  the  proclamation  of  the  President,  to  mediation  in  controversies 
arising  in  all  fields  of  activity  which  would  affect  that  maximum 

l 


2          PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

production.  The  street  railways  and  the  suburban  railways  came 
within  that  field,  by  reason  of  the  dependence  of  many  of  the  large 
munition  plants  and  other  plants  for  making  war  supplies  upon 
these  transportation  facilities  for  their  labor.  Where  the  street-car 
systems  stop,  where  the  suburban  systems  stop,  the  workingmen 
and  working  women  were  not  able  to  reach  their  places  of  work,  and 
it  halted  the  production.  In  that  way  a  great  many  cases  came  before 
us,  and  in  the  division  of  labor  by  the  board  the  cases  with  respect 
to  public  utilities  were  referred  to  Mr.  Walsh,  my  colleague,  and 
myself,  and,  in  many  instances,  the  parties  submitted  the  cases  to  us 
as  sole  arbitrators,  which,  of  course,  fixed  our  attention,  in  the  dis- 
tribution of  work  in  the  board,  on  these  public  utilities. 

One  of  the  great  arguments  which  was  made  to  avoid  the  increase 
in  wages  was  the  financial  condition  of  the  companies  which  made 
it  impossible  to  grant  any  increase  asked  by  the  men;  and  the  com- 
panies requested  that  we  take  that  matter  into  consideration. 

There  is  not  any  doubt  that  the  financial  condition  of  the  compa- 
nies had  actually  in  the  past — at  least,  that  was  my  inference  after 
hearing  the  evidence — had  actually  in  the  past  kept  down  the  wages  . 
of  the  men  quite  below  the  wages  that  were  paid  in  fields  of  labor 
of  a  kindred  nature,  because  these  companies  were  in  a  condition 
where  their  backs  were  against  the  wall,  and  they  maintained  a  po- 
sition against  increase  of  wages  that  was  natural,  where  they  saw 
bankruptcy  in  front  of  them ;  and  they  said,  "  No ;  we  will  not  do 
it."  The  consequence  was  that  we  thought,  from  our  consideration 
of  the  cases,  that  the  wages  in  the  public  utilities  were  generally 
quite  below  wrhat  they  ought  to  have  been. 

On  the  other  hand,  these  matters  were  referred  to  us  as  arbitrators, 
and  the  issue  then  arose:  Had  we  any  right,  in  considering  what 
wages  would  be  fair,  to  take  into  consideration  the  financial  condi- 
tion of  the  company  that  was  present  before  us  as  a  party?  And 
we  had  no  hesitation  in  reaching  the  conclusion  that  labor  was  as 
much  entitled  to  an  independent  consideration  of  what  its  wages 
should  be  as  a  coal  man  was  who  furnished  coal  or  a  material  ma  a 
who  furnished  iron;  that  that  question  must  be  determined  by  what 
was  being  paid  in  similar  fields  of  labor.  Therefore,  we  refused 
flatly  from  the  first  to  consider  the  financial  condition  of  any  com- 
pany in  determining  the  rate  of  wages.  Of  course,  had  we  done  so, 
we  would  have  been  put  in  the  further  absurd  position,  which  seemed 
to  demonstrate  the  correctness  of  our  original  conclusion,  that  the 
man  working  for  a  company  that  had  been  badly  managed  and  was 
carrying  on  the  business  under  conditions  that  rendered  it  unprofitable 
for  other  reasons  should  be  paid  less,  for  the  same  work,  than  some 
company  that  had  a  profitable  arrangement  paid — less  than  the  man 
who  served  with  a  company  that  was  better  managed  and  had  a 
profitable  arrangement.  So  that,  on  all  sides,  it  seemed  to  us  that 
that  was  the  just  conclusion. 

We  realized,  however,  in  stepping  into  that  field  and  increasing 
wages  free  from  that  "  back-against-the-wall "  position  which  the 
railway  employers  had  had  in  the  past — because  we  were  acting  as 
judges  and  as  arbitrators — that  we  might  bring  about,  inasmuch  as 
wages  formed  a  great  factor  in  the  cost  of  operation — that  we  might 
bring  about  financial  trouble.  Therefore  Mr.  Walsh  and  I  first  rec- 
ommended to  the  President  that  he  apply  to  Congress  for  power  | 


PROCEEDINGS  OF  FEDEBAL  ELECTRIC  RAILWAYS  COMMISSION".          3 

to  appoint  a  commission  that  should  regulate  the  affairs,  taking  into 
consideration  the  increase  in  the  wages,  and  submitted  a  statement 
to  the  President,  which,  however,  for  considerations  that  appealed 
to  him,  he  thought  it  unwise  to  grant. 

There  was  then  presented  a  request  by  a  committee  of  the  rail- 
way employers — I  do  not  remember  the  name,  but  Mr.  Gadsden,  who 
is  one  of  you  members,  was,  I  think,  the  president  of  the  associa- 
tion— in  which  the  association  asked  that  an  advisory  commission 
be  appointed  that  should  go  about  and  relieve  the  public-utilities 
commissions  from  the  political  burden  of  granting  an  increase  in 
the  rates  of  fare  by  recommendation  from  a  Federal  source — a 
practical  method  of  relieving  the  situation  which  appealed  to  Mr. 
Walsh  and  to  me,  with  our  previous  political  experience;  and  we 
urged  that,  too,  and  I  went  to  Mr.  McAdoo,  and  I  also  went  to  the 
Interstate  Commerce  Commission,  which  it  was  then  understood  the 
President  was  consulting  in  respect  to  the  action  that  should  be 
taken. 

There  was  one  other  consideration  I  wanted  to  add:  In  every 
award  that  we  made  we  encouraged  a  statement  as  to  the  financial 
condition  of  the  company,  not  with  a  view  of  influencing  our  con- 
clusion as  to  what  the  wages  ought  to  be,  which  was  the  concrete 
issue  before  us,  but  in  order  that  we  might  fully  justify,  if  the  case 
required  it,  any  recommendation  to  the  local  authorities,  and  giving 
the  weight  of  our  recommendation,  at  least,  to  an  increase  in  fares. 

I  am  bound  to  say  that  that  recommendation  with  State  author- 
ities not  infrequently  had  weight.  But  when  it  came  to  local  coun- 
cils, or  to  referendum,  it  might  just  as  well  have  been  written  in 
water. 

Take  the  case,  for  instance,  in  Buffalo,  if  I  may  be  pardoned  an 
illustration.  The  submission  to  us  there,  by  both  parties,  which 
gave  us  the  right  to  arbitrate,  was  on  condition  that  if  we  recom- 
mended an  increase  of  wages  there  must  be,  before  our  award  took 
effect,  an  increase  in  the  rate  of  fare;  and  the  State  public-utilities 
commission  granted  an  increase  from  5  cents  to  G  cents.  Then  some 
gentleman  in  Buffalo  concluded  that  that  was  a  matter  that  ought  to 
be  referred  to  the  people  of  Buffalo,  and  he  filed  a  petition  with  the 
council  to  have  a  referendum;  and  the  question  was  one  of  law  as 
to  whether  a  referendum  was  required,  and  the  case  went  to  the 
:  court  of  appeals,  and  the  court  of  appeals  held  that  a  referendum 
on  such  a  petition  must  l>e  granted,  and  it  was  granted.  Without 
being  exact  as  to  the  vote,  my  recollection  is  that  the  vote  was  4  or 
5  to  1  against  the  increase  from  5  to  6  cents. 

Then  they  appealed  to  us  to  intervene.  We  had  no  authority. 
The  men  struck  and  the  people  of  Buffalo  walked  for  a  month. 

I  think  it  had  some  effect  on  the  people,  but  I  do  not  know  that 
a  referendum  would  reach  any  different  result.  That  is  an  illus- 
tration, however,  of  the  difficulties  of  the  situation. 

They  did  not  pay  any  attention,  in  the  referendum  vote,  to  our 
recommendation. 

All  this,  of  course,  brought  us  into  more  or  less  familiarity  with 
the  conditions  of  the  companies  who  were  parties  before  us;  and, 
without  being  an  expert  in  any  financial  matter,  and  certainly  with- 
out being  an  expert  in  street-railway  matters,  I  can  only  give  you 
my  general  impression  as  to  what  the  situation  is.  I  am  subject, 


4          PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

of  course,  to  correction  by  gentlemen  much  more  familiar  with  the 
field. 

As  I  understand  it,  the  street-railway  situation  to-day,  including 
suburban  railways,  represents  a  field  of  business  activity  in  which 
there  has  been  invested  at  least  $5,000,000.000. 

It  is  charged  that  there  has  been  a  good  deal  of  watered  stock,  and 
doubtless  there  has  been — not  of  very  recent  years,  I  should  think, 
because  watered  stock,  to  be  useful,  has  to  be  disposable;  and  I  do 
not  think  anybody  can  dispose  of  street-railway  stock  except  in 
banks  that  are  run  by  gentlemen  that  have  an  optimism  that  would 
justify  their  being  removed  from  the  bank  trust.  That,  of  course, 
makes  it  most  important  that  the  situation  should  be  considered  in 
a  large  way. 

The  lines  have  been  built  on  the  theory  that  the  business  for  short 
distances  with  a  fixed  fare  be  so  large  as  to  make  up  for  the  added 
expense  of  the  long  distance;  and  I  do  not  think  that  has  worked 
out. 

The  motives  for  extending  the  lines  have  been  various.  The  build- 
ing up  of  suburbs,  the  building  up  of  subdivisions  and,  doubtless,  the 
pressure  of  local  authorities  have  all  figured  as  causes  for  the  exten- 
sion of  street-railway  investments  far  beyond  business  justification. 
Then  the  Ford  and  the  automobile  have  greatly  reduced  the  businesSc 

The  CHAIRMAN.  You  say  the  Ford  and  the  automobile,  Mr.  Taft? 

Mr.  TAFT.  Yes.  I  think  that  the  Ford  has  established  a  class  by 
itself.  I  have  one,  and  I  never  refer  to  it  as  an  automobile. 

The  CHAIRMAN.  It  must  be  a  very  reliable  conveyance. 

Mr.  TAFT.  It  is  very  useful.  I  have  had  it  for  five  or  six  years,  and 
I  cherish  it  fondly. 

The  vast  increase  in  the  use  of  that  method  of  reaching  the  center 
of  business  from  the  suburbs  has  certainly  largely  interfered  with 
the  revenue  from  passengers  upon  whose  patronage  the  projectors 
of  those  enterprises  count.  Then  there  has  been,  growing  put  of  cor- 
ruption, the  watering  of  stock,  and  the  dealing  with  councils  and  the 
feeling  of  hostility  on  the  part  of  the  people  against  the  companies — 
the  development  of  a  condition  so  that  whatever  advantages  the  com- 
panies may  have  secured  by  sinister  means  earlier  have  been  more 
than  offset  by  the  injustices  that  the  people  have  done,  or  that  their 
representatives  have  done  growing  out  of  that  past  history,  to  thcso 
enterprises. 

The  truth  is,  gentlemen,  and  I  am  sure  you  will  agree  with  us, 
that  the  condition  of  these  investments  and  of  this  general  transpor- 
tation business  of  an  urban  and  suburban  character  is  most  discour- 
aging. If  you  can  find  a  solution  for  it  you  will  be  entitled  to  the 
gratitude  of  the  whole  community. 

I  am  personally  much  against  government  ownership,  for  the 
reason  that  I  think  it  reduces  the  economy  of  operation  and  there- 
fore greatly  increases  the  cost  of  something  that  is  essential  to  the 
people.  On  the  other  hand,  the  public  have  grown  used  to  a  fixed 
fare  of  5  cents,  and  I  think  if  you  inquired  of  a  great  many  of  them 
you  would  find  some  such  idea — not  literally,  but  some  such  idea  as 
that  it  was  guaranteed  to  them  in  the  Constitution;  that  anything 
above  5  cents  would  indicate  a  return  to  investors  that  is  outrageous. 
It  is  a  matter,  of  course,  that  can  be  demonstrated  mathematically, 
by  the  cost  of  operation,  and  figured  out.  The  cost  of  operation  has 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.          0 

increased,  of  course,  with  the  -cost  of  commodities  and  the  increase 
in  the  price  of  labor,  and  it  is  mathematically  demonstrable.  If  you 
keep  the  fares  at  5  cents,  where  they  always  have  been — and  even  in 
some  cities  they  have  been  3  cents  and  4  cents;  in  Detroit,  notably, 
and  in  Cleveland— if  you  keep  it  there,  the  red  balance  is  as  inevitable 
as  the  rising  of  the  sun  to-morrow  morning.  It  is  inescapable.  Then 
you  are  confronted  with  the  limitation  that  if  you  raise  the  rate  of 
fare  }7ou  are  likely  to  reduce  the  revenues  by  a  falling  off  in  your 
patronage.  I  think  perhaps  the  advancing  to  6  cents  does  not  do 
that,  and  in  some  cases  the  advance  to  7  cents ;  but  anything  beyond 
that  is  certain  to  reduce  revenues  by  a  loss  of  business. 

You  are  met,  of  course,  by  the  statement — and  I  do  not  wish  to 
escape  the  force  of  the  argument — that  these  transportation  facili- 
ties are  in  the  nature  of  roads.  The  public  spends  a  great  deal  of 
money  in  keeping  roads  in  condition,  and  those  who  do  not  have 
vehicles  do  not  use  the  roads.  It  is  contended  that  these  electric 
railways  only  fulfill  a  function  of  the  same  kind,  and  that  therefore 
the  public  ought  to  meet  the  deficit  by  taxation;  and  if  it  does  it 
will  naturally  take  over  the  management. 

My  feeling  in  respect  to  the  general  loss  that  is  certain  to  be  in- 
volved in  public  operation  still*  makes  me  hope  for  some  other  so- 
lution than  that  of  government  ownership.  That  is  a  general  state- 
ment, and  I  am  ready  to  answer  any  questions,  if  I  can. 

Commissioner  SWEET.  I  would  like  to  ask  one  or  two  questions. 

Do  you  not  think  there  is  a  middle  ground  between  government 
ownership  and  the  present  basis,  or  the  condition  as  it  would  be  by 
merely  raising  the  fares?  In  other  words,  are  there  not  things  that 
could  be  done  as  regards,  for  instance,  paving  between  the  tracks, 
and  various  things  of  that  kind,  that  might  be  borne  by  the  general 
public  without  injustice,  and  at  the  same  time  relieve  the  corpora- 
tions operating  these  railroads  from  a  considerable  amount  of  ex- 
pense, and  thereby  help  them  to  live  and  pay  reasonable  wages? 

Mr.  TAFT.  Yes;  that  means  reasonable  franchises — reasonable  in 
other  respects  than  the  amount  of  fare  allowed  to  be  charged.  Yes; 
I  agree  to  that. 

Ihey  have  a  system  in  Cleveland  of  what  they  call  "service  at 
cost " — a  division  between  the  public  and  the  company  in  respect 
of  profits.  I  do  not  know  that  they  go  so  far  as  losses,  but  the  fare 
goes  up  automatically  with  the  cost  of  operation.  I  am  not  suffi- 
ciently advised  as  to  the  details  of  that  method  to  say  much  about 
it,  except  that  the  principle  seems  to  be  a  wise  one,  except  that  you 
have  those  limitations  that  will  insert  themselves  whether  you  will 
or  not — that  you  can  not  charge  too  much  or  you  will  reduce  your 
business. 

Commissioner  SWEET.  Is  there  not  a  sort  of  injustice  in  the  pre- 
vailing method  in  requiring  street-railroad  companies  to  pave  be- 
tween the  tracks  and  for  a  foot  or  two  outside,  in  that  if  they  were 
able  to  make  ends  meet  it  would  mean,  in  the  final  analysis,  that 
that  paving  was  paid  for  by  those  who  patronized  the  street  rail- 
road and  paid  fares,  and  that  the  rest  of  the  community,  the  auto- 
mobile and  the  Ford  owners,  pay  nothing? 

Mr.  TAFT.  Yes. 


6          PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Commissioner  SWEET.  As  between  the  two  parts  of  the  community, 
would  it  not  be  more  just  that  the  whole  community  should  bear  the 
entire  expense  of  paving? 

Mr.  TAFT.  I  think  so.  But  I  do  not  know  how  large  a  proportion 
of  the  expense  that  constitutes. 

Commissioner  SWEET.  That  is  something  we  will  have  to  discover? 

Mr.  TAFT.  Yes. 

Commissioner  SWEET.  Undoubtedly  it  amounts  to  a  great  deal  of 
money  ? 

Mr.  TAFT.  I  have  no  doubt  that  it  is  a  heavy  expense,  but  how 
large  a  factor  it  would  be  in  making  the  investment  more  favorable 
I  do  not  know. 

Commissioner  SWEET.  It  would  help  some,  anyway  ? 

Mr.  TAFT.  Yes;  certainly. 

Commissioner  SWEET.  You  said  that  you  thought  perhaps  the  rais- 
ing of  fares  in  many  cases  would  result  in  the  loss  of  patronage. 
Would  it  not  be  feasible  to  make  a  distinction  between  a  short  run 

Mr.  TAFT.  You  mean  the  zone  system  ? 

Commissioner  SWEET.  Yes. 

Mr.  TAFT.  I  have  always  thought  so.  I  thought  so  in  the  be- 
ginning, and  theoretically  that  is  true,  and  perhaps  the  railroads 
may  devise  some  method;  but  they  have  gotten  so  used  to  the 
other  method,  and  the  complications  arising  from  the  zone  system 
are  so  many  that  a  good  many  practical  railroad  men  fear  that  they 
can  not  put  it  into  effect. 

Commissioner  SWEET.  In  the  case  you  spoke  of,  of  the  extension 
of  street  railroads  into  the  suburbs,  where  the  business  is  rather 
light,  people  have  built  along  these  lines  with  a  view  of  getting  into 
the  business  center  by  the  use  of  them.  Would  it  not  be  inherently 
just  that  those  people  should  pay  both  in  accordance  with  the  greater 
length  of  haul  and  greater  service  they  receive  for  their  money? 
Would  it  not  be  just,  and,  furthermore,  could  they  not  afford  to  do 
it,  because  of  their  living  where  the  taxes  are  less,  and  so  on  ? 

Mr.  TAFT.  Yes;  I  agree  to  that.  Yet,  on  the  other  hand,  the  very 
plan  of  going  out  into  the  suburbs,  at  a  fixed  fare,  was  held  out  to 
these  people  who  went  out  there  and  promoted  that  avoidance  of 
congestion  or  removal  of  the  causes  for  congestion.  Of  course,  that 
is  a  public  matter.  It  is  a  housing  matter  that  you  would  perhaps 
not  wish  to  interfere  with  the  good  effects  of. 

Commissioner  SWEET.  Is  it  your  idea  that  there  would  be  a  sort 
of  moral  obligation  or  a  kind  of  implied  contract  with  these  suburban 
purchasers  and  builders  ? 

Mr.  TAFT.  Well,  of  course,  that  depends  upon  the  character  of  the 
suburban  living.  I  mean  if  a  man  goes  out  to  live  there  cheaply, 
in  a  small  house,  the  matter  of  fare  in  and  out  is  a  considerable  item 
to  him.  Those  suburban  residents  who  go  out  to  get  the  air  and 
build  a  good  house  can  well  afford  to  pay.  But  the  greater  the  dis- 
tance that  a  workingman  can  go,  the  more  certain  it  is  that  he  is 
able  to  get  a  healthful  place  to  live. 

Commissioner  SWTEET.  From  the  standpoint  of  the  revenues  of  a 
street-railroad  company,  raising  the  fares  on  a  long  haul,  as  we  say, 
would  be  less  likely,  of  course,  to  diminish  the  patronage? 

Mr.  TAFT.  Yes ;  I  agree  to  that. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".          7 

Commissioner  SWEET.  In  other  words,  people  would  not  walk  long 
distances.  They  would  rather  pay  a  cent  or  two  more  ? 

Mr.  TAFT.  That  is  quite  true.    You  have  the  public  there. 

Commissioner  SWEET.  They  have  simply  got  to  ride? 

Mr.  TAFT.  Yes. 

Commissioner  SWEET.  With  regard  to  the  short  hauls,  if  I  under- 
stand you  correctly,  you  think  that  it  is  a  serious  question  as  to 
whether  the  patronage  might  not  be  reduced  to  the  point  where  the 
net  revenues  of  the  company  would  not  be  any  greater  by  increasing 
the  fare? 

Mr.  TAFT.  Yes ;  if  you  have  a  fixed  fare.  I  think  in  the  zone  sys- 
tem you  might,  by  having  a  smaller  fare  for  the  inner  circle,  main- 
tain your  receipts  there,  perhaps,  dependent  upon  what  you  begin 
at;  and  then  by  increasing  it,  you  do  avoid,  in  the  zone  system,  the 
reduction  of  fare. 

Commissioner  SWEET.  From  the  consideration  you  have  given  to 
the  subject,  do  you  think  the  zone  system  is  a  good  system  ? 

Mr.  TAFT.  I  think  it  should  be  tried  far  more  than  it  has  been. 

Commissioner  SWEET.  You  think  it  has  merits? 

Mr.  TAFT.  I  think  the  other  system  was  begun  on  a  theory  that  has 
not  vindicated  itself.  It  has  tended  to  convenience  of  operation, 
and  it  has  accustomed  the  public  to  something  it  may  be  difficult  to 
get  over,  and  it  may  increase  complications;  but  I  think  in  the  end 
it  is  bound  to  come,  unless  you  have  government  ownership  and 
taxation  to  pay  the  deficit. 

Commissioner  SWEET.  If  a  public  accountant  were  permitted  access 
to  the  books  :>f  a  street-railroad  company  and  made  a  report  that  the 
public  would  have  every  reason  to  regard  as  honest  and  square,  and 
the  public  recognized  the  fact  that  the  earnings  of  the  company  were 
not  sufficient  to  pay  business  expenses  and  pay  a  reasonable  wage,  do 
you  not  think  then  there  would  be  a  somewhat  different  attitude  on 
the  part  of  the  patrons  of  the  railroad  companies. 

Mr.  TAFT.  Yes,  I  do;  and  I  think  that  may  be  heightened  by  this 
arrangement  for  a  division  of  profits  when  profits  are  made,  and 
possibly  the  sharing  of  losses  when  losses  are  made;  that  a  thing 
that  operates  automatically  like  that  is  just  like  law,  and  people  will 
follow  it,  yield  to  it. 

Commissioner  SWEET.  But  your  idea,  if  I  understand  you  cor- 
rectly, is  that  the  public  mind  must  be  convinced  of  the  need  of  it 
before  a  raise  of  rates  will  be  accepted  ? 

Mr.  TAFT.  Yes.  In  Colorado  I  believe  they  had  a  riot  over  a 
rate  of  fare.  I  think  it  was  in  Denver.  The  fares  went  up  5  cents, 
and  for  a  time,  I  believe,  it  produced  a  condition  where  they  were 
not  able  to  run  their  street  railroads.  That  is  my  recollection  of 
the  case. 

Commissioner  SWEET.  If  I  understand.  Judge,  you  were  one  of 
the  original  projectors,  in  a  sense,  of  this  commission  that  is  here 
to-day? 

Mr.  TAFT.  In  the  way  in  which  I  have  detailed  it  here.  I  am 
very  glftd  it  has  been  appointed.  I  think  you  have  an  opportunity 
to  be  most  useful,  even  if  you  are  doubtful  of  your  own  con- 
clusions. You  can  accumulate  a  mass  of  evidence  from  men  who 
know  that  will  be  very  useful  for  the  solution  and  the  making  of 
the  public  to  know  what  the  difficulties  are. 


8          PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  I  think  that  all  the  members  of  the  com- 
mission would  be  very  glad  to  have  you  give  us  your  views  as  to 
the  functions  of  the  commission.  We  are  just  starting  in  our  work, 
and  we  recognize  the  fact  that  the  situation  is  rather  acute  and  that 
action  ought  to  be  had  as  speedily  as  possible.  Yet,  on  the  other 
hand,  we  recognize  the  need  of  thorough  action.  The  two  things 
do  not  seem  to  jibe  exactly.  Now,  will  you  tell  us  just  about  what 
you  think  the  commission  ought  to  do? 

Mr.  TAFT.  I  feel  very  certain  that,  no  matter  what  people  say, 
it  is  your  business  to  find  out  the  facts.  Until  you  get  the  facts  you 
are  not  going  to  be  able  to  make  any  recommendations  that  are 
worth  having. 

Commissioner  SWEET.  Can  you  make  that  a  little  more  precise, 
as  to  what  facts  you  think  we  ought  to  ascertain  ? 

Mr.  TAFT.  I  think  you  should  call  the  public-utility-commission 
representatives  through  the  country,  and  perhaps  the  mayors,  or, 
at  least,  those  officials  in  the  cities  who  have  to  do  with  the  question 
of  street  railways,  and,  doubtless,  you  can  call  accountants  wrho  have 
been  through  street-railway  accounts.  I  am  not  familiar  with  the 
details,  but  I  am  quite  sure  there  is  a  great  field  of  investigation 
that  would  be  most  useful  in  making  up  a  general  conclusion ;  and, 
being  a  Federal  commission,  you  have  the  advantage  of  a  remote- 
ness from  the  subject  matter  in  actual  authority  that  gives  your 
conclusions  a  much  greater  weight  that  if  you  were  a  State  com- 
mission or  a  city  commission,  because  one  trouble  about  State  com- 
missions is  the  intervention  of  local  politics  and  the  doubt  as  to 
whether  their  conclusions  may  not  be  affected  by  other  than  the 
exact  facts. 

Commissioner  SWEET.  You  had  no  thought  originally  of  this  com- 
mission having  any  authority  to  interfere  at  all  in  local  problems, 
did  you? 

Mr.  TAFT.  Yes ;  I  did ;  but  that  was  under  the  pressure  of  war. 

Commissioner  SWEET.  But  not  now? 

Mr.  TAFT.  I  thought,  for  instance,  that  if  the  bankruptcy  followed 
that  there  were  some  symptoms  of  coming,  it  would  be  a  very  serious 
interference  with  the  business  finances  of  the  country  in  time  of  war, 
and,  therefore,  that  the  President  would  be  justified  in  asking  Con- 
gress to  enable  him  to  take  hold  of  the  street  railways  that  were 
needed  to  run  the  factories  of  the  country  engaged  in  war  work  and 
say  to  these  local  authorities :  "  During  the  war  we  are  going  to  run 
these  railroads,  not  by  actual  operation,  but  we  are  going  to  say, 
as  a  war  measure,  what  these  railroads  shall  have  a  right  to  charge." 
And  I  thought  it  would  be  quite  within  the  constitutional  power 
of  Congress.  I  did  not  think  the  President  had  the  poAver,  but  I 
thought  it  wras  quite  within  the  constitutional  power  of  Congress 
to  give  the  President  that  power ;  and  I  felt  certain  that,  in  the  gen- 
eral patriotic  spirit  that  prevailed  throughout  the  country,  even  the 
local  feeling  as  to  a  5-cent  fare  would  yield. 

Commissioner  SWEET.  But  as  the  matter  stands  now? 

Mr.  TAFT.  Now,  of  course,  while  we  are  still  in  a  legal  state  of 
war,  the  situation  is  not  such  as  to  justify  that  legislation,  and  Con- 
gress, I  am  sure,  would  not  feel  like  giving  such  a  power  in  a  mere 
nominal  state  of  war,  a  state  of  suspended  hostilities. 


PROCEEDINGS  OF  FEDEEAL  ELECTRIC  RAILWAYS  COMMISSION.          9 

Commissioner  SWEET.  In  that  event  our  function  would  be  to 
make  the  investigation  and  a  recommendation  as  a  result  of  it  which 
would  have  a  moral  effect  in  the  country  and  could  be  made  the  basis 
of  settling  local  troubles? 

Mr.  TAFT.  Yes. 

Commissioner  SWEET.  Not  by  reason  of  authority  that  we  might 
have,  but  because  we  had  given  an  impartial  investigation  and  made  a 
report  that  commended  itself  to  the  country? 

Mr.  TAFT.  Exactly. 

Commissioner  SWEET.  That  would  be  your  idea,  would  it? 

Mr.  TAFT.  Yes;  and  you  will  be  a  center  through  which  you  can 
interpret  the  general  views  of  the  public-utilities  commissions  and 
perhaps  bring  about  a  uniformity  in  dealing  with  the  situation  that 
would  be  most  useful. 

Commissioner  SWEET.  In  cases  that  can^e  before  you,  did  you  find 
that  there  were  certain  general  elements  that  pervaded  all  of  them, 
practically? 

Mr.  TAFT.  About  all  of  them;  yes.  This  matter  of  labor  was  one. 
Of  course,  the  expenses  of  materials  were  the  same  everywhere,  tak- 
ing into  account  transportation;  and  the  element  of  human  nature 
was  exactly  the  same  in  one  part  of  the  country  as  in  the  other. 

Perhaps  the  people  in  Massachusetts  were  more  reasonable,  and 
they  began  earlier  to  take  over  State  control  than  other  States ;  and 
there  they  have  gone  up  higher  in  their  rates  of  fare  than  anywhere 
else. 

Commissioner  SWEET.  Did  your  investigation  enable  you  to  de- 
termine what  proportion  of  the  street-railway  companies  had  watered 
stock? 

Mr.  TAFT.  Xo.  I  think  that  they  have  been  through  a  period  in 
their  history  that  has  squeezed  a  good  deal  of  the  water  out,  and 
many  of  the  railroads  have  been  obliged,  in  their  dealings  with  cities, 
to  clear  their  skirts  in  that  respect.  There  were  a  good  many  that 
came  before  us  and  proved  what  they  had.  and  what  they  were  at- 
tempting to  pay  dividends  on  they  had  fully  invested  in  the  prop- 
erty; but  that  did  not  overcome  the  history  previously  of  dealing 
with  councils  and  so  on. 

Commissioner  SWEET.  That  prejudice  would  remain? 

Mr.  TAFT.  Oh,  ves. 

Commissioner  SWEET.  Is  it  your  opinion,  Judge,  that  a  physical 
valuation  of  railroad  properties  would  be  necessary,  now,  to  satisfy 
the  public  before  the  patrons  of  the  railroad  companies  would  be 
satisfied  to  permit  a  raise  in  the  rates  of  fare? 

Mr.  TAFT.  The  physical  valuation  of  a  steam  railroad,  where  the 
steam  railroad  owns  the  right  of  way  and  everything  on  it  is  one 
thing,  but  a  physical  valuation  of  franchises  and  of  the  right  to  pass 
over  streets,  which  can  be  withdrawn,  presents  so  many  difficult  prob- 
lems of  valuation  that  I  doubt  very  much  the  wisdom  of  it.  I  think 
the  investment  of  actual  money  in  what  has  been  done  is  the  only 
means  of  satisfying  the  public.  When  }rou  come  to  estimate  the  value 
of  a  franchise  which  runs  for  20  years,  and  which  they  could  not 
get  to-day,  having  greater  value  on  account  of  its  provisions  given 
10  years  ago,  the  public  is  not  apt  to  be  satisfied  with  the  thought 
that  the  road  has  got  something  out  of  the  public  in  that  franchise 
that  is  of  high  value. 
1(50043°—  20 2 


10       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

Commissioner  SWEET.  Do  you  understand  that  any  value  would 
be  attached  to  the  franchise  if  you  were  seeking  to  get  the  actual 
investment — to  learn  what  the  actual  investment  was  ? 

Mr.  TAFT.  No ;  I  do  not  think  so ;  but  I  think,  of  course,  you  might 
go  into  the  actual  investment  and  show  that  it  was  actually  expended. 

Commissioner  SWEET.  But  is  there  not  another  phase  of  the  ques- 
tion that  really  interests  the  public  to-day  even  more  than  what 
figures  of  that  kind  would  show,  and  that  is  that  the  problem  is  one 
between  public  ownership  and  operation  on  the  one  side  or  receiver- 
ships and  failures  on  the  other? 

Mr.  TAFT.  Yes. 

Commissioner  SWEET.  And  that  if  railroad  companies,  these  street- 
railroad  companies,  are  to  be  operated  by  private  corporations,  these 
corporations  must  be  put  into  such  shape  that  they  can  secure  new 
capital  as  needed  for  extensions  and  so  forth,  and  they  must,  then, 
be  on  a  paying  basis  in  order  to  get  that  capital  ? 

Mr.  TAFT.  You  must;  you  must  have  reasonable  interest,  in -view 
of  the  necessarily  precarious  investment  that  history  shows. 

Commissioner  SWEET.  You  can  not  compel  anybody  to  buy  stocks 
in  these  companies  ? 

Mr.  TAFT.  No;  you  can  not.  You  can  pay  taxes,  but  that  is  the 
only  thing  you  can  do. 

Commissioner  SWEET,  And  in  order  to  live  they  must  be  on  a 
paying  basis? 

Mr.  TAFT.  Yes. 

Commissioner  SWEET.  If  that  were  clearly  demonstrated,  do  you 
think  that  the  general  public  would  be  willing  to  submit  to  a  raise  in 
fares,  and  perhaps  assume  the  responsibility  of  more  paving  and 
things  like  that?  Do  you  think  they  ought  to  be  willing,  whether 
they  would  be  or  not  ? 

Mr.  TAFT.  Yes;  I  think  they  ought  to  be.  But  in  talking  with 
Mr.  McAdoo,  he  referred  to  this  psychological  phase  of  the  situa- 
tion. You  remember  he  had  some  correspondence  with  the  Presi- 
dent in  regard  to  the  very  thing  we  are  discussing — the  importance 
of  saving  from  destruction  this  five  billions  of  money  invested  hi 
public  utilities,  and  he  referred  hot  only  to  street  railways,  but  he 
referred  also  to  gas  companies,  to  electric-light  companies,  and  to 
water  companies.  He  said  to  me :  "  Our  recommendations  " — that  is, 
his  recommendation  to  the  public  in  his  letter  to  the  President  and 
the  President's  concurrence  in  his  view — "  did  have,"  as  I  understood 
him,  "  a  very  considerable  effect  in  making  more  reasonable  the  prices 
paid  for  light  and  water  and  the  other  things  that  are  furnished  by 
public  utilities,  except  transportation."  "  Now,"  he  said, "  in  my  judg- 
ment the  reason  is  psychological.  People  are  not  so  sensitive  about 
the  payment  of  bills  at  the  end  of  the  month,  but  when  a  man  gets 
on  the  car  in  the  morning  to  go  to  his  business  or  to  go  to  work, 
or  his  wife  gets  on  the  car  to  go  to  market,  and  she  finds  that  the 
price  has  gone  up  from  5  cents  to  6  cents,  necessitating  the  making 
of  awkward  change,  and  then  she  comes  back  from  the  market  and 
the  same  thing  is  rubbed  into  her  again,  and  that  happens  twice,  and 
perhaps  the  children  go  to  school,  and  that  may  happen  10  or  15 
times  in  the  family  every  day,  the  effect  of  the  increase  is  naturally 
much  more  irritating  than  where  the  additional  cost  appears  only 
in  a  monthly  payment." 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       11 

Commissioner  SWEET.  Could  not  that  be  obviated  somewhat  by 
a  general  resort  to  the  ticket  system — selling  so  many  tickets? 

Mr.  TAFT.  That  is  what  they  do  now,  I  think. 

Commissioner  SWEET.  They  do  in  some  places.  I  do  not  think 
they  do  in  all. 

Mr.  TAFT.  I  do  not  think  they  do  in  all ;  no. 

Commissioner  SWEET.  Have  you  ever  considered  the  question  of 
the  Government  issuing,  say,  a  7-cent  piece,  or  something  of  that 
kind,  to  facilitate  the  payment  of  these  extra  fares? 

Mr.  TAFT.  That  has  been  suggested — a  6-cent  piece  and  a  7-cent 
piece ;  but  it  would  be  difficult  to  make  them  so  different  that  there 
would  not  be  confusion.  Perhaps  you  might  have  a  3-cent  piece 
that  could  be  used,  two  of  them  for  a  6-cent  fare;  I  don't  know. 

Commissioner  SWEET.  I  think  some  of  the  other  members  of  the 
commission  would  like  to  ask  you  some  questions.  I  do  not  want  to 
monopolize  you. 

Commissioner  GADSDEN.  I  would  like  to  ask  something,  going 
back  to  the  question  of  the  increase  of  wages,  about  what  was  the 
percentage  of  increase  awarded  by  your  board  on  industry  as  a 
whole. 

Mr.  TAFT.  Of  course,  the  places  differed  in  the  rates.  We  fixed 
48  cents  as  what  we  called  the  maximum  in  the  larger  cities,  and  we 
found  that  in  those  cities  they  ranged  from  35  to  39,  and  some  as 
high  as  40  cents,  as  I  recollect  it;  so  that  would  represent  the 
increase,  probably,  from  10  to  12  cents  in  48  cents. 

Commissioner. GADSDEN.  On  40  cents,  was  it  not?  It  was  an  in- 
crease of  10  cents  on  the  original  40  cents  ? 

Mr.  TAFT.  Yes ;  the  result  being  48  cents. 

Commissioner  GADSDEN.  Do  you  happen  to  recall  what  were  the 
facts  in  connection  with  New  Orleans? 

Mr.  TAFT.  That  was  very  low.  I  think  we  found  it  as  low  as  23 
or  24  cents,  or  perhaps  25. 

Commissioner  GADSDEN.  And  the  board  put  it  up  to  about  42  or 
43,  did  it  not? 

Mr.  TAFT.  Yes.    I  am  not  sure  but  what  it  was  45  cents. 

Commissioner  GADSDEN.  About  65  per  cent  increase? 

Mr.  TAFT.  Yes. 

Commissioner  GADSDEN.  There  were  quite  a  number  of  cases  rang- 
ing from  35  to  45  per  cent  increase,  were  there  not  ? 

Mr.  TAFT.  Yes.  In  the  South,  where  the  range  of  wages  was 
lower,  generally,  we  made  a  minimum,  as  I  recollect  it,  of  40  cents — 
40,  43,  45,  and  48,  that  was  the  range.  In  second-class  cities  we 
made  it  45  cents. 

I  understand,  now,  that  the  Detroit  Street  Railway  Co.  has 
granted  60  cents  to  its  men. 

Commissioner  GADSDEN.  Do  you  think,  from  your  experience 
in  the  study  of  street-railway  questions,  that  any  railroad  can  pay 
any  such  wage  scale  on  a  5-cent  fare? 

Mr.  TAFT.  No;  I  should  think  not.  Of  course,  that  is  a  very 
general  statement,  and  I  would  not  like  to  be  held  to  exactness  in 
it. 

Commissioner  GADSDEN.  I  mean  as  a  general  rule. 

Mr.  TAFT.  But  our  experience  was,  when  we  looked  into  it,  that 
it  would  not  be  possible. 


12       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  GADSDEN.  Is  it  not  a  fact  that  the  industry  was 
established  on  a  cheap  rate  of  fare  and  a  cheap  wage  scale  ? 

Mr.  TAFT.  It  was. 

Commissioner  GADSDEN.  And  that  the  original  5-cent  fare  never 
contemplated  any  such  wage  scale  as  is  now  necessary  to  be  paid? 

Mr.  TAFT.  That  is  correct;  or  any  such  price  of  material,  either. 

Commissioner  GADSDEN.  Now,  Judge,  coming  to  the  question  of  in- 
vestment: The  situation  to-day,  as  doubtless  your  investigations 
have  shown,  is  that  the  electric-railway  industry  has  lost  its  credit? 

Mr.  TAFT.  Entirely. 

Commissioner  GADSDEN.  As  a  matter  of  fact,  in  order  that  this 
essential  industry  shall  continue  its  service  to  the  public,  is  it  not 
necessary  that  its  credit,  its  financial  credit,  shall  be  restored? 

Mr.  TAFT.  It  is. 

Commissioner  GADSDEN.  Otherwise  it  can  not  get  the  additional 
capital  to  make  its  extensions  and  improvements  and  keep  the 
service  up? 

Mr.  TAFT.  That  is  true. 

Commissioner  GADSDEN.  That  being  so,  I  think  this  commission 
would  appreciate  very  much  your  views  as  to  the  necessity  of  an 
adequate  return  on  whatever  the  real  investment  is. 

Mr.  TAFT.  That  goes  without  saying.  You  have  got  to  make  the 
investment  such  that  a  reasonably  prudent  investor  will  be  willing 
to  engage  in  it,  and  you  have  to  pay  the  prevailing  rate  which  will 
give  the  prevailing  income  on  such  investment. 

Commissioner  GADSDEN.  Is  it  not  true  that  unless  the  public  is  will- 
ing that  the  industry  shall  pay  a  reasonable  return  on  the  investment, 
nobody  else  is  going  to  put  any  more  money  into  it? 

Mr.  TAFT.  Yes;  that  goes  without  saying.  I  do  not  hesitate  to 
answer  it,  but  I  think  that  is  self-evident.  Nobody  who  makes  an 
investment  is  going  to  make  it  for  philanthropic  purposes,  because 
business  is  business.  If  he  is  going  to  be  a  philanthropist,  he 
is  going  to  be  a  philanthropist  in  his  own  way,  but  when  he  comes  to 
invest  money,  if  the  investment  is  to  be  attractive,  it  must  be  secure, 
and  the  more  secure  it  is,  the  lower  rate  of  income  he  is  willing  to 
take;  and  the  precarious  condition  of  the  investment  makes  a  high 
rate  necessary  in  order  to  invite  investment  in  such  an  enterprise  as 
this.  What  I  mean  is  that  a  reasonable  rate  is  higher  because  of 
the  insecurity  of  the  investment. 

Commissioner  MEEKER.  I  would  like  to  ask  you  a  question,  Judge. 
In  regard  to  increase  in  wages  granted  by  the  board :  those  increases 
were  quite  generally  based  upon  increases  in  cost  of  living,  were  they 
not? 

Mr.  TAFT.  They  were;  yes. 

Commissioner  MEEKER.  And,  so  far  as  it  was  possible  to  determine, 
the  wage  rate  was  fixed  in  each  community  in  accordance  with  the  in- 
crease in  the  cost  of  living? 

Mr.  TAFT.  Yes;  that  was  an  element  that  entered  into  it.  The 
principles  of  the  National  War  Labor  Board  declared  that  there 
should  be  a  minimum  rate  which  should  offer  life  in  reasonable  com- 
fort. 

Commissioner  MEEKER.  I  think  the  commission  would  be  inter- 
ested if  you  would  explain,  in  not  too  much  detail,  but  the  general 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       13 

principles  of  arriving  at  a  reasonable  cost  of  living,  or  minimum  of 
comfort  standard. 

Mr.  TAFT.  Well,  we  had  a  great  deal  of  evidence  before  us,  some 
taken  by  our  own  experts  and  others  presented  by  the  parties  who 
appeared  before  us,  and  we  had  evidence  to  show  that  a  family  of 
five  persons  should  have,  as  I  recollect  it,  an  income  of  $1,760  a  year 
to  live  in  reasonable  comfort.  That  was  put  in  by  the  Amalgamated 
Association. 

In  the  case  in  which  that  evidence  was  adduced — a  New  Jersey 
case — there  was  counterevidence  introduced  to  show,  by  actual  census 
of  the  men  in  the  employ  of  the  company,  that  25  per  cent  of  them 
were  unmarried  and  that  75  per  cent  who  were  married  only  had 
average  families  of  three  and  a  half  persons,  and  that  there  were 
supplemental  wages  from  other  members  of  the  family  that  reduced 
the  necessity  for  the  full  wage  from  the  main  breadwinner. 

The  board  took  up  the  question  on  a  resolution  that  was  introduced, 
but  before  we  got  through  the  discussion  of  the  resolution  I  think  the 
whole  board  saw  a  great  lack  of  wisdom  in  our  attempting  to  fix  a 
minimum  wage  as  a  general  rule  of  decision.  We  were  acting  as  a 
quasi  court  and  followed  the  experience  of  most  courts  in  thinking 
it  very  unwise  to  attempt  to  lay  down  a  rule  of  decision  which  should 
apply  to  different  cases  until  we  had  heard  enough  cases  to  make  an 
announcement  safe,  and  therefore  we  never  made  one.  In  some  cases 
we  went  as  low,  I  think,  as  36  cents  an  hour,  and  from  that  up  to  42^ 
cents  per  hour  in  different  localities  for  the  minimum  wage. 

Commissioner  MEEKER.  Do  I  understand  that  the  board  did  take 
account  of  supplemental  wages  in  making  wage  awards? 

Mr.  TAFT.  No;  we  did  not  pass  upon  the  question  at  all.  You  asked 
me  what  evidence  was  before  us.  The  argument,  of  course,  which  was 
made  with  respect  to  the  five  members  was  that  if  they  did  not  have 
five  members  they  ought  to  have  five  members,  and  that  the  rate 
ought  to  be  fixed  with  a  view  to  the  encouragement  of  families.  But 
our  function  was  merely  to  adjust  temporarily  the  situation  in  respect 
of  the  maximum  of  production,  and  as  it  would  take  longer  than  our 
jurisdiction  was  likely  to  last  to  have  any  effect  on  the  increase  in 
population,  that  element  was  not  pressed. 

Commissioner  MEEKER.  I  think  I  have  brought  out  the  points  that 
I  wanted  for  the  record  in  that  regard. 

Now,  taking  up  service  at  cost,  I  understood  you  to  express  an 
opinion  against  the  physical  valuation  of  properties  of  street  rail- 
ways. Do  you  mean  merely  to  exclude  consideration  of  franchises? 

Mr.  TAFT.  Yes.  Of  course  in  service  at  cost — in  Cleveland,  at  least, 
and  that  is  the  case  that  is  most  concrete  in  my  mind — I  think  they 
agreed  on  valuation  of  the  actual  money  invested  by  the  company, 
and  then  they  had  a  provision  for  the  borrowing  of  money  for  addi- 
tional improvements,  and  the  payment  of  a  fixed  rate  of  interest  on 
that,  and  then  the  raising  and  lowering  of  the  fares  as  the  result  of 
operation  justifies. 

Commissioner  MEEKER.  I  am  a  little  bit  suspicious  of  automatic 
arrangements.  Perpetual  motion  does  not  seem  to  me  to  be  a  very 
practical  tiling. 

Mr.  TAFT.  I  may  say  that  Mr.  Squires,  who  is  the  counsel  for  the 
companj',  did  not  give  us  any  great  encouragement  as  to  that,  because 
he  did  not  think  it  was  useful.  They  have  a  system  in  Chicago  in- 


14       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

augurated.  as  I  recall,  on  a  contract  drafted  by  Mr.  Walter  Fisher, 
which  enables  the  city  to  share  in  profits,  but  I  do  not  think  that  is 
service  at  cost. 

Commissioner  MEEKER.  In  what  respect  would  a  service-at-cost 
plan  be  superior  to  government  or  public  ownership?  Is  not  the 
incentive  of  excellence  in  private  management  pretty  largely  squeezed 
out  of  a  concern  that  is  guaranteeel  a  fixed  return  on  its  investment  ? 

Mr.  TAFT.  Oh,  no;  there  is  no  guaranty,  except  in  the  result  that 
comes  from  an  increase  in  the  fare,  and  you  have  private  ownership. 

Commissioner  MEEKER.  I  wish  you  would  follow  that  up. 

Mr.  TAFT.  I  do  not  mean  private  ownership ;  I  mean  private  man- 
agement. The  question  of  private  ownership  and  public  ownership 
of  the  physical  property  is  a  different  one  from  that  of  private  or 
public  operations.  My  objection  is  chiefly  against  public  operation. 

Commissioner  MEEKER.  You  think  that  the  private  management 
on  a  cost-of -service  plan  would  be  superior  to  public  management? 

Mr.  TAFT.  I  do.  I  do  not  know  that  it  would  be  as  good — I  am 
quite  willing  to  concede  that  there  may  be  factors  making  for  less 
activity  on  the  part  of  private  owners  in  a  service-at-cost  plan  than 
where  they  can  take  all  the  profits  that  they  can  make. 

Commissioner  MEEKER.  But  you  think  that  the  stabilizing  of  the 
industry  would  counterbalance  the  evil  effect  of  taking  away  the 
possibility  of  large  profits  ? 

Mr.  TAFT.  Yes. 

Commissioner  MEEKER.  And  by  improvements  in  the  management, 
in  the  equipment,  and  so  on  ? 

Mr.  TAFT.  Yes. 

Commissioner  MEEKER.  I  would  like  to  ask  about  repeals  or  unjust 
taxation.  Do  you  think  that  would  relieve  the  companies? 

Mr.  TAFT.  You  mean  taking  out  the  cost  of  paving,  and  that  sort 
of  thing? 

Commissioner  MEEKER.  Yes.  Do  you  think  that  would  relieve  the 
street-railway  companies  to  any  great  extent? 

Mr.  TAFT.  I  am  unable  to  answer  that.  I  question  it.  Street- 
railroad  men,  however,  know  about  that,  and  I  do  not.  I  only  know 
that  whenever  the  argument  has  been  made  by  street-railway-com- 
pany management,  'that  plays  a  good  deal  of  a  figure  in  the  argu- 
ment. How  much  of  a  part  it  would  play  in  the  actual  calculation  I 
have  not  investigated  sufficiently  to  answer. 

Commissioner  MEEKER.  That  is  something  for  this  commission  to 
find  out  ? 

Mr.  TAFT.  Yes. 

Commissioner  MEEKER.  Returning  again  to  the  physical  valuation  of 
property,  I  take  it  that  you  think  it  advisable  to  get  a  physical  valua- 
tion of  property,  excluding  franchises,  of  course  ? 

Mr.  TAFT.  Yes ;  the  actual  investment. 

Commissioner  MEEKER.  Suppose  that  such  a  valuation  shows  that 
the  outstanding  capital,  including  bonds  and  stock,  is  not  excessive; 
that  is,  the  par  value  of  outstanding  capital  would  be  no  more  than 
equal  to  a  reasonable  valuation  of  the  property?  From  your  in- 
vestigations, do  you  think,  then,  that  that  indicates  that  the  company 
is  entitled  to  earn  upon  its  physical  valuation  ?  What  I  have  in  mind 
is  this:  Has  the  public  already  purchased  that  outstanding  capital 
and  the  investment  by  paying  fares,  in  times  past,  that  were  simply 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       15 

put  in  in  improvements  on  the  property  instead  of  being  declared  in 
dividends?  Have  I  made  myself  clear?  In  other  words,  has  the 
public  already  paid  a  considerable  part  of  the  investment  in  the 
street-railway  corporations  ? 

Mr.  TAFT.  I  do  not  see  how  that  view  can  be  justified.  They  pay 
fare,  and  the  company  earns  an  income  on  what  has  been  invested. 
I  assume  that,  naturally,  there  is  a  great  depreciation  in  the  value 
of  the  property  that  constantly  needs  repairs  and  renewals,  and 
therefore  I  should  think  that  the  fares  which  have  been  paid  should 
be  held  to  be  nothing  but  a  return  on  the  investment  from  year  to 
year. 

Commissioner  MEEKER.  Might  not  the  fares  be  sufficient  to  return 
a  reasonable  return  upon  the  actual  investment  and  also  to  lay  aside 
a  renewal  fund  that  would  be  put  back  into  better  equipment,  better 
rails,  and  so  on,  which  would  be  paid  by  the  public  in  fares,  and 
which  would  now  be  counted  as  a  part  of  the  actual  physical  prop- 
erty of  the  company? 

Mr.  TAFT.  No;  I  do  not  think  that  would  belong  to  the  public. 
I  think  it  would  belong  to  the  man  who  made  the  original  invest- 
ment; because  in  any  business,  as  I  understand  it,  there  should  be  a 
renewal  fund,  what  is  called  a  depreciation  fund.  They  make  an 
allowance  for  depreciation  each  year,  in  order  to  maintain  the  level 
of  their  investment. 

Commissioner  MEEKER.  I  do  not  think  I  have  yet  made  my  point 
clear.  Suppose  that,  in  addition  to  a  reasonable  depreciation  fund 
which  would  maintain  the  property  at  its  full  value,  its  full  effi- 
ciency, suppose  there  was  an  excess  over  that  that  was  put  into  new 
equipment,  and  even  extension  of  lines,  without  an  additional  in- 
vestment on  the  part  of  investors  at  all — stockholders  or  bond- 
holders— but  simply  taken  out  of  the  excess  earnings  of  the  com- 
pany; do  you  think  that  such  properties,  if  there  be  such,  in  your 
opinion,  are  to  be  justly  credited  as  the  property  of  the  company? 

Mr.  TAFT.  I  should  assume  that  was  the  basis  of  the  original  con- 
tract, the  basis  of  the  investment.  I  should  also  assume  that  there 
are  not  many  instances  of  that  kind. 

Commissioner  MEEKER.  That  is  what  I  am  trying  to  get  at. 

Mr.  TAFT.  Perhaps  I  ought  to  go  on  and  say  if  there  were  that 
the  change  in  ownership  from  time  to  time  would  create  a  new  con- 
dition, back  of  which  you  ought  not  to  go,  in  equity.  I  think  you 
ought  to  take  into  consideration  that  these  properties  do  change 
hands,  and  that  the  people  who  are  now  sweating  are  not  the  people 
generally,  who  were  guilty  of  those  original  "  rich "  investments 
that  have  so  reflected  on  the  character  of  the  investment,  in  stirring 
up  hostility  of  the  people. 

Those  statements  are  general  statements.  I  could  not  give  you  any 
details  to  justify  them;  out  that  is  my  impression. 

Commissioner  MEEKER.  I  think  you  amply  protected  yourself, 
Judge,  when  you  disclaimed  being  an  expert;  but  I  would  like  to  ask 
you  another  question 

Mr.  TAFT.  In  other  words,  I  think  that  those  people  who  water 
stock  and  engage  in  other  transactions  that  give  property  a  meretri- 
cious value,  get  out  from  under  the  load  as  promptly  as  possible,  and 
allow  others  to  bear  it.  I  think  that  is  generally  the  history  of  these 
transactions  that  can  not  be  defended. 


16       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  MEEKER.  There  is  one  other  question  that  I  \vould 
like  to  ask  you.  Do  you  think  it  is  possibly  more  hopeful  to  look  to 
improvements  in  the  equipment  of  the  street  railways  to  cut  down 
operating  expenses?  Do  you  think  we  should  look  to  that  for  relief 
of  the  street-railway  companies,  rather  than  to  the  repeal  of  unjust 
taxation,  unjust  paving  conditions  in  the  franchises,  and  so  on? 

Mr.  TAFT.  To  sny  the  truth,  I  think  one  step  is  a  reorganization  of 
all  the  companies,  and  the  power  to  give  up  unprofitable  lines  that 
ought  never  to  have  been  built.  That  is  going  on  in  Massachusetts. 
There  was  a  furore  at  one  time  in  building  all  sorts  of  lines  that  never 
ought  to  have  been  built,  and  if  the  street-railway  systems  of  this 
country  are  to  be  saved,  I  think  they  have  got  to  cut  to  the  quick 
with  reference  to  many  lines  that  were  unwise  in  their  projecting  and 
that  it  is  now  unwise  to  continue,  so  that  they  may  get  down  to  a 
solid  foundation,  and  then,  from  that  on,  make  contracts  with  the 
public  \vhich  shall  secure  a  fair  return  on  one  side  and  proper  service 
on  the  other;  but,  of  course,  that  will  inconvenience  quarters  where 
there  is  not  the  business  to  justify  the  railway,  and  will  affect  the 
price  of  property  there;  but  I  do  not  see  how  that  result  can  be 
avoided. 

Commissioner  BEALL.  I  would  just  like  to  ask  you  this,  in  coming 
back  to  the  reestablishing  of  the  credit  of  the  properties  of  street 
railways,  which  is  now  utterly  destroyed,  so  that  they  can  obtain 
money,  not  only  for  their  current  needs,  but  for  the  future  develop- 
ment of  the  properties  from  time  to  time.  Do  you  not  think  that 
any  plan  of  that  kind  has  to  be  permanent,  in  the  view  of  the  public 
and  in  the  view  of  the  men  to  whom  you  must  go  to  get  funds  ?  That 
is,  no  temporary  increase  in  fare,  for  instance,  if  you  wish  to  take 
that  for  a  moment  as  a  solution,  will  do.  It  must  be  something 
that  the  investor  feels  is  permanent ;  that  it  is  not  only  good  to-day, 
but  that  it  is  a  plan  that  is  good  for  10  or  20  or  30  years  hence. 
When  you  go  to  an  investor  for  money,  if  you  sell  him  stock  that 
neA*er  matures,  his  investment  is  permanent.  If  you  sell  him  bonds, 
depending  on  the  financial  terms  it  may  run  anywhere  from  a  year 
to,  say,  30  or  40  or  50  years,  if  they  can  borrow  the  money  for  that 
length  of  time.  Now,  does  not  a  plan  have  to  provide  something 
that  the  investor  feels  will  make  him  secure  permanently,  that  the 
public  feel  they  are  going,  under  that  plan,  to  get  proper  and  rea- 
sonable service,  and  that  all  the  laboring  men  will  feel  that  they  are 
going  to  be  taken  care  of  ?  In  other  words,  has  not  the  solution  got 
to  be  in  a  permanent  form,  and  not  just  simply  a  makeshift? 

Mr.  TAFT.  I  agree;  but  the  permanent  form  may  not  be  in  fixing 
exact  terms. 

Commissioner  BEALI/.  Xo;  I  do  not  think  you  can. 

Mr.  TAFT.  But  in  placing  the  authority  to  deal  with  the  situation  in 
a  body  sufficiently  removed  from  the  influences  we  have  been  discussing 
to  act  with  impartiality. 

For  instance,  the  State  commissions,  I  believe,  are  much  better 
qualified  to  act  in  matters  of  this  sort  than  local  councils  or  local 
authorities.  I  think  that  the  suburban  business  and  the  relation  of 
one  town  to  another,  and  the  general  condition  in  the  State  will  so 
affect  street-car  fares  and  street-car  management  that  it  might  well 
be  under  a  State  commission  rather  than  under  the  local  commission. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       17 

Commissioner  BEALL.  Do  you  favor  that,  Judge  ?  Of  course,  you 
have  always  got  to  have  a  supervising  body  and  regulation.  That 
is  just  and  proper.  We  all  recognize  that.  But  do  you  think  that 
the  determination  of  fares  from  time  to  time,  for  instance,  should 
be  left  to  the  State  commission  rather  than  to  some  such  arrange- 
ment as  they  have  in  Cleveland  and  Montreal  and  various  other 
cities  not  only  here  but  in  Canada,  where  their  fixed  return  is  given 
on  what  has  been  determined  to  be  the  money  investment  in  the 
property — if  the  revenue  falls  below  that  amount  then  the  fare  is 
automatically  increased,  or  vice  versa,  and  if  your  receipts  exceed 
the  determined  return  on  your  capital,  then  they  fall  to  the  lower 
level  ? 

Mr.  TAFT.  That,  theoretically,  is  a  good  plan.  Before  I  adopted 
it,  however,  I  would  wish  to  examine  into  its  exact  operation  in  the 
cities  that  you  have  named. 

Commissioner  BEALL.  I  know  both  cities  very  well. 

Mr.  TAFT.  I  think  you  will  find  a  difference  of  opinion  in  Cleve- 
land ;  and  that  is  the  only  one  that  we  have  before  us. 

Commissioner  BEALL.  The  trouble  in  Cleveland  was — one  trou- 
ble— that  the  fare  was  limited  ? 

Mr.  TAFT.  Yes. 

Commissioner  BEALL.  That  was  the  trouble? 

Mr.  TAFT.  I  agree. 

Commissioner  BEALL.  When  you  get  to  a  certain  point,  you  could 
get  no  higher? 

Mr.  TAFT.  When  you  got  up  to  4  cents,  you  could  not  get  any 
higher. 

Commissioner  BEALL.  In  the  city  of  Montreal,  Canada,  there  is 
no  limit.  The  city  and  Province  recognize  the  right  of  an  investor 
or  a  man  in  the  public  who  chooses  to  put  his  money  into  street  rail- 
ways on  a  given  return,  and  no  matter  if  the  fare  has  to  be  10  cents, 
it  will  be  made  10  cents,  because  it  is  service  at  cost,  and  that  is  what 
it  costs  the  company  to  give  that. 

Mr.  TAFT.  My  mind  inclines  in  that  direction. 

Commissioner  BEALL.  You  have  had  such  vast  experience  in  look- 
ing into  these  things  that  we  would  like  to  get  your  views. 

Mr.  TAFT.  I  have  been  fortunate  enough  never  to  have  had  any 
investment  in  street  railways. 

Commissioner  BEALL.  But  you  know  the  experience  of  those  who 
have? 

Mr.  TAFT.  Yes;  I  do;  I  do.  There  has  been  nothing  quite  so  try- 
ing to  me  in  the  last  year  as  meeting  gentlemen  whom  I  have  known 
\vell  and  for  whom  I  have  entertained  the  friendliest  feelings  and 
finding  that  they  were  interested  in  street-railway  property.  The 
subject  matter  was  not  exhilarating,  I  found. 

Commissioner  SWEET.  In  view  of  your  quasi-parental  relation  to 
this  commission,  would  you  recommend  that  we  should  go  at  all 
into  the  subject  of  past  profits  of  these  companies? 

Mr.  TAFT.  If  you  do  you  will  never  get  down  to  business.  I  can 
tell  you  that. 

Commissioner  SWEET.  Can  you  see  any  profit  in   nn   inquiry  of 
that  kind,  in  relation  to  the  question  that  we  are  really  to  consider? 
160G43— 20 2 


18   PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAIL  WAYS  .jCOMMLSSIOH", 

Mr.  TAFT.  I  do  not  mean  to  say  that  there  may  not  be  instances 
in  which  you  ought  to  go  back,  just  to  determine  the  facts  that  you 
are  trying  to  find  out;  but  to  entertain  evidence  of  the  corruption 
and  the  methods  of  10  years  ago,  or  20  years  ago,  and  the  history 
of  transactions  that  have  been  made  the  basis  for  hostility  to  street- 
railway  companies,  will  occupy  all  your  time,  so  that  you  will 
never  get  down  to  the  real  question;  and  I  think  you  could  sepa- 
rate the  two  by  finding  out  what  is  the  actual  money  that  is  in- 
vested now. 

Commissioner  SWEET.  The  real  question  now  has  very  little  rela- 
tion to  big  profits  or  corruption  that  may  have  been  received  or 
practiced  years  ago? 

Mr.  TAFT.  Except  in  its  psychological  effect  upon  the  attitude  of 
the  public. 

Commissioner  SWEET.  Is  it  not  an  old  sore  that  had  better  be  left 
alone? 

Mr.  TAFT.  We  declined  to  go  into  it. 

Commissioner  SWEET.  Don't  you  think  we  should  decline  to  go 
into  it? 

Mr.  TAFT.  Yes ;  I  do. 

Commissioner  SWEET.  I  wanted  to  get  your  opinion  on  that. 

Mr.  TAFT.  I  am  speaking  generally.  I  do  not  mean  to  say  that 
you  may  not  have  exceptional  cases  that  do  require  your  going  back. 
I  think  it  is  generally  accepted,  and  I  do  not  think  if  you  would 
call  upon  steam-railway  men  they  would  hesitate  to  admit,  just 
as  it  is  a  matter  of  which  you  can  take  judicial  notice,  that  the 
steam  railways  of  the  country  abused  their  privileges  until  they 
roused  the  public,  and  now  the  condition  has  been  brought  about 
in  which  the  public  has  had — I  do  not  know  but  it  is  changed  now — 
but  they  have  had  a  feeling  of  hostility  that  has  led  them  to  extremes 
in  dealing  with  the  steam  railroads,  and  to  injustices. 

Commissioner  SWEET.  But  the  great  problem  now,  and  the  one 
that  you  would  contemplate  at  the  start,  does  not  practically  involve 
that  question? 

Mr.  TAFT.  No;  I  think  you  can  escape  it. 

Commissioner  SWEET.  I  think  so. 

Commissioner  WEHLE.  Have  you  given  thought  to  the  question  as 
to  what  should  be  done  in  cases  where  the  franchise  is  a  long-time 
franchise  which  strictly  limits  the  company  to  a  lower  fare  than 
it  should  economically  receive? 

Mr.  TAFT.  Yes ;  I  have.  Of  course,  you  can  hold  the  company  to  it. 
It  is  a  contract. 

Commissioner  SWEET.  Unless  it  dies. 

Mr.  TAFT.  The  public  can  hold  the  company.  But  a  bankrupt  ten- 
ant is  not  a  very  useful  occupant  of  your  building,  and  a  company 
that  is  bankrupt  and  has  not  the  means  with  which  to  render  the 
service  which  the  franchise  was  granted  to  secure  is  of  no  use  to  the 
public.  You  are  a  lawyer,  Mr.  Wehle,  and  understand,  of  course, 
that  the  contract  does  not  work  both  ways.  What  I  mean  is  that  you 
can  hold  a  company  to  a  franchise  and  the  company  can  hold  the 
public  to  the  franchise  as  long  as  the  term  fixed  in  the  contract,  but 
the  legislature,  acting  for  the  municipality  with  whom  the  franchise 
was  framed  under  the  statute,  may  repeal  the  statute  or  may  destroy 
the  contractual  effect  of  the  franchise  by  merely  waiving  it,  because 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION".       19 

it  may  act  for  the  municipality  by  whom  the  franchise  was  granted 
and  with  whom  the  contract  of  the  franchise  was  made;  so  that  there 
is  no  constitutional  difficulty. 

Commissioner  WEHLE.  That  would  point  again,  would  it  not,  to  the 
State  public-utility  commission  being  vested  with  the  power  to  deal 
with  these  questions,  and  possibly  to  waive  conditions  in  franchises? 

Mr.  TAFT.  Oh,  I  think  so.  If  you  are  going  to  have  any  reform  at 
all,  you  should  have  power  on  the  part  of  the  public  authority  to  act 
and  clean  the  situation  of  past  competitions.  Of  course,  I  would  not 
let  up  on  a  company  that  was  able  to  carry  out  a  contract  and  that 
had  made  it  in  the  face  of  conditions ;  it  should  perform  its  contract. 
But  questions  of  public  expediency  enter  in  there. 

Commissioner  WEHLE.  And  as  a  general  proposition  you  would  say 
that  the  local  municipal  authorities  should  be  eliminated  with  respect 
to  the  power  either  to  enforce  franchises  or  to  waive  conditions  in 
franchises? 

Mr.  TAFT.  I  think  at  least  there  ought  to  be  an  appellate  jurisdic- 
tion in  State  boards  of  public  utilities. 

Commissioner  WEHLE,  We  have  had  some  reference  here  to  the 
service-at-cost  plan,  and  that  suggests  an  analysis  of  the  cost  of  the 
service;  and  there  has  been  some  reference  here  to  the  element  that 
taxation  plays  in  the  cost  to  the  street-railway  companies  in  conduct- 
ing their  business.  Would  you  state,  for  the  enlightenment  of  the 
commission,  something  of  your  views  with  respect  to  the  question,  On 
what  theory  should  the  street-railway  companies  be  taxed  ? 

Mr.  TAFT.  I  never  have  been  able  to  see  why  street-railway  compa- 
nies should  be  taxed  by  any  other  rule  than  that  under  which  other 
invested  capital  is  taxed.  You  can  tax  them  by  income,  you  can  tax 
them  by  a  percentage  of  the  amount  invested.  Those  are  the  two 
methods ;  and  I  think  that  simplifies  the  methods. 

What  you  are  going  to  find,  if  you  have  this  percentage  tax,  is  that 
the  value  of  the  street  railways  wrill  be  taxed  at  a  higher  rate — I  mean 
the  property  of  the  street  railwa}Ts  will  be  taxed  at  a  higher  assess- 
ment than  the  real  estate  of  the  ordinary  taxpayer — and  perhaps, 
therefore,  it  is  a  fairer  method  to  tax  by  income.  I  suppose  you 
could  not  tax  by  income  only.  You  would  have  to  have  both  systems 
of  taxation. 

Commissioner  WEHLE.  Your  thought  on  this  subject  has  sug- 
gested to  me  that  possibly,  in  view  pi  the  fact  that  you  regard  the 
street-railway  service  as,  in  a  way,  similar  to  the  service  of  conduct- 
ing a  public  road- 
Mr.  TAFT.  I  only  mention  that  as  an  argument  in  favor  of  tax- 
ation to  meet  the  deficit,  if  it  be  inevitable,  of  running  suitable  street 
railways. 

Commissioner  WEHLE.  The  thought  was  suggested  to  me  that  pos- 
sibly you  would  view  any  tax  that  goes  beyond  the  necessity  of 
meeting  the  expense  of  the  State  with  reference  to  the  property  it- 
self as  poor  public  policy.  Is  that  your  view? 

Mr.  TAFT.  Well  no;  because  I  think  those  who  get  any  profit  out 
of  it  ought  to  pay  the  same  taxation  that  men  who  make  a  profit  out 
of  other  businesses  pay. 

Commissioner  WEHLE.  When  you  come  to  analyze  the  nickel  or 
the  7  cents  that  goes  into  the  conductor's  hands,  and  see  what  it  pays 
for,  does  it  seem  to  you  that  the  element  of  taxation  that  is  repre- 


20       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

sented  in  that  fare  should  go  beyond  paying  for  the  conducting  of 
the  property  itself,  as  it  affects  the  State  or  the  municipality  ? 

Mr.  TAFT.  I  confess  that  if  a  man  owns  stock  in  a  street  railway 
and  the  stock  pays  him,  I  do  not  see  why  he  should  not  pay  taxes 
on  that  income,  or  on  the  value  of  the  stock,  just  as  if  he  had  an 
investment  anywhere  else. 

Commissioner  WEHLE.  That  suggests  taxing  the  stock  or  the  in- 
come, rather  than  the  property  itself? 

Mr.  TAFT.  Yes,  it  does;  and  I  think  the  greater  uniformity  you 
make  in  taxation  the  more  likely  you  are  to  reach  justice,  and  there- 
fore if  you  treat  shares  of  stock  in  street  railways  just  as  you  do 
shares  of  stock  in  a  manufacturing  corporation,  or  in  any  kind  of 
an  enterprise,  I  think  you  are  more  likely  to  do  justice;  and  you 
create  a  simplicity  which  is  merely  likely  to  lead  to  justice  or  a 
just  operation. 

Commissioner  WEHLE.  That  is,  by  making  the  taxation  come  upon 
the  shareholder  or  the  bondholder,  who  obtains  income  out  of  the 
property,  rather  than  on  the  property  or  the  franchise  itself — you 
would  think  that  was  the  direction  in  which  to  go  in  the  matter  of 
taxing  public  utilities  ? 

Mr.  TAFT.  You  are  there  confronted  with  a  lot  of  questions  of 
expediency  in  taxation — the  ability  to  find  the  bonds  and  tax  them, 
or  the  inability  to  find  the  bonds  and  tax  them,  is  one  thing.  You 
have  got  the  railroad  right  in  front  of  you.  You  have  the  wires, 
you  have  the  electric-power  plant,  and  with  some  experience  in  levy- 
ing taxes,  I  do  not  think  that  clearness  of  view  that  the  State  has 
of  the  actual  property  ought  to  be  given  up  as  an  advantage.  I 
think  it  ought  to  be  reconciled,  as  it  seems  to  me  it  might  be,  with 
treating  that  property  just  as  you  treat  any  property  in  corporate 
ownership.  For  instance,  manufacturing  corporations  do  not  pay 
on  stock,  all  of  them,  but  both  on  the  property  they  own  and  on  the 
stock  they  own,  do  they  not  ? 

Commissioner  WEHLE.  Yes. 

Mr.  TAFT.  Of  course,  taxes  vary  so  in  different  States  that  it  is 
difficult  to  state  generally. 

Commissioner  WEHLE.  Do  you  think,  from  your  observation,  that 
there  has  been  sufficient  control  of  stock  issues  by  public-utility  com- 
panies, and  particularly  electric-railway  companies? 

Mr.  TAFT.  No,  sir;  I  do  not  know  but  there  is  now,  but  I  think 
that  has  been  one  of  the  sources  of  the  difficulties  in  which  we  have 
found  the  situation.  I  have  always  been  in  favor  of  the  Federal 
incorporation  of  steam  railways  engaged  in  the  business  of  the  coun- 
try,  and  if  you  have  Federal  incorporation,  I  think  you  ought  to 
have  a  limitation  of  the  power  to  issue  securities.  I  think  the  great 
abuses  that  have  arisen  in  the  management  have  been  in  the  unwTise 
and  often  the  fraudulent  use  of  such  securities.  I  do  not  think  now 
that  that  is  the  case.  I  think  there  are  limitations  in  the  various 
States. 

Commissioner  WEHLE.  Do  you  think  those  are  sufficient,  as  you 
have  seen  them? 

Mr.  TAFT.  No;  I  think  there  ought  to  be  a  uniformity  produced 
by  putting  those  interstate  railroads  within  the  Federal  authority. 

Commissioner  WEHLE.  One  of  the  phases  of  the  present  situation 
seems  to  be  that  equities  have  been  created  in  innocent  holders  of 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       21 

stock  which  the  public  has  an  obligation  to  recognize  in  dealing 
with  the  company,  and  yet  the  stock  itself  was  not  legitimately  or 
justly  issued. 

Mr.  TAFT.  That  is  very  true. 

Commissioner  WEHLE.  Can  we  approach  the  situation  at  all  with- 
out having  that  condition  positively  prevented  in  the  future? 

Mr.  TAFT.  I  should  think  you  ought  to  have  a  recommendation 
that  no  company  should  be  permitted  to  issue  either  stock  or  bonds 
without  a  certificate  issued  by  the  public-utilities  commission  justi- 
fying the  issue,  and  knowing  what  the  money  to  be  derived  from 
that  issue  is  to  be  devoted  to. 

Commissioner  WEHLE.  One  more  question.  You  suggested  earlier 
in  the  hearing  that  it  seemed  to  you  that  possibly  7  cents  for  a 
maximum  fare,  beyond  which  the  companies  could  hardly  go  with- 
out incurring  a  diminution  in  business,  was  the  limitation  which 
would  be  found? 

Mr.  TAFT.  That  is,  within  urban  limits. 

Commissioner  WEHLE.  Yes. 

Mr.  TAFT.  Of  course,  when  you  get  outside  of  the  city  into  what 
is  called  the  suburban  line  the  rate  goes  up  just  as  it  does  on  steam 
railroads. 

Commissioner  WEHLE.  Yet  the  present  increase  in  costs  seems  to 
suggest  the  possibility  that  even  with  respect  to  urban  business  the 
7-cent  fare  may  not  prove  economically  sufficient.  According  to  the 
contention  of  some  of  the  owners,  it  is  not  sufficient  to-day,  and  will 
not  remain  nearly  sufficient — or  even  8  cents. 

Mr.  TAFT.  If  they  say  that,  then  I  would  ask  them  what  their 
suggestion  is. 

Commissioner  WEHLE.  I  was*  going  to  ask  you,  Mr.  Taft,  what 
your  suggestion  is. 

Mr.  TAFT.  That  is  a  limitation  upon  your  useful  field.  You  are 
dealing  with  human  nature. 

Commissioner  WEHLE.  But  at  that  point,  Judge  Taft,  comes  the 
place  where,  as  a  matter  of  public  policy,  we  must  avoid  conges- 
tion in  the  cities? 

Mr.  TAFT.  Yes. 

Commissioner  WEHLE.  Where  it  must  be  made  possible  for  these 
lines,  in  some  way,  to  give  this  service,  and  where  there  is  a  margin 
that  seems  to  be  almost  unabsorbable  by  private  initiative  in  order 
that  the  people  should  have  the  sort  of  service,  and  the  city  should 
have  the  sort  of  life  that  ought  to  be  produced. 

Mr.  TAFT.  I  agree.  That  is  the  limitation  of  the  situation.  It  is 
part  of  the  problem  that  makes  it  very  difficult  to  solve. 

Commissioner  WEHLE.  Is  that  the  point  at  which  you  stop — in 
that  area  of  the  unabsorbable  margin — where  you  believe  the  munici- 
pality or  the  State  should  come  in  and  assist  in  a  joint  partnership? 
Is  that  the  idea  that  you  were  expressing? 

Mr.  TAFT.  Yes.  I  do  not  know  that  I  would  limit  it.  I  think  if 
Hie  system  proves  good  you  might  make  the  existence  of  that  a  con- 
dition— I  mean  the  service  at  cost:  because  the  effect  of  the  service 
at  cost  is  not  alone  to  meet  a  situation  such  as  you  describe,  but  it  is 
also  useful  in  dealing  with  the  public  and  reconciling  them  to  the 
result.  If  their  auditors  have  a  part  in  the  management,  so  far  as 
the  examination  of  accounts  is  concerned,  with  certain  restrictions 


22       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

that  they  may  impose  as  to  the  operation  of  the  railway,  and  that  is 
done  through  their  own  officers,  they  are  much  more  likely  to  be 
reasonable  than  when  they  are  on  one  side  and  the  company  is  on 
the  other. 

Commissioner  WEHLE.  At  that  point,  then,  you  would  suggest  that 
the  problems  of  administration,  in  such  a  way  as  to  insure  the  public 
the  proper  use  of  the  funds  which  the  public  might  come  to  invest 
in  street-railway  service,  could  be  solved,  by  having  a  joint  control 
or  a  joint  directorship? 

Mr.  TAFT.  No;  I  would  not  call  it  joint;  but  I  would  call  it  a 
directorship  subject  to  the  complete  knowledge  and  certain  limited 
supervision  of  the  management  of  the  finances  of  the  company. 

Commissioner  WEHLE.  That  is  all  I  have  to  ask. 

The  CHAIRMAN.  Commissioner  Nixon,  do  you  wish  to  ask  any  ques- 
tions of  Judge  Taft  ? 

Commissioner  NIXON.  No. 

The  CHAIRMAN.  Judge  Taft,  in  dealing  with  the  question  of  labor 
and  wages,  did  you  find  that  an  effort  was  made  by  those  interested 
in  securing  higher  wages  to  demonstrate  that  the  street-car  com- 
panies could  effect  economies  in  operation  that  would  permit  them  to 
pay  a  higher  wage  without  increasing  the  fare  ? 

Mr.  TAFT.  No,  sir;  I  will  not  say  that  somebody  did  not  say  that 
in  argument,  because  it  would  be  unwise  to  say  that  the  argument 
did  not  have  a  very  wide  range;  but  there  was  no  serious  contention 
on  that  point. 

The  CHAIRMAN.  Was  any  effort  made  by  anyone  to  present  evidence 
to  your  board  to  show  how  that  can  be  done  ? 

Mr.  TAFT.  No. 

The  CHAIRMAN.  In  determining  the  question  of  wage,  did  your 
board  consider  that  it  was  making  a  temporary  adjustment  only? 

Mr.  TAFT.  Of  course^  we  were  making  a  temporary  adjustment, 
because  that  is  all  our  jurisdiction  was.  Our  orders  only  lasted  for 
six  months,  or  during  the  period  of  the  war;  that  is,  we  gave  the 
right  to  both  sides  to  come  before  us  and  ask  for  a  readjustment  at 
the  end  of  six  months. 

The  CHAIRMAN.  And  your  wage  was  based  upon  the  cost  of  living 
at  the  time  the  problem  was  before  your  board  ? 

Mr.  TAFT.  Yes,  sir. 

The  CHAIRMAN.  How  far  back,  in  making  the  study  of  the  cost  of 
living,  did  your  board  go? 

Mr.  TAFT.  We  had  the  benefit  of  the  findings  of  what,  for  lack  of 
a  better  recollection,  I  call  the  Secretary  Lane  Board,  which  fixed 
the  rates  of  wages  for  the  steam  railways,  and  I  think  that  went 
back  to  January,  1915.  I  think  it  was  January,  1915. 

The  CHAIRMAN.  Then  the  study  of  the  living  cost  was  continued 
just  during  the  war  period? 

Mr.  TAFT.  Yes.  Of  course,  one  war  period  differed  from  the 
other.  I  mean,  the  war  period  abroad,  and  the  war  period  with  us, 
after  we  got  into  the  war ;  it  was  different,  of  course. 

Commissioner  MEEKER.  May  I  make  a  suggestion  there,  Mr. 
Chairman?  I  think  your  board,  Mr.  Taft,  also  made  use  of  the 
cost-of -living  figures  which  the  Bureau  of  Labor  Statistics  collected 
in  shipbuilding  centers. 

Mr.  TAFT.  Oh,  yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       23 

Commissioner  MEEKER.  That  was  based  on  1914. 

Mr.  TAFT.  Was  it?  It  went  back  to  1914,  did  it?  I  had  for- 
gotten. 

Commissioner  MEEKER.  Yes. 

The  CHAIRMAN.  Did  your  board,  Judge  Taft,  consider  whether 
the  wages  which  existed  prior  to  the  European  war  were  just  and 
ample  to  meet  the  conditions? 

Mr.  TAFT.  I  do  not  think  they  were ;  I  do  not  know  but  that  we  ex- 
pressed an  opinion  that  they  were  not.  I  think  we  did  express  the  opin- 
ion that  they  were  not,  for  the  reason  that  I  have  already  suggested, 
namely,  that  the  conditions  of  the  field  were  such  that  the  employers 
were  very  obstinate  in  viewing  an  increase  of  wages.  When  I  say 
"obstinate,"  you  understand  what  I  mean — they  felt  that  if  they 
went  on  they  would  seriously  injure  the  value  or  the  investment. 

The  CHAIRMAN.  What  influence  will  your  wage  adjustment  have 
upon  the  future  wages  of  emploj-ees  in  this  class  of  service  ? 

Mr.  TAFT.  Well,  it  opened  the  subject  up;  and  I  have  no  doubt 
that  it  has  established  a  more  or  less  permanent  standard  upward. 

The  CHAIRMAN.  Then,  that  being  so,  must  this  commission  con- 
clude that  the  operating  cost  of  the  street  railroads  would  be  upon 
a  higher  basis  in  the  future  than  it  has  been  in  the  past  ? 

Mr.  TAFT.  I  have  not  a  bit  of  doubt  of  it.  Xot  only  that,  but  I 
think  that  every  business  will  be. 

The  CHAIRMAN.  It  is  pretty  well  recognized  that  the  cost  of  mate- 
rial and  supplies  will  fall  in  the  course  of  time,  and  therefore  a 
large  element  of  the  operating  cost  will  be  on  a  lower  basis  than 
it  has  been  during  fhe  war  period. 

Mr.  TAFT.  You  think  it  is  going  to  fall  a  great  deal  ? 

The  CHAIRMAN.  I  hope  so.    It  always  has  in  the  past,  Judge  Taft. 

Mr.  TAFT.  It  has,  when  they  have  had  a  panic ;  but  I  do  not  think 
the  cost  of  living  was  reduced  very  much  between  1865  and  1873. 

The  CHAIRMAN.  I  am  not  speaking  of  the  cost  of  living.  I  was 
speaking  of  the  cost  of  material  and  supplies. 

Mr.  TAFT.  That  is  what  I  am  speaking  of.  That  enters  into  the 
cost  of  living.  I  mean,  it  is  affected  by  the  same  reasons. 

Of  course,  I  am  no  prophet,  and  I  am  not  a  business  man,  but  as  I 
have  followed  the  general  opinion  of  men  who  have  been  in  busi- 
ness— say,  with  reference  to  the  building  trades — people  have  kept 
out  of  the  building  trades  because  the  cost  of  material  is  so  high; 
but  I  think  the  general  opinion  now  is  that  the  cost  of  building  is 
not  going  down  very  much,  and  that  people  are  going  on  to  build 
on  the  theory  that  that  is  a  level  more  or  less  fixed.  I  may  be  wrong 
about  that. 

The  CHAIRMAN.  The  function  of  this  commission,  if  it  has  any, 
is  to  offer  some  permanent  solution  of  the  street-railway  situation. 
That  being  so,  have  we  a  right  to  consider  that  the  present  operating 
cost,  including  wages,  price  of  material  and  supplies,  may  repre- 
sent the  average  normal  price  for  a  period  of  years? 

Mr.  TAFT.  If  I  sat  upon  your  board  I  would  address  myself  to 
that  problem  on  that  basis. 

The  CHAIRMAN.  In  the  zoning  system,  should  the  commission 
consider  that  the  minimum  charge  should  be  5  cents,  or  a  less  sum, 
for  short  distances? 


24       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  TAFT.  I  think  you  might  perhaps,  for  short  distances,  in  the 
zone  system,  go  down  to  4  cents. 

The  CHAIRMAN.  If  there  is  to  be  a  zoning  system,  we  must  have 
a  charge  that  will  encourage  short-haul  traffic  as  well  as  long-haul 
traffic  to  get  the  revenue  for  the  company? 

Mr.  TAFT.  Yes.  I  think  we  ought  to  have  a  minimum,  but  I 
think  it  might  be  below  5  cents. 

The  CHAIRMAN.  This  commission  has  already  been  asked  to  offer 
suggestions  for  the  solution  of  the  local  problems;  there  are  a  num- 
ber of  utilities  that  have  already  sent  telegrams  and  communica- 
tions to  us  asking  how  to  settle  this  particular  problem  or  that  par- 
ticular problem. 

Mr.  TAFT.  I  have  no  doubt  that  they  are  reaching  out  for  anything 
that  will  prevent  their  sinking. 

The  CHAIRMAN.  Do  you  think  this  commission  should,  prior  to 
the  formulation  of  its  report,  attempt  to  interfere  or  even  venture 
suggestions  as  to  the  best  manner  of  determining  some  of  these 
local  problems? 

Mr.  TAFT.  No;  I  do  not  think  that.  I  do  think,  however,  that  I 
would  give  them  a  chance  to  be  heard,  for  two  reasons:  First,  be- 
cause you  will  get  a  great  deal  of  information  from  particular  in- 
stances, and  second,  I  do  not  see  why  you  should  not  offer  your- 
selves, as  you  are  seeking  to  give  relief,  to  let  this  industry,  if  you  can 
call  it  such,  have  a  safety  valve.  There  is  nothing  that  helps  the 
psychological  condition  of  a  man  so  much  as  to  have  an  opportunity 
to  let  out  what  is  in  him  in  respect  to  a  subject  where  he  thinks  he 
is  not  being  treated  fairly  or  properly. 

The  CHAIRMAN.  While  the  street-car  problem  consists  of  a  great 
many  segregated  plants,  yet  their  difficulties  all  bear  upon  the  gen- 
eral problem? 

Mr.  TAFT.  Yes;  they  do. 

The  CHAIRMAN.  For  that  reason  we  should  hear  them? 

Mr.  TAFT.  I  think  you  ought  to  hear  them,  because  there  are 
common  facts  in  respect  to  all  the  companies. 

The  CHAIRMAN.  You  have  been  addressing  yourself  somewhat  to 
the  question  of  service  at  cost.  Service  at  cost,  if  I  understand  the 
plan  correctly,  represents  a  definite  understanding  that  the  investor 
shall  receive  a  return  upon  his  honest  investment,  and  also  the  public 
shall  receive  as  good  service  as  it  can  for  what  it  pays. 
,  Mr.  TAFT.  What  he  receives  may  differ  in  rate,  as  to  the  permanent 
investment  already  made,  from  that  that  he  would  receive  on  subse- 
quent investments ;  where  he  becomes  a  borroAver  himself,  as  he  must 
in  many  of  these  plants,  he  will  pay  the  market  rate  for  the  money. 

The  CHAIRMAN.  Is  not  the  net  result  of  the  service-at-cost  plan 
a  public  guaranty  of  return? 

Mr.  TAFT.  It  is  not  a  guaranty  of  the  payment  of  money  by  the 
corporation,  by  the  municipal  corporation,  but  is  an  arrangement  by 
which  the  fares  which  the  public  pay  shall  meet,  within  limits,  the 
cost  of  operation. 

The  CHAIRMAN.  In  other  words,  the  public  does  not  guarantee  to 
make  up  any  deficit  by  appropriation  ? 

Mr.  TAFT.  No;  but  it  agrees  that,  within  certain  limits,  the  fares 
shall  rise  in  order  to  meet  the  necessity  for  an  income  on  the  in- 
vestment. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       25 

The  CHAIRMAN.  With  that  understanding,  do  you  believe  that  a 
service-at-cost  plan  would  remove  the  incentive  to  economy  in  the 
operation  of  these  plants  ? 

Mr.  TAFT.  I  am  willing  to  concede  that  the  factor  may  not  be  so 
strong  in  such  an  arrangement  as  it  is  where  the  company  has  com- 
plete control ;  but  I  think  there  is  quite  enough  motive  there  to  make 
the  management  far  more  economical  than  it  would  be  under  mu- 
nicipal management. 

The  CHAIRMAN.  How  do  you  differentiate  between  the  incentive 
toward  economy  under  the  service-at-cost  plan  and  under  municipal 
operation  ? 

Mr.  TAFT.  The  man  who  is  running  the  company  has  to  see  to  it 
that  he  gets  his  income  within  the  limits. 

The  CHAIRMAN.  But  he  is  sure  of  his  income  ? 

Mr.  TAFT.  No;  he  is  not;  because  the  fares  are  not  certain  to  pay. 
It  is  a  very  different  guaranty,  if  you  call  it  such,  to  raise  the  fares 
than  to  pay  the  money  on  the  investment — very  different.  At  least, 
it  seems  so  to  me ;  and,  so  far  as  municipal  management  is  concerned, 
I  am  somewhat  familiar  with  that. 

The  CHAIRMAN.  Do  you  believe.  Judge  Taft,  that  a  service-at-cost 
plan,  with  a  certain  guaranty  of  the  term,  would  invite  the  demand 
for  municipal  ownership  of  these  plants  ? 

Mr.  TAFT.  I  do  not  think  so;  I  think  it  would  allay  the  demand. 
I  think  it  would  allay  the  demand  in  the  sense  of  security  that  the 
people  would  have  that  that  thing  was  being  run  under  their  eyes — 
that  the  game  was  played  with  the  cards  face  up  on  the  table.  That 
is  one  of  the  great  advantages  in  that  plan. 

The  CHAIRMAN.  Of  course,  the  plan  could  not  be  favored  at  all 
unless  it  meant  that  the  public  had  a  very  strict  watch  over  the  ac- 
counting system  ? 

Mr.  TAFT.  Oh,  j-es;  and  had  their  accountants  there  all  the  time. 
I  understand  that  there  is  no  practical  difficulty  about  that.  At 
least,  in  Cleveland,  which  was  the  concrete  instance  before  us,  there 
was  not  the  slightest  suggestion  that  tire  public  did  not  know  all 
that  was  being  done. 

The  CHAIRMAN.  Do  you  believe  that  the  street-car  situation  is 
such  that  franchises  could  be  adopted  throughout  the  States  carry- 
ing the  same  general  provisions? 

Mr.  TAFT.  That  is  a  question  of  success.  If  one  State  adopted  it 
and  it.  worked,  I  think  another  would ;  and  the  solution  is  so  difficult 
that  any  success  in  its  solution  would  lead  to  a  general  uniformity. 
Of  course  you  could  not  bring  it  about  by  national  legislation,  be- 
cause there  is  no  jurisdiction  to  do  that. 

The  CHAIRMAN.  Have  you  given  consideration  to  any  particular 
form  of  franchise  for  these  utilities? 

Mr.  TAFT.  No,  sir. 

The  CHAIRMAN.  Whether  the  franchise  should  be  for  a  limited 
number,  of  years  or  for  a  permanent  tenure? 

Mr.  TAFT.  No;  I  would  not  venture  an  opinion.  I  may  answer 
that  bv  saying  that  that  was  not  my  job. 

The  CHAIRMAN.  You  do  state,  however,  that  from  your  experience 
upon  the  board,  you  found  that  State  commissions  were  more  will- 
ing to  recognize  new  operating  conditions  and  adjust  the  fares  ac- 
cordingly than  the  local  municipalities? 
1(50T,430— 20 3 


26       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  TAFT.  Oh,  I  think  there  is  no  doubt  about  that.  A  public- 
utility  commission  comes  into  a  community  just  as  you  come  in  here, 
and  you  have  a  hearing  that  likens  itself  to  a  judicial  hearing;  and 
it  comes  from  the  center  of  the  State ;  it  represents  the  State ;  it  is 
separated  from  the  local  feeling.  You  go  before  a  common  council 
and — well,  it  isn't  so,  that  is  all ;  it  is  not  the  same  way. 

The  CHAIRMAN.  Do  you  believe  that  State  regulation  should  com- 
pletely dominate  the  field,  leaving  nothing  to  local  tribunals  to 
supply  ? 

Mr.  TAFT.  I  believe  in  local  self-government,  of  course,  as  far  as 
possible,  and  that  might  well  be  encouraged  by  an  original  hearing, 
and  then  an  appellate  proceeding,  so  that  it  comes  up  before  the 
board  with  the  finding  of  the  council  and  imposes  upon  the  com- 
pany the  burden  of  showing  that  the  council  was  wrong. 

The  CHAIRMAN.  There  seem  to  be  two  schools  of  thought  on  this 
question.  One  group  of  men  favor  centralizing  all  of  the  authority 
over  rates  as  well  as  service  and  capitalization  in  the  State  commis- 
sion; the  other  favor  leaving  it  with  the  local  municipalities,  sub- 
ject to  appeal,  both  as  to  service,  rates,  and  other  matters,  to  the 
State  commission.  Which  plan  do  you  think  is  the  more  feasible? 

Mr.  TAFT.  I  think  the  more  practical  plan  would  be  to  give  com- 
plete control  to  the  State  commission,  in  point  of  speed  of  action 
and  possibly  efficiency ;  but  there  is  a  strong  feeling  among  the  peo- 
ple for  local  regulation,  and  I  do  not  think  it  would  interfere  with 
efficiency  enough  or  create  so  much  delay  as  to  offset  the  advantage 
of  recognizing  local  interests  and  local  power,  thus  reconciling  mu- 
nicipalities to  having  such  a  system.  I  do  not  know  whether  I  make 
myself  plain. 

The  CHAIRMAN.  Do  you  believe  that,  under  any  circumstances,  the 
whole  jurisdiction,  both  over  service  and  rates,  should  be  left  with 
municipalities? 

Mr.  TAFT.  Are  you  speaking  of  fixing  wages  ? 

The  CHAIRMAN.  No;  as  to  rates  and  service. 

Mr.  TAFT.  I  think  the  whole  subject  should  be  under  the  control 
of  the  State  commission  and  of  the  local  authorities. 

The  CHAIRMAN.  But  I  asked  if  you  think  the  whole  question  should 
be  left  to  the  local  municipality,  without  right  of  appeal  to  the  State 
commission  ? 

Mr.  TAFT.  No,  sir ;  I  do  not  think  so. 

The  CHAIRMAN.  Do  you  believe  that  we  have  approached  the  time 
where  we  should  get  away  from  the  fixed  fare,  fixed  by  law  or  fran- 
chise ? 

Mr.  TAFT.  Yes ;  I  do.  I  think  a  fixed  fare  that  runs  for  20  years 
is  not  right  to  either  side. 

Commissioner  SWEET.  If  this  commission  should  be  requested  by 
any  local  authorities  that  might  agree,  perhaps  to  act  as  arbitrators 
in  the  settlement  of  local  troubles,  do  you  think  it  would  be  wise  for 
us  to  accept  that  responsibility  and  do  it,  or  would  it  lead  to  possible 
multiplication  of  our  work  to  such  an  extent  that  it  would  not  be. 
feasible,  or  would  it  weaken  our  authority,  the  authority  of  what 
we  may  ultimately  put  forth? 

Mr.  TAFT.  I  think  it  would  be  a  very  useful  body  to  tender  service 
in  settling  questions,  where  both  sides  are  willing  to  submit;  but 
I  think  it  will  involve  you  in  a  permanent  business. 


PROCEEDINGS  OF  FEDEEAL  ELECTRIC  RAILWAYS  COMMISSION.      27 

The  CHAIRMAN.  And,  of  course,  our  compensation  is  even  less  than 
$1  a  year. 

Commissioner  SWEET.  I  have  one  more  question  that  I  would  like 
to  ask,  suggested  by  your  answer  to  the  chairman  with  regard  to  the 
general  advance  in  prices  of  commodities  and  labor  and  everything 
else.  Is  it  such,  in  your  judgment,  as  to  justify  the  statement  that 
the  purchasing  power  of  the  dollar  has  been  very  materially  re- 
duced ? 

Mr.  TAFT.  I  think  it  has.  I  think  that  as  soon  as  peace  comes 
we  are  likely  to  have  an  era  of  prosperity ;  and  an  era  of  prosperity 
usually  means  high  prices.  It  means  large  demand  for  everything. 

Commissioner  SWEET.  If  the  purchasing  power  of  the  dollar  is 
reduced,  the  purchasing  power  of  the  nickel  is  reduced  in  the  same 
proportion,  is  it  not  ? 

Mr.  TAFT.  Oh,  yes. 

Commissioner  SWEET.  And  if  the  value  of  the  dollar  is  reduced 
to  60  cents,  the  value  of  the  nickel  is  reduced  to  3  cents,  is  it  not  ? 

Mr.  TAFT.  Yes. 

Commissioner  SWEET.  Is  not  that  a  fact  that  the  public  should 
take  into  account  in  connection  with  their  paying  for  this  railway 
service  ? 

Mr.  TAFT.  Yes. 

Commissioner  SWEET.  If  they  are  paying  in  nickels  that  are  actu- 
ally worth,  in  purchasing  power,  3  cents,  they  ought  not  to  expect 
to  get  as  much  for  that  nickel  as  for  a  nickel  that  wiys  -worth  5  cents 
in  its  purchasing  power:  isn't  that  so? 

Mr.  TAFT.  Yes.  • 

The  CHAIRMAN.  Suppose  that  the  improvements  in  the  art  of 
transportation  should  develop  to  a  condition  where  the  street-car, 
as  now  operated,  becomes  an  obsolete  institution:  should  there  be 
any  obligation  upon  the  public  to  protect  such  an  institution? 

Mr.  TAFT.  If  it  becomes  obsolete,  it  will  be  rejected,  and  then 
they  can  not  get  any  income.  I  think  that  will  work  itself  out.  I 
think  the  suggestion,  however,  is  a  reason  why  these  fixed  fran- 
chises for  long  terms  are  not  wise  arrangements  now. 

Commissioner  WEHIX.  Judge  Taft,  three  of  the  gentlemen  on  this 
commission  are  representatives  of  Government  departments,  and  I 
happen  to  be  one  of  them,  representing  the  Treasury  Department, 
and  this  question  as  to  the  scope  of  the  commission's  activities  in- 
terests me  very  much.  I  think  it  is  proper  to  say  here,  because  the 
question  has  been  brought  up.  that  in  Washington  it  is  strongly  felt, 
certainly  among  the  higher  officials  whom  I  have  had  contact  with 
in  connection  with  my  representation  on  this  commission,  that  the 
authority  and  influence  which  the  commission  can  exert  with  ref- 
erence to  the  street-railway  problem  must  bo  purely  a  persuasive  in- 
fluence, based  on  the  balanced  character  of  the  personnel  of  the 
commission,  and  based  also  on  the  thought  that  the  Federal  Gov- 
ernment, in  having  been  instrumental  in  bringing  about  this  in- 
quiry, is  acting  really  as  a  mediator,  so  to  speak,  in  this  economic 
dispute;  and  that  this  authority  of  the  Government  and  the  in- 
fluence which  it  would  have  through  this  commission  would  1m 
greatly  lessened  if  it  undertook  in  any  way  to  interfere  or  to  sug- 
gest as  to  the  solution  of  any  local  difficulties. 


28       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

You  have  suggested  that  these  gentlemen  who  are  involved  in  these 
difficulties  should,  if  they  apply  to  us,  be  heard  with  reference  even 
to  the  difficulty  itself.  Dp  you,  may  I  ask,  conceive  that  that  sug- 
gestion would  carry  with  it,  if  adopted,  a  danger  that  the  functions 
of  this  commission  and  the  intentions  of  its  framers  would  be  mis- 
understood? 

Mr.  TAFT.  I  doubt  it.  I  believe  in  the  inductive  method  of  philos- 
ophy. I  believe  you  will  reach  generalizations  by  getting  particular 
cases,,safer  generalizations,  by  taking  up  a  series  of  particular  cases, 
than  you  wrill  by  generalizations  such  as  you  have  listened  to  this 
morning.  I  do  not  know  how  much  you  value  my  evidence,  but  I 
would  not  value  it  very  much. 

Commissioner  WEHLE.  We  do  value  it  very  highly,  Judge. 

Mr.  TAFT.  I  think  the  evidence  of  particular  cases,  with  something 
concrete  before  you,  even  though  you  have  generalizations,  will  en- 
able you  to  test  those  generalizations  in  a  way  that  would  be  most 
useful  for  you. 

Commissioner  WEHLE.  But  your  suggestion  that  we  hear  these 
men  from  troubled  localities  does  not  carry  with  it,  does  it,  the  idea 
that  we  should  make  suggestions  as  to  the  way  in  which  the  dispute 
should  be  settled? 

Mr.  TAFT.  No;  not  unless  both  sides  present  the  question  to  you 
and  ask  you  to  do  it.  Then,  if  they  do,  that  is  a  matter  of  discretion 
for  you  to  say  how  far  you  are  willing  to  go  in  tendering  services  that 
are  gratuitous  pn  the  part  of  the  Government  and.  so  far  as  I  under- 
stand, gratuitous  on  the  part  of  the  members  who  represent  the 
Government.  • 

The  CHAIRMAN.  I  am  sure,  Judge  Taft,  that  the  commission  wishes 
to  thank  you  for  your  very  valuable  contribution  to  this  subject. 

Mr.  TAFT.  I  am  very  glad  to  come  here,  gentlemen.  I  have  spoken 
with  great  freedom  on  issues  in  respect  to  wrhich  I  do  not  claim  to 
have  any  expert  knowledge ;  but  wTe  are  all  in  together  in  the  solution 
of  these  problems,  or  all  affected  by  them,  and  if  anything  that  has 
happened  to  me  in  the  course  of  the  National  War  Labor  Board's 
experience  is  helpful  to  you,  I  am  delighted  to  give  it  to  you. 

The  CHAIRMAN.  I  have  a  telegram  from  Mr.  G.  S.  MacFarland, 
reading  as  follows : 

Call  to  Washington  makes  it  impossible  for  me  to  appear  before  you  to-day. 
Shall  be  glad  to  do  so  on  some  other  occasion. 

This  telegram  is  sent  from  Boston  June  19. 

Now,  Mr.  Pardee,  you  have  a  statement  to  make,  I  understand,  and 
we  shall  be  glad  to  hear  you. 

STATEMENT  OF  MR.  JOHN  H.  PARDEE. 

Mr.  PARDEE.  I  appear  as  president  of  the  American  Electric  Rail- 
way Association,  which  of  course  is  vitally  interested  in  the  investi- 
gation which  this  commission  has  undertaken.  The  association  rep- 
resents a  very  large  majority  of  the  electric-railway  mileage  of  the 
United  States. 

It  has,  for  a  number  of  years,  be«n  fully  alive  to  the  alarming 
tendency  manifested  in  electric-railway  affairs,  and  through  its 
various  committees  has  been  seeking  for  remedies.  It  was  repre- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       29 

sented  at  Washington  during  the  war  by  a  war  board,  which,  for  a 
part  of  the  time  was  presided  over  by  Mr.  P.  H.  Gadsden,  one  of 
your  members,  and  it  constantly  endeavored  to  bring  to  the  attention 
of  the  country,  and  especially  to  the  national  administration,  the  situ- 
ation in  which  the  industry  has  been  plunged,  not  only  by  war  con- 
ditions, but  by  conditions  which  prevailed  before  the  war. 

The  association  believes  that  in  the  appointment  of  your  commis- 
sion a  very  decided  forward  step  has  been  taken  in  the  process  of 
informing  the  country  of  the  very  unfortunate  state  of  affairs  exist- 
ing among  the  traction  companies,  and  of  arriving  at  some  solution 
of  the  difficulties.  As  its  president,  I  am  authorized  to  place  its 
facilities  at  your  command. 

At  a  recent  meeting  of  the  executive  committee  of  the  association 
a  committee  of  100  of  the  leading  owners,  operators,  and  bankers  in- 
terested in  the  electric-railway  securities,  and  others,  of  which  Gen. 
Guy  E.  Tripp  is  chairman,  was  appointed  for  the  purpose  of  prepar- 
ing a  presentation  of  the  situation  as  it  is  viewed  by  the  electric-rail- 
way interests.  We  hope  to  appear  before  you  commission  at  its  con- 
venience with  a  full  and  complete  presentation  and  with  such  sug- 
gestions for  the  correction  of  conditions  as  the  committee  may  decide 
upon. 

We  approach  this  subject  not  only  with  the  interest  of  the  railways 
in  mind,  but  also  with  the  interest  of  the  public,  which  we  firmly  be- 
lieve is  threatened  with  the  loss  of  an  essential  and  important  service, 
unless  measures  be  taken  to  check  the  present  tendency. 

We  believe,  with  the  President  of  the  United  States,  with  the  Sec- 
retaries of  Labor  and  Commerce,  that  the  situation  because  of  its 
effect,  not  only  upon  the  financial  structure  of  the  Nation,  but  upon 
its  commercial  and  civic  life,  has  national  aspects  which  can  not  be 
ignored. 

The  situation  of  which  we  complain  is  not  confined  to  one  locality 
but  extends  throughout  the  United  States. 

The  solution  in  our  opinion  depends,  in  the  first  instance,  upon  a 
complete  understanding  by  the  public  of  the  problems  as  they  now 
exist;  and  in  the  education  of  the  public  to  the  importance  of  these 
problems,  as  well  as  to  the  method  of  curing  them,  your  commission 
can  do  a  very  large  and  a  very  important  work. 

Please  consider  that  the  association  and  its  resources  are  at  your 
command  in  the  investigation  that  you  have  undertaken.  I  desire 
at  this  time  to  request  your  commission,  at  its  convenience,  to  ap- 
point a  date  at  which  pur  committee  may  present  for  your  consid- 
eration the  facts  affecting  the  situation  which  you  are  studying,  as 
they  appear  to  the  men  actively  interested  in  the  financing  and 
operation  of  electric  railways.  It  shall  be  our  endeavor  to  give  you 
as  comprehensive  a  picture  as  we  can  of  present  conditions  and  the 
causes  which  have  led  to  them,  as  well  as  to  the  remedies  to  be 
applied. 

The  CHAIRMAN.  How  soon,  Mr.  Pardee,  would  it  be  convenient 
for  your  committee  to  present  these  facts  to  the  commission? 

Mr.  PAKDEE.  Gen.  Tripp  has  called  a  meeting  of  the  members  of 
this  committee  who  are  quite  prominent  men  in  all  sections  of  the 
United  States,  and  he  has  called  a  general  meeting  of  the  committee 
for  June  20,  in  New  York,  at  which  we  hope  to  have  a  very  largo 
proportion  of  the  members  of  the  committee  present.  Subcommit- 


30       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

tees  are  now  working  on  a  definite  program  to  outline  to  the  general 
committee,  and  we  hope  that  at  that  meeting,  on  June  26,  the  de- 
tailed arrangements  will  all  be  made  so  that  we  can  get  to  work 
immediately ;  so  that  perhaps  a  week  later  we  would  be  prepared  to 
present  some  particular  phase. 

Our  present  idea  is  that  we  shall,  at  these  various  hearings,  present, 
one  at  a  time,  definite  phases  of  the  situation:  for  instance,  taxation, 
in  one  comprehensive  plan;  franchises;  service-at-cost  plan;  and  va- 
rious other  phases  of  the  general  question. 

The  CHAIRMAN.  Would  it  be  convenient  for  the  utilities  to  present 
ail  that  you  have  to  say  at  one  general  meeting  which  would  consume 
as  many  days  as  may  be  necessary,  or  would  you  prefer  to  have 
separate  hearings? 

Mr.  PARDEE.  It  would  depend  entirely,  sir,  upon  whether  we  could 
prepare  it.  We  desire,  if  possible,  to  present  this  in  a  very  compre- 
hensive and  complete  way — each  section.  Some  phases  will  take 
longer  for  preparation  than  others,  and  I  do  not  know  that  I  can 
answer  that  question  just  now.  A  little  later,  however,  we  can  pre- 
sent, I  think,  at  a  general  meeting  consuming  one  or  more  days,  all 
of  the  subjects. 

The  CHAIRMAN.  The  commission  will  be  glad  to  consider  any  sug- 
gestion that  you  have  to  make  upon  that  subject.  Would  it  be  con- 
venient for  the  representatives  of  your  association  to  come  to  Wash- 
ington to  present  that  testimony? 

Mr.  PARDEE.  Yes,  sir ;  at  the  pleasure  of  the  commission. 

The  CHAIRMAN.  There  was  a  Mr.  Clark  who  was  to  appear  this 
morning  to  give  testimony. 

Mr.  PARDEE.  Mr.  Clark  is  the  direct  representative  of  the  associa- 
tion, Mr.  Chairman,  and  I  am  speaking  for  Mr.  Clark,  as  I  conferred 
with  him  this  morning;  and  unless  it  is  the  earnest  desire  of  the  com- 
mission to  hear  Mr.  Clark  this  morning,  we  would  rather  have  his 
testimony  come  into  our  general  plan,  rather  than  take  part  of  it  at 
this  time. 

The  CHAIRMAN.  The  commission  will  hear  Mr.  Clark  later,  then. 

Is  there  a  Mr.  Cummin  in  the  room  ? 

Mr.  CUMMIN.  Yes. 

The  CHAIRMAN.  Will  you  be  at  liberty  to  present  your  statement 
this  afternoon? 

Mr.  CUMMIN.  Yes,  sir. 

The  CHAIRMAN.  Are  there  any  other  gentlemen  present  who  wish 
to  present  statements  before  this  commission  at  this  time,  or  at  any 
other  period  ?  If  so,  we  will  take  your  names  now.  [No  response1.] 

Let  it  be  understood  that  if  any  here  desire  to  present  testimony  to 
this  commission,  if  they  are  not  ready  to  do  so  now,  they  may  com- 
municate with  us  later  on.  We  want  to  hear  all  sides  of  the  question, 
and  get  all  the  information  that  can  be  gathered. 

We  now  stand  adjourned  until  half  past  2,  to  meet  in  this  room. 

(Whereupon,  at  12.40  o'clock  p.  m.,  a  recess  was  taken  until  2.30 
p.  m.) 

AFTER    RECESS. 

The  CHAIRMAN.  Is  Mr.  Cummin  present? 

Mr.  CUMMIN.  Yes. 

The  CHAIRMAN.  We  will  hear  you. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       31 

STATEMENT  OF  MR.  GAYLORD  C.  CUMMIN. 

The  CHAIRMAN.  Please  state  your  name,  address,  and  business,  Mr. 
Cummin. 

Mr.  CUMMIN.  I  represent  now  the  Institute  for  Public  Service,  at 
51  Chambers  Street,  New  York,  a  private  institution  that  has  on  its 
board  of  directors  such  men  as  Julius  Barnes,  of  the  Wheat  Corpora- 
tion, and  Mr.  W.  Hefflin,  manager  of  the  Allied  Grain  Export  Cor- 
poration ;  Dr.  L.  B.  Upson,  of  Bureau  of  Governmental  Research  in 
Detroit. 

The  CHAIRMAN.  Have  you  had  any  experience  in  the  handling  of 
public  utilities  ? 

Mr.  CUMMIN.  I  have  handled  them  six  years  from  the  public 
standpoint,  and  have  been  about  as  much  with  them  on  the  private 
side.  I  have  been  city  engineer  of  Dayton,  Ohio,  city  manager  of 
Jackson,  Miss.,  and  Grand  Rapids,  Mich. 

The  CHAIRMAN.  When  and  how  long  were  you  city  manager  of 
Jackson  ? 

Mr.  CUMMIN.  Two  years. 

The  CHAIRMAN.  And  at  the  other  place? 

Mr.  CUMMIN.  One  year. 

The  CHAIRMAN.  When  was  it? 

Mr.  CUMMIN.  Two  years  ago. 

The  CHAIRMAN.  You  may  proceed. 

Mr.  CUMMIN.  The  street-railway  situation,  as  I  see  it,  divides  itself 
into  two  parts.  I  might  say  that,  during  the  past  year,  I  have  been 
with  a  large  utility  group  and  have  had  opportunity  to  study,  at  first 
hand,  the  figures  and  the  number  of  street  railroads. 

The  street  railroads  seem  to  separate  themselves  into  two  groups 
for  purposes  of  treatment.  One  group  is  the  group  where  it  is  pos- 
sible for  them  to  stand  on  their  own  feet,  by  means  of  increased 
fares  and  decreased  expenses  of  various  kinds,  decreased  taxes 
perhaps,  and  so  on.  In  other  words,  the  earning  capacity  is  there, 
to  put  them  on  their  feet.  The  other  class  is  the  class  where  the 
earning  capacity  is  not  there ;  I  mean,  the  rate  of  fare  that  is  fixed 
makes  absolutely  no  difference.  You  could  give  the  company  a  free 
hand  to  charge  any  thing  they  wanted  to  charge,  and  they  still  could 
not  raise  their  gross  revenue. 

It  is  rather  a  simple  problem  of  merchandising.  Yqu  have  a 
problem  of  getting  the  greatest  gross  revenue,  and  you  can  get  it 
in  one  of  two  ways — by  soiling  a  large  number  of  units  for  a  small 
price  or  a  small  number  of  units  for  a  large  unit  price.  There  is 
some  price  at  which  you  can  get  the  largest  gross  revenue.  That  is 
true  of  street-railway  fares  just  as  much  as  it  is  of  articles  of  mer- 
chandise. But  as  the  size  of  your  town  decreases,  speaking  gener- 
ally, the  price  per  fare  at  which  you  can  get  the  greatest  gross  reve- 
nue drops,  and  you  get  in  the  smaller  towns,  to  the  point  where  5 
cents  is  probably  larger,  or  might  be  larger  than  the  point  where 
you  could  get  the  greatest  gross  revenue.  Of  course,  the  habit  of 
paying  5  cents  might  not  make  that  true;  but  it  is  certainly  true 
that  a  6-cent  fare  in  the  smaller  towns  in  many  cases  will  give  no 
increase  in  gross  revenue,  and  in  some  cases  an  actual  decrease. 

Commissioner  SWEET.  Are  you  saying  that,  now,  from  actual  cases 
that  you  know  of? 


32       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CUMMIN.  I  am  saying  that  from  actual  cases. 

I  am  not  going  to  discuss,  very  much,  the  class  where  the  revenue 
does  not  exist,  where  they  can  not  earn  the  revenue.  I  am  going  to 
try  to  discuss  the  ones  where  it  is  possible  to  get  the  revenue. 

The  CHAIRMAN.  Have  you  any  figures  to  show  in  what  cases  the 
increase  in  the  fare  from  5  to  6  cents  would  result  in  an  actual  loss 
in  gross  revenue  ? 

Mr.  CUMMIN.  No;  I  have  not  them  with  me,  Mr.  Chairman.  I 
know  of  two  small  street  railroads  that  I  was  watching  with  a  great 
deal  of  attention  and  when  the  increased  fare  was  put  into  effect 
they  fell  off  very  materially,  not  only  in  passengers  .carried,  but  in 
actual  gross  revenue  for  the  period  of  months  over  which  I  watched 
.them,  about  some  seven  months. 

Commissioner  GADSDEN.  Have  you  followed  up  the  experience 
since  that  time? 

Mr.  CUMMIN.  Since  that  time  I  happen  to  have  been  out  of  touch 
with  them. 

Commissioner  SWEET.  I  think  you  had  better  name  the  place. 

Mr.  CUMMIN.  Jackson,  Miss.,  was  one  of  those.  That  is  a  town  of 
30.000.  There  is  a  case  where  they  do  not  have  to  ride. 

Commissioner  BEALL  That  is  because  the  distances  are  so  short? 

Mr.  CUMMIN.  Yes. 

Commissioner  BEALL.  If  there  are  any  others  that  you  may  have 
to  cite,  I  -think  we  should  know  of  them. 

Mr.  CUMMIN.  That  was  the  plainest  case.  That  was  the  case  of 
an  increase  to  a  7-cent  fare,  which  resulted  in  a  decrease  in  gross 
earnings,  a  very  material  decrease,  too,  at  first. 

Commissioner  GADSDEN.  What  was  their  average  ride  in  Jackson, 
do  you  know  ? 

Mr.  CUMMIN.  No. 

Commissioner  GADSDEN.  Was  it  over  a  mile  and  a  half,  or  less? 

Mr.  CUMMIN.  Less  than  a  mile  and  a  half. 

Commissioner  GADSDEN.  That  explains  it. 

Mr.  CUMMIN.  It  is  easy  enough  to  explain  why,  but  it  is  a  con- 
dition that  does  exist. 

In  the  cities  where  a  change  of  fare  promises  relief,  it  seems  to 
me,  from  Avhat  I  have  seen  on  both  sides,  that  no  form  of  agreement 
which  has  been  made  at  present  is  satisfactory.  Perhaps  the  nearest 
approach  to  it  is  the  service-at-cost  plan.  That,  I  think,  has  in  it  a 
fundamental  weakness,  which  was  touched  upon  briefly  this  morn- 
ing, but  was  not  brought  out,  and  that  is — I  do  not  believe  that  by 
making  a  fixed  return,  which  a  utility  can  not  exceed,  you  can  keep 
that  utility  up  to  efficient  operation  or  that  you  can  keep  its  execu- 
tives and  managers  interested  in  cutting  its  costs  and  cutting  cor- 
ners and  keeping  things  as  low  as  possible.  That  simply  is  not 
human  nature.  You  have  got  to  give  some  incentive  to  do  the  thing 
you  want  to  do,  if  you  want  to  do  it  for  any  length  of  time. 

Commissioner  BEALL.  Suppose  the  maximum  is  not  fixed,  how 
then  ?  Suppose  there  is  no  maximum  there  fixed,  but  that  the  rates, 
as  in  Montreal,  rise  to  whatever  height  is  necessary  to  produce  a 
given  revenue  on  a  given  investment.  Are  vou  referring  to  a  case 
of  that  kind  ? 

Mr.  CUMMIN.  If  you  give  the  utility  a  fixed  return  only — that  is, 
if  it  is  allowed,  say,  7  pe.r  cent  on  its  invested  capital,  or  6  per  cent 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       33 

on  its  invested  capital — when  it  once  gets  up  to  6  per  cent,  it  is  not 
going  to  exert  itself  to  cut  its  costs,  because  it  does  not  make  any 
difference,  then,  what  the  earnings  are,  it  can  only  get  its  6  per  cent, 
or  its  7  per  cent  as  the  case  may  be.  You  are  taking  the  incentive 
away  from  the  utility.  That  it  actually  has  that  effect  I  have  seen  in 
other  cases  not  connected  with  street  railroads,  but  one  case  I  think 
of,  particularly,  where  an  electric-power  plant  in  a  small  town  had 
an  opportunity  to  buy  current  from  a  big  central  station  plant  at 
quite  advantageous  terms,  and  they  were  earning,  at  that  time,  the 
maximum  allowed  by  that  State  public-service  commission,  the 
maximum  percentage;  and  when  they  signed  up  the  contract  with  the 
central-station  plant,  a  rate  controversy  was  inaugurated  by  some 
citizens  and  taken  up  by  the  public-service  commission,  and  they 
lost  all  the  advantage  they  had  gotten  by  signing  the  contract,  and 
came  back  to  whatever  it  was — 7£  per  cent,  I  think — that  they  were 
allowed. 

The  man  that  owned  that  utility  and  a  group  of  utilities  besides 
told  me  shortly  afterwards  that  that  had  cured  him  of  ever  trying 
to  save  anybody  any  money ;  and  you  can  see  how  that  Avould  happen. 

I  have  heard  one  other  manager  of  another  utility  group  that  has 
specialized  on  efficient  operation  and  they  are  in  States  where  they 
are  governed  by  commissions,  and  where  they  have  a  fixed  rate  of 
return,  and  I  have  heard  him  explain,  on  several  occasions,  that  he 
could  not  see  any  reason  why  they  should  continue  exerting  them- 
selves to  hold  the  grade  of  efficiency  which  they  had  prided  them- 
selves on,  because  they  absolutely  got  nothing  out  of  it. 

Commissioner  BEALL.  How  about  a  case  like  Dallas,  Tex.?  The 
electric-light  company  operates  under  a  franchise  whereby  the 
lower  the  rate  the  larger  return  they  are  permitted  to  earn  on  the 
fixed  value  recognized  by  the  franchise.  Does  not  that  cure  the 
thing? 

Mr.  CUMMIX.  I  had  not  heard  of  that.  That  is  pretty  much  the 
same  thing  I  was  about  to  speak  of. 

Commissioner  BEALL.  Would  not  that  cure  it? 

Commissioner  GADSDEX.  That  is  also  the  consideration  in  the  Cin- 
cinnati contract. 

Mr.  CUMMIX.  A  street-railway  contract? 

Commissioner  GADSDEN.  Service  at  cost. 

Mr.  CUMMIN.  And  an  increasing  return? 

Commissioner  GADSDEN.  An  increasing  portion  that  the  railway  re- 
ceives of  the  net  profit. 

Mr.  CUMMIX.  I  think  there  is  an  important  point  that  has  to  be 
watched,  that  the  utility,  as  it  decreases  its  cost  so  that  the  rate  of 
fare  can  be  dropped,  will  get  some  part  of  that  saving.  I  think  that 
is  most  important.  I  do  not  believe  that  otherwise  you  will  get  the 
operation  that  you  have  a  reason  to  expect  from  private  operations. 
I  think  that  incentive  must  be  there. 

Commissioner  MEEKER.  You  believe  unless  you  have  that  money 
incentive  the  private  operation  has  no  advantages  over  a  public 
operation  ? 

Mr.  CUMMIX.  I  can  see  where  it  would  have  but  little,  if  any.  I 
can  not  see  any  incentive  there  for  them  to  continue  to  keep  their 
operation  efficient. 


34       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  At  any  rate,  it  would  not  reach  the  highest 
state  of  efficiency  ? 

Mr.  CUMMIN.  No. 

Commissioner  BEALL.  Are  you  basing  that  on  any  actual  com- 
parison between  municipally  owned  and  privately  owned  plants? 

Mr.  CUMMIN.  No. 

Commissioner  BEALL.  I  think  you  will  find  the  figures  the  other 
way,  if  you  take  the  operating  sheets  of  municipal  plants  in  this 
country  and  compare  them  with  those  privately  managed;  you  will 
find  the  private  companies  have  the  advantage. 

Mr.  CUMMIN.  I  am  speaking  on  the  average,  and  not  of  any  par- 
ticular company.  You  mean  the  private  companies — 

Commissioner  BEAM,.  Are  operated  more  efficiently,  at  less  cost  ? 

Mr.  CUMMIN.  I  believe  so. 

Commissioner  BEALL.  Where  you  can  get  the  figures.  In  many 
towns  they  will  not  give  them  to  you. 

Commissioner  MEEKER.  You  mean,  even  without  the  economic  in- 
centive, private  management  is  more  efficient  than  public  manage- 
ment? 

Commissioner  BEALL.  Yes. 

Mr.  CUMMIN.  I  think  that  is  quite  possible.  There  are  other  diffi- 
culties in  public  ownership  which  do  not  generally  appear  to  the 
public. 

Commissioner  GADSDEN.  Is  it  not  true,  also,  that  even  where  there 
is  no  incentive  to  the  private  operation  of  the  extra  profit,  that  the 
employees  and  officers  of  the  company  still  have  the  incentive  of 
producing  economic  results  in  that  industry  as  compared  with  the 
results  which  their  friends  and  associates  are  obtaining  in  other 
plants? 

Mr.  CUMMIN.  Yes. 

Commissioner  GADSDEN.  You  do  not  get  rid  of  that  incentive  ? 

Mr.  CUMMIN.  You  still  have  another  incentive,  too.  You  have  the 
incentive  that  urges  them  to  efforts  in  order  to  keep  the  percentage 
they  do  get. 

The  trouble  with  municipally  owned  or  publicly  owned  plants  is 
that  you  are  liable  to  have  a  case  where  they  do  not  look  after  the 
financial  condition  of  their  plant  at  all.  Their  operating  statements 
may  be  one  thing  or  another,  but  the  actual  physical  condition  of 
their  plant  and  the  condition  of  their  finances  is  not  looked  after 
carefully. 

The  CHAIRMAN.  Do  you  prefer  to  complete  your  statement  before 
submitting  yourself  to  cross-examination  ? 

Mr.  CUMMIN.  I  think  this  is  probably  the  best  way,  Mr.  Chair- 
man, to  bring  out  any  points  that  I  can  cover. 

The  main  point  that  I  wanted  to  impress  was  the  point  of  not 
forgetting  that  you  must  put  the  incentive  in  front  of  the  utility  as 
well  as  in  front  of  the  people,  if  you  want  to  get  efficient  operating 
results.  You  put  an  incentive  in  front  of  the  people  by  lowering 
fares,  an  incentive  for  them  to  treat  the  utility  fairly;  because  if 
they  treat  the  utility  unfairly,  they  spoil  its  chances  for  having  a 
good  year's  operation,  and  spoil  their  chances  for  getting  a  lower 
fare.  They  can  onty  get  a  lower  fare  when  the  utility  is  prosperous, 
and  the  utility  can  only  get  a  greater  return  when  the  consumer  gets 
a  lower  fare.  I  think  that  is  the  thing,  boiled  down.  Psychologically 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       35 

that  is  correct.  On  both  sides  you  put  an  incentive  before  each 
party  to  do  the  thing  that  they  ought  to  do. 

The  great  point  in  the  whole  controversy,  the  big  job  that  is  before 
you  gentlemen,  as  I  see  it,  is  a  job  of  education.  The  public  are 
prejudiced.  There  is  no  doubt  about  that.  They  have  known  of 
things  that  have  been  done  in  the  past,  and  they  labor  under  the 
delusion,  or  they  at  least  have  the  feeling  that  tremendous  profits 
have  been  made  out  of  the  operation  of  street  railroads — I  mean 
directly  out  of  the  operation  of  street  railroads — and  they  see  no 
reason  why  the  companies  that  in  times  past  have  made,  as  they 
feel,  tremendous  profits,  should  not  stand  the  temporary  setbacks 
also. 

Furthermore,  by  these  acts  of  the  past,  the  utilities  have  aroused 
the  suspicion  and  distrust  of  the  public  for  almost  anything  they 
say;  and  unfortunately  the  utilities  do  not  seem  to  have  learned  to 
handle  the  public  with  any  degree  of  good  sense  in  many  of  these 
disputes;  they  needlessly  arouse  the  distrust  and  suspicion  of  the 
public,  and  arouse  it  anew. 

Take  an  instance  that  occurred  in  Akron,  just  recently;  that  is, 
in  the  spring :  There  was  an  ordinance  in  the  city  council  asking  for  a 
6-cent  fare,  put  in  by  the  Northern  Ohio  Traction  Co.,  and  at  the 
same  time  that  that  was  in  the  council,  asking  for  increased  fare  on 
account  of  changed  conditions  due  to  the  war,  before  the  county 
commissioners  was  the  project  of  a  viaduct  which  had  been  designed 
before  the  war,  where  they  had  entered  into  a  contract  with  the 
street-railway  company  to  pay  a  certain  amount  based  on  a  per- 
centage of  the  cost  of  that  viaduct.  The  war  had  held  it  up.  After 
the  war,  they  had  got  together,  and  they  had  to  reestimate  it  at  a 
very  much  higher  cost,  on  account  of  the  increase  in  the  cost  of 
materials. 

They  came  to  the  street-railway  company  to  modify  their  con- 
tract on  account  of  the  conditions  due  to  the  war,  the  changed  con- 
ditions due  to  the  war,  and  the  manager  said,  "  We  have  a  contract." 
And  then  they  wondered  why  there  was  a  public  explosion. 

There  is  an  instance  of  a  bone-headed  thing  that  a  utility  does. 
They  disavowed  it  in  two  or  three  days,  but  the  damage  was  done. 
That  was  not,  probably,  intentional.  The  man  that  that  came  up  to 
did  not  see  what  he  was  doing.  But  that  sort  of  thing  promptly 
makes  a  bad  impression  the  great  bulk  of  the  citizens,  who  say :  "  You 
can  not  rely  on  anything  these  fellows  say.  They  want  the  money, 
and  that  is  all  they  are  interested  in.  They  do  not  want  to  play  fair. 
They  want  simply  what  they  can  get  out  of  it." 

I  simply  cite  that  as  an  instance  of  a  thing  that  is  to  be  remedied 
if  present  conditions  are  to  be  improved.  The  utility  companies  have 
got  to  pay  a  little  more  attention  to  the  public  relations  than  they 
ever  have  before. 

There  are  many  instances,  as  you  look  over  one  dispute  after  an- 
other and  see  where  things  have  been  done  that  were  not  necessary, 
where  they  went  out  of  their  way,  apparently,  to  arouse  the  public. 
One  case  that  I  have  in  mind  occurred  in  Michigan — Michigan,  by 
the  way,  is  a  home-rule  State,  where  the  citizens  are  very  particular 
about  any  interference  with  local  self-government — and  in  one  of 
the  bills,  which  was  supposed  to  be  fathered  by  the  utilities,  that 
was  put  in  the  last  legislature,  for  a  public-service  commission — 


36       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

which,  for  the  first  time,  has  a  chance  of  passing  in  Michigan — the 
public  mind  has  been  educated  to  the  point  where  they  saw  the  neces- 
sity, but  this  bill  came  in 

The  CHAIRMAN.  Did  that  bill  give  the  public-service  commission 
exclusive  control  over  the  rates  and  service  of  the  utilities? 

Mr.  CUMMIN.  Not  only  the  utilities,  but  over  the  municipal  util- 
ities, over  their  rates,  and  everything  connected  with  them. 

Well,  now,  that  promptly  brought  up  the  argument  that  that  .will 
give  the  public-service  commission  the  power  to  say  how  much  you 
shall  pay  for  water,  for  instance,  which  may  be  very  much  above 
what  we  are  paying  now,  because  part  of  the  cost  is  being  carried 
out  of  general  taxation;  and  the  way  the  bill  was  worded,  that  was 
perfectly  possible. 

It  is  very  advantageous,  it  is  a  good  thing,  a  good  protection  for 
the  public,  to  have  accounting  control,  to  have  the  State  public- 
service  commission  have  accounting  control  of  municipally  owned 
utilities.  They  should  have.  They  should  have  control  over  maxi- 
mum rates,  they  should  have  control  over  discriminations  in  rates; 
but  -it  certainly  was  not  a  wise  thing  to  try  to  insist  upon  their  hav- 
ing absolute  control  of  ordering  what  rates  should  be  charged  by 
municipal  utilities  in  a  State  that  is  so  wedded  to  local  self-govern- 
ment. That  was  done,  and  it  aroused  a  great  deal  of  opposition — 
an  amount  of  opposition  that  was  not  at  all  necessary,  and  they  had 
quite  a  hard  fight  getting  any  bill  through. 

That  is  just  another  instance  of  a  perfectly  good  idea  being  carried 
too  far,  and  needlessly  arousing  public  distrust  and  su-spicion. 

It  seems  to  me  that  that  is  the  big  job  that  you  have  got  on  your 
hands.  You  have  got  to  educate  the  utilities  to  tell  the  truth  to  the 
public,  so  that  they  will  believe  it.  There  are  a  lot  of  them  that  are 
trying  to  tell  the  truth,  but  a  good  many  of  them  do  not  seem  to 
know  how.  They  make  mistakes,  just  like  the  two  I  have  cited. 

It  is  also  necessary  to  teach  the  utilities  to  bring  out  their  infor- 
mation in  such  a  way  that  there  is  no  more  mystery  left  in  their  busi- 
ness. Mystery  is  a  great  thing  to  engender  suspicion,  and  the  more 
mysterious  you  make  the  financial  operations  of  a  utility,  whatever 
policy  may  have  to  do  with  it — I  am  talking  about  the  effect  on  the 
mind  of  the  public — you  must  bring  your  financial  operations  out 
into  the  open  if  you  ever  want  to  get  the  public  to  believe  you,  and 
you  have  got  to  submit  to  public-accounting  control — not  simply  an 
annual  audit,  but  real  control  of  your  accounting. 

As  everybody  knows  that  has  ever  run  any  kind  of  a  large  job, 
or  any  kind  of  a  business,  it  is  the  easiest  thing  in  the  world  to  make 
operating  reports  do  all  kinds  of  funny  things.  You  can  juggle 
back  and  forth  between  capital  account  and  operating  account,  un- 
less it  is  being  carefully  watched.  I  do  not  believe  that  is  being 
done,  to  any  great  extent,  certainly,  and  it  certainly  is  not  being 
done  where  we  have  public-service  commission  control,  but  the  pub- 
lic thinks  it  is  being  done,  which  is  just  the  same  from  the  stand- 
point of  the  utilities ;  that  is,  they  will  not  believe  the  financial  state- 
ments of  the  utilities. 

You  have  got  to  get  around  that  in  some  way,  and  the  best  way 
to  get  around  it  is  to  take  the  ammunition  out  of  the  public's  hands 
by  giving  them  abundant  chance  to  be  sure  that  their  figures  are 
right. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       37 

Commissioner  GADSDEN.  I  want  to  ask  you  a  question.  What  are 
you  going  to  do  with  the  other  class  of  utilities? 

Mr.  CUMMIN.  The  other  class  of  utilities — you  simply  have  two 
questions,  two  things  you  can  do:  One  of  them  means — and  I  am 
looking  at  it  purely  from  the  standpoint  of  the  public;  the  public 
must  have  service — you  have  either  got  a  public  partnership,  a  part- 
nership with  the  public,  a  subsidy,  or  something  like  that,  or  you 
have  public  ownership.  There  are  two  things  you  can  do.  It  has 
to  be  subsidized  out  of  taxation  some  place. 

Commissioner  GADSDEN.  The  public  has  to  absorb  the  loss  ? 

Mr.  CUMMIN.  The  public  has  to  absorb  the  loss.  They  are  neces- 
sary facilities.  Unfortunately,  they  have  nothing  to  look  forward 
to,  because  the  loss  that  they  have  suffered  now  is  a  loss  due  to  the 
automobile,  very  largely,  and  the  use  of  the  automobile  is  going  to 
increase,  and  not  decrease,  and  the  probable  passengers  per  unit  of 
population  served  will  probably  tend  to- decrease  and  not  increase. 

The  CHAIRMAN.  You  mean,  then,  that  the  street-car  utility  is  going 
to  become  a  diminishing  factor  in  transportation,  with  the  develop- 
ment of  communal  life  2 

Mr.  CUMMIN.  Per  unit  of  population,  I  would  think  that  was  cor- 
rect. 

Commissioner  GADSDEN.  I  want  to  bring  out  your  idea  of  what  is 
going  to  be  that  essential  service  that  could  not  pay  its  way. 

Mr.  CUMMIN.  The  effect  of  the  automobile  now  can  be  shown  by 
comparing  the  figures  on  gasless  Sunda}*s  and  the  Sundays  that 
were  not  gasless.  On  a  number  of  lines  I  found  that  the  gasless 
Sundays  added  from  20  to  40  per  cent  to  the  gross  revenue,  and 
they  seemed  to  average  some  place  around  33^  per  cent.  Now,  if 
the  street  railroads  had  33^  per  cent  more  gross  revenue  than  they 
have  now,  it  would  go  a  long  way  toward  helping  the  solution  of 
the  difficulty,  even  under  present  prices. 

Commissioner  BEALL.  You  do  not  refer  to  carrying  passengers  at 
a  loss,  and  where  the  more  they  carry  the  more  they  lose  ? 

Mr.  CUMMIN.  I  recognize  that  that  would  not  all  be  clear.  I 
mean  that  would  take  some  additional  expense.  But,  unfortunately, 
one  cause  of  the  street  railroad's  trouble  is  a  falling  off  in  travel  per 
unit  of  population  served. 

Commissioner  GADSDEN.  Is  not  one  of  the  serious  consequences 
of  the  street-railway  situation  the  fact  that  they  are  called  upon 
to  do  their  maximum  service  in  a  limited  time,  morning  and  after- 
noon? 

Mr.  CUMMIN.  Yes;  that  is  very  serious. 

Commissioner  GADSDEN.  And  that  that  requires  an  enormous  in- 
crease in  car  investment,  which  is  largely  idle  during  the  balance 
of  the  24  hours? 

Mr.  CUMMIN.  Yes. 

Commissioner  GADSDEN.  Is  it  not  also  true  that  the  more  3*011  in- 
crease that  peak  load  the  worse  the  financial  condition  of  the  com- 
pany will  get? 

Mr.  CUMMIN.  Yes;  unless  something  is  done  to  fill  up  those  val- 
leys. 

Commissioner  SWEET.  What  could  be  done? 

Mr.  CUMMIN.  I  think  that  is  a  case  that  entirely  depends  upon 
local  conditions.  I  mean  I  believe  it  can  be  worked  out,  that  loads 

1278 1;  5 


38       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

can  be  furnished  for  street-railroad  cars,  under  some  situations, 
where  just  now  they  are  not.  I  mean  by  perhaps  making  particu- 
larly attractive  rates,  by  finding  on  study  that  a  certain  line  or 
cars  travel  in  a  certain  direction  at  a  certain  hour  of  the  day  that 
are  hardly  used,  that  it  might  be  possible  to  encourage  travel  that 
way. 

Commissioner  GADSDEN.  Have  you  ever  made  a  study  of  the  effect 
on  that  situation  of  industry  in  general  staggering  its  hours? 

Mr.  CUMMIN.  I  never  have  made  a  study  of  it,  but  it  certainly 
should  have  an  effect. 

Mr.  GADSDEN.  Would  not  that  relieve  it  greatly? 

Mr.  CUMMIN.  I  think  it  would  relieve  it  very  considerably. 

Commissioner  GADSDEN.  If  industry  generally  would  stagger  its 
hours  and  cut  that  peak  down  ? 

Mr.  CUMMIN.  Yes.  If  they  spread  the  peak  over  a  greater  number 
of  hours,  that  certainly  would  lower  the  cost  of  giving  the  service, 
and  probably  give  better  service  also. 

Commissioner  SWEET.  What  would  be  the  practical  method  of 
doing  that? 

Mr.  CUMMIN.  That  is  a  matter  of  the  education  of  the  industries 
to  the  point,  and  the  workmen  also — to  the  point  where  they  are  will- 
ing to  start  and  stop  at  different  hours  in  these  industries.  It  has  to 
be  done  by  agreement.  I  do  not  see  any  way  in  which  it  could  be 
done  by  law.  However,  it  certainly  would  add  very  considerably, 
especially  where  you  have,  say,  two  large  plants,  two  or  three  large 
plants  out  on  the  end  of  a  line,  and  they  are  all  let  go  at  the  same  time 
now,  if  they  separated  their  starting  and  stopping  time  by,  say,  half 
an  hour,  or  even  15  minutes,  it  would  certainly  add  a  great  deal  to  the 
relief  of  the  situation;  half  an  hour  would  probably  be  better.  It 
would  not  only  give  very  much  better  service  to  the  people  served, 
but  also  would  cut  down  the  cost  of  that  service. 

Commissioner  SWEET.  Something  of  that  kind  was  done  in  Wash- 
ington with  the  different  departments  during  the  war. 

Commissioner  BEALL,.  It  was  done  here  during  the  influenza  epi- 
demic, too,  and  had  a  good  effect. 

Commissioner  SWEET.  That  would  be  entirely  out  of  the  hands  of 
the  street-railroad  corporations? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  That  would  be  done  by  the  municipality? 

Mr.  CUMMIN.  That  is  a  matter  of  the  education  of  the  public.  The 
public  has  to  learn  that  they  are  vitally  interested  in  this  problem, 
which  they  do  not  seem  to  see  right  now. 

Commissioner  SWEET.  That  is  right. 

Mr.  CUMMIN.  That  is  they  are  bound  to  lose  as  long  as  the  contro- 
versy keeps  on,  or  as  long  as  the  utilities  can  not  live,  they  are  bound 
to  lose ;  they  are  bound  to  lose  in  service,  and  perhaps  in  money,  be- 
fore they  get  through. 

The  CHAIRMAN.  Had  you  finished  your  questions,  Mr.  Gadsden? 

Commissioner  GADSDEN.  Yes. 

Commissioner  SWEET.  You  said  something,  Mr.  Cummin,  about  the 
incentive  being  necessar}'-  to  the  greatest  degree  of  efficiency,  and  I 
take  it  that  you  are  opposing,  in  a  way,  municipal  ownership  on  the 
ground  that  it  does  not  offer  a  monetary  inducement  to  the  highest 
degree  of  efficiency.  Is  that  right  ? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       39 

Mr.  CUMMIN.  No;  that  is  not  the  ground  on  which  I  objected  to 
municipal  ownership.  I  think  the  question  of  municipal  ownership, 
as  I  see  it,  is  that  the  people  do  not  want  municipal  ownership ;  that 
is,  in  general;  there  are  local  instances  where  they  do.  I  believe 
that  it  is  unproven  as  to  whether  a  municipality  can  operate  a  street- 
railroad  company  as  efficiently  as  a  private  one  can  operate  it.  I 
will  not  say  that  it  is  not  possible  for  a  municipality,  but  I  will  say 
that  it  is  unproved  that  a  municipality  can.  I  think  it  is  a  last  resort, 
right  now. 

Commissioner  SWEET.  Do  you  think  it  is  possible  that  a  munici- 
pality might  operate  a  street  railroad  as  efficiently  as  a  private  cor- 
poration ? 

Mr.  CUMMIN.  I  think  most  anything  is  possible.  I  should  say 
it  was  very  improbable. 

Commissioner  SWEET.  Improbable? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  You  said  you  were  the  city  manager  of 
Grand  Rapids,  Mich.' 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  As  city  manager  you  had  charge  of  the 
pumping  station,  waterworks,  and  of  the  lighting  plant  for  the  city 
lighting,  as  well  as  for  other  work  that  was  conducted  by  the  board 
of  public  works? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  Paving  and  construction  of  sewers  and  that 
kind  of  work? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWE,ET.  Do  you  think  that  your  work  would  have 
been  any  better  done  or  any  more  efficient  if  you  had  been  working 
for  a  private  corporation  instead  of  for  the  public  corporation  ? 

Mr.  CUMMIN.  Yes,  I  do ;  because  I  do  not  believe  the  thing  would 
have  been  in  the  financial  condition  it  was  in  if  it  had  been  a  private 
corporation,  because  it  would  have  been  in  a  receiver's  hands  a  long 
time  before. 

Commissioner  BEALL.  They  had  a  rather  obsolete  plant,  did  they 
not? 

Mr.  CUMMIN.  The-  water  plant  is  modern. 

Commissioner  BEALL.  I  mean  the  electric-light  plant. 

Mr.  CUMMIN.  The  electric-light  plant  was  a  joke. 

Commissioner  BEALL.  It  was,  when  I  saw  it.  I  do  not  know  what 
it  is  to-day. 

Mr.  CUMMIN.  They  had  a  number  of  brush-arc  motors  operated 
by  some  single-cylinder  Russell  engines  that  were  old  enough  to 
vote.  That,  however,  has  been  changed. 

Commissioner  SWEET.  Those  Russell  engines  had  been  defective 
almost  from  the  start,  had  they  not,  and  subjected  to  a  sort  of  partial 
repair? 

Mr.  CUMMIN.  Yes;  I  guess  they  were  not  very  good  in  the  first 
place,  but  they  were  certainly  steam  eaters  when  I  had  them.  That 
apparatus,  by  the  way,  has  been  replaced. 

Commissioner  SWEET.  Had  there  not  been  a  lateral  crack  or  break- 
ago  in  the  cylinders,  or  where  the  cylinders  connected  with  the  steum 
engine  \ 


40       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CUMMIN.  No ;  they  seemed  to  have  been  in  good  enough  oper- 
ating shape  for  the  type  of  engines  they  were. 

Commissioner  SWEET.  But  they  were  not  economical  engines? 

Mr.  CUMMIN.  No;  they  were  not.  Running  beside  them,  they  were 
running  a  pump  and  filter  plant  with  the  turbogenerator  unit  that 
made  them  compare  very  unfavorably. 

Commissioner  SWEET.  You  think  an  up-to-date  private  corpora- 
tion would  have  discarded  engines  of  that  kind  and  put  in  good 
ones,  Mr.  Cummin  ? 

Mr.  CUMMIN.  They  certainly  would  have  discarded  those,  be- 
cause they  could  not  have  operated  and  stayed  solvent. 

Commissioner  SWEET.  When  you  were  conducting  the  business 
affairs  of  the  city  of  Grand  Rapids,  did  the  city  make  any  use  of 
hydroelectric  power  ? 

Mr.  CUMMIN.  No. 

Commissioned  SWEET.  There  was  electric  current  distributed  in 
Grand  Rapids  by  such  method  of  generation,  was  there  not? 

Mr.  CUMMIN.  Yes,  sir. 

Commissioner  SWEET.  But  the  city  did  not  use  it? 

Mr.  CUMMIN.  No,  sir. 

Commissioner  SWEET.  Could  it  have  used  it  to  advantage? 

Mr.  CUMMIN.  Probably  not  economically.  We  had  a  very  excel- 
lent load  factor  on  the  electric  part  of  that  plant,  for  the  reason 
that  the  filter  pumps  were  largely  in  use  during  the  day,  and  the 
same  motive  machinery  ran  the  street  lighting  at  night ;  so  that  the 
load  factor  was  very  excellent,  and  we  could  operate — with  those 
Russell  engines  replaced  by  turbogenerator  equipment,  we  could 
operate  very  efficiently. 

Commissioner  SWEET.  Aside  from  the  fact  that  cities  are  very 
conservative  oftentimes,  and  not  disposed  to  make  improvements 
upon  their  plants,  but  merely  bearing  upon  the  question  of  effort  or 
incentive  to  effort  on  the  part  of  the  management,  I  repeat  my  ques- 
tion whether  your  management  in  Grand  Rapids,  as  the  city  man- 
ager, was  not  as  efficient,  from  the  standpoint  of  effort  on  your  part, 
as  it  would  have  been  if  you  had  been  employed  by  a  private  cor- 
poration. Is  that  so  ? 

Mr.  CUMMIN.  Yes;  because  under  the  peculiar  municipal  situa- 
tion there,  my  incentive  was  my  own  reputation. 

Commissioner  SWEET.  With  regard  to  the  securing  of  competent 
managers  in  a  city,  is  that  sometimes  to  your  knowledge,  influenced 
by  other  motives  than  those  of  efficiency? 

Mr.  CUMMIN.  Not  only  that,  but  the  municipalities,  as  a  rule,  pay 
such  ridiculous  prices  for  technical  help;  for  instance,  in  that  very 
same  large  water  plant  you  spoke  of,  the  chief  engineer  was  getting 
$1,800  a  year. 

Commissioner  SWEET.  What  was  your  salary  ? 

Mr.  CUMMIN.  My  salary  was  $10,000.  He  was  getting  $1,800. 
There  is  not  a  private  plant  of  one-quarter  that  size  that  would 
not  have  been  paying  their  man  more  than  that.  They  happened  to 
have  a  good  man,  but  that  was  luck,  and  not  good  management. 
When  they  have  to  compete  with  the  whole  field,  with  the  whole  in- 
dustrial field,  for  the  technical  men  that  they  need,  and  then  try  to 
get  them  for  one-quarter  to  one-third  of  what  is  paid  outside — well, 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       41 

they  just  don't  get  them,  that  is  all.  That  is  one  reason  public  effi- 
ciency falls  off.  They  clo  not  get  the  best  man. 

Commissioner  SWEET..  I  am  trying  to  get  your  reasons  for  think- 
ing that  street  railways  could  not  be  advantageously  operated  by 
municipalities. 

Mr.  CUMMIN.  Not  at  present. 

Commissioner  SWEET.  I  personally  do  not  believe  that  municipal 
operation  is  advisable;  at  least,  I  would  have  to  have  pretty  strong 
evidence  to  satisfy  me  that  it  is  advisable.  My  leaning  would  be 
the  other  way.  And  yet  my  own  observation  in  connection  with  city 
government  has  been  that,  as  a  rule,  much  better  men  are  obtained, 
better  talent,  and  a  greater  amount  of  energy  and  efficiency  than 
ought  to  be  expected  for  the  salaries  that  are  paid.  Isn't  that  true? 

Mr.  CUMMIN.  I  think  that  is  true;  ves.  sir. 

Commissioner  SWEET.  Then,  if  cities  would  wake  up  to  the  idea 
that  they  have  got  to  pay  proper  compensation  for  their  work,  is  it 
not  possible  that  municipally  managed  railways  might  be  successful ? 

Mr.  CUMMIN.  Absolutely.  I  think  it  is  entirely  possible.  But  I 
think  the  public  has  got  to  be  very  decidedly  rebuilt.  The  public  is 
a  poor  employer. 

Commissioner  SWEET.  It  is  a  stingy  employer? 

Mr.  CUMMIN.  Yes;  and  alwa}-s  has  been  a  poor  employer.  They 
have  got  to  get  around  to  being  a  good  employer  if  they  want  to  be 
efficient.  They  have  got  to  quit  political  interference  with  the  man- 
agement of  their  public  utilities  if  they  want  to  make  them  a  success; 
and  they  have  got  to  get  them  on  a  sound  financial  basis.  Those  arc 
the  things  they  do  not  do. 

Commissioner  SWEET.  The  man  who  preceded  you  in  the  manage- 
ment of  the  public  works  at  Grand  Kapids  was  Samuel  A.  Fresh- 
ney.  Did  you  know  him  ?  • 

Mr.  CUMMIN.  Yes;  very  well. 

Commissioner  SWEET.  The  public  paid  him  $4,000  a  year? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  And  he  left  the  public  employment  and  took 
a  position  with  the  Commonwealth  Co.  at  a  much  larger  salary,  did 
he  not  ? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  Do  you  know  what  he  got? 

Mr.  CUMMIN.  Xo;  but  I  know  that  he  got  a  much  larger  salary. 

Commissioner  SWEET.  Six,  or  seven,  or  eight  thousand  dollars? 

Mr.  CUMMIN.  At  least,  to  start  with. 

Commissioner  SWEET.  The  public  lost  a  good  man  because  it  was 
not  willing  to  pay  him  a  good  salary? 

Mr.  CUMMIN.  Ves. 

Commissioner  SWKET.  Is  that  general  throughout  the  country? 

Mr.  CUMMIN.  Yes;  it  is. 

Commissioner  SWEET.  That  is  something,  of  course,  that  could  be, 
by  proper  education  of  the  public,  corrected,  is  it  not? 

Mr.  CUMMIN.  It  is  an  educational  question  very  largely.  The  line 
of  demarcation  must  be  drawn  in.  the  public  mind  between  politics 
in  the  legislative  side  and  politics  in  the  administrative  side  of  their 
governments.  That  is.  they  have  got  to  keep  politics  out  of  the 
actual  doing  of  the  things  they  want  done. 

1GOG430— 20 4 


42       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  One  objection  that  is  raised  to  municipal 
ownership  is  the  political  objection? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  That  it  would  create  a  large  body  of  govern- 
mental-employed individuals  who  would  be  a  disturbing  factor,  in  a 
certain  sense,  from  the  political  standpoint? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  Have  you  seen  evidences  of  that  kind  of 
political  influence  in  connection  with  the  city  government — some  of 
them  ? 

Mr.  CUMMIN.  Not  to  any  serious  extent;  no.  I  have  known  of 
cases  of  a  police  force  being  active  in  politics,  for  instance.  That  did 
get  to  be  serious,  though.  I  understand  in  some  Australian  publicly 
owned  utility,  up  to  the  time  of  the  war,  one  Province,  I  believe,  dis- 
franchized all  their  public  employees. 

Commissioner  SWEET.  If  I  understood  you  correctly,  the  solution 
of  this  problem,  from  your  standpoint,  is  to  make  it  an  incentive  to 
the  public  by  giving  lower  fares,  lower  rates,  an  incentive  to  use  the 
public  utilities,  and  to  desire  their  success,  and  to  have  no  limit  to 
what  the  management  or  the  corporation  itself  may  make,  so  as  to 
also  present  an  object  to  them  for  the  best  and  most  efficient  manage- 
ment ? 

Mr.  CUMMIN.  That  is  the  general  idea. 

Commissioner  SWEET.  In  other  words,  you  want  to  eat  your  cake 
and  have  it,  too?  How  can  you  have  lower  rates,  so  as  to  please  the 
public,  and  increase  the  earnings  so  as  to  please  the  management? 
Is  not  one  antagonistic  to  the  other  ? 

Mr.  CUMMIN.  No.    It  is  done  by  a  division. 

Commissioner  SWEET.  What  is  that? 

Mr.  CUMMIN.  It  is  done  by  a  division.  Take  the  case  of  a  corpora- 
tion where  a  rate  is  fixed  which  is  computed  to  yield  it  6  per  cent,  we 
will  say,  on  its  investment,  just  for  purposes  of  argument.  It  earns 
7  per  cent  in  the  next  year.  Its  actual  net  earnings  are  7  per  cent. 
That  extra  per  cent  will  be  placed  aside,  because  it  was  only  allowed 
to  earn  6  per  cent.  The  next  year  it  will  be  allowed  to  earn  G-}  per 
cent,  and  the  consumer  will  get  a  discount,  or  an  extra  ticket,  depend- 
ing on  what  kind  of  a  utility  it  is,  the  aggregate  of  which  is  com- 
puted to  be  equal  to  this  other  half  per  cent.  In  other  words,  the 
next  year  the  return  allowed  will  be  6^  per  cent.  We  will  say  that 
that  year  they  earn  7  per  cent.  All  right.  Still  divide  it  50-50,  and 
you  get  up  to  a  return  to  the  utility  of  8  per  cent,  or  7  per  cent,  and 
give  the  utility  one-quarter  beyond  that,  and  the  consumer  three- 
quarters — let  it  diminish  as  it  goes  up,  the  possible  return  to  the 
utility,  the  additional  return  to  the  utility. 

Commissioner  MEEKER.  Why  diminish? 

Mr.  CUMMIN.  For  the  purpose  of  the  effect  on  the  public  mind. 
As  a  matter  of  actual  fact,  I  do  not  think  it  makes  a  great  deal  of 
difference,  but  the  public  has  the  idea  that  it  is  possible  at  some  time 
to  earn  very  tremendous  earnings — 15  or  16  or  17  per  cent.  If  you 
have  this  diminishing  scale  as  you  go  up,  you  can  remove  that  fear 
from  their  mind,  and  remove  that  argument  from  the  opponents  of 
any  such  plan. 

Commissioner  WEHLE.  That  plan  has  been  in  use  in  English  cities 
for  a  generation  or  so,  has  it  not,  in  connection  with  gas  rates? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       43 

Mr.  CUMMIN.  Xot  that  I  know  of. 

Commissioner  WEIILE.  And  is  there  not  a  plan  of  that  kind  in 
effect  in  Boston,  during  the  last  10  years — a  sliding  scale  of  rates? 

Mr.  CUMMIN.  That  means  an  actual  change  in  the  rate.  I  do  not 
want  to  get  off  on  the  gas  question,  because  that  is  another  question. 

Commissioner  WEHLE.  It  is  the  principle — I  am  not  trying  to  get 
into  a  discussion  of  the  gas  question — but  simply  inquiring  whether 
the  principle  you  have  just  been  advocating  is  the  principle  which 
has  been  in  use  in  English  cities  with  reference  to  gas  and  in  Boston 
with  reference  to  gas;  is  that  true? 

Mr.  CUMMIN.  My  principle  goes  beyond  that.  I  did  not  explain 
that  point,  perhaps,  because  it  does  not  appear  so  prominently  in  a 
street  railway.  It  is  important  that  the  consumer,  in  whatever  utility 
it  is,  be  impressed  with  the  fact  that  he  is  getting  a  part  of  that 
profit.  The  way  you  have  to  handle  it  with  street  railways  is  to 
fix  the  cash  fare  that  is  high,  the  incidental  fare,  but  sell  so  many 
tickets  for  a  quarter  and  so  many  tickets  for  a  dollar,  in  order  to 
take  care  of  fractional  cents,  that  is  computed  to  be  the  correct  fare. 
Well,  now,  the  extra  tickets  that  go  on  for  a  quarter  and  go  on  for 
a  dollar  are  the  thing  that  impresses  that  fellow  with  the  fact  that 
he  is  getting  a  dividend  out  of  that  company  all  the  time.  The 
same  way,  the  important  thing  in  distributing  that  to  a  gas  con- 
sumer is  not  simply  giving  them  a  different  rate  the  next  year.  He 
sees  that  rate,  and  that  is  all  he  does  see.  But  put  a  discount  on  his 
bill  every  time,  an  extra  discount — that  is  what  he  gets  for  keeping 
the  company  prosperous,  and  that  is  staring  him  in  the  face  all  the 
time,  that  discount,  just  as  the  extra  ticket  will  stare  him  in  the  face 
in  the  other  case.  I  want  to  impress  it  on  the  consumer  in  every 
way  that  he  is  vitally  interested  in  the  well-being  of  the  company. 
The  only  way  you  can  do  it  is  to  put  it  in  such  shape  that  he  falls 
over  it  every  time  he  turns  around.  I  think,  from  the  psychological 
standpoint,  that  is  of  vital  importance. 

Commissioner  WEHLE.  There  are  two  things  that  you  regard  as 
vitally  important,  if  I  understand  you :  One  is  that  the  user  of  the 
street  railroad,  the  rider,  shall  be  impressed  with  the  idea  that  the 
company's  advantage  is  his  advantage? 

Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  And  the  more  prosperous  the  company  is 
the  lower  the  rate  is  going  to  be  to  him  the  succeeding  year? 

Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  But  also  that  the  knowledge  on  the  part 
of  the  community  in  general,  including  those  who  ride  on  the  street 
railroads,  that  the  investor  or  the  corporation  itself  is  not  making 
an  undue  amount? 

Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  Anfl  that,  if  I  understand  j'ou  correctly, 
means  not  merely  having  their  books  audited  from  time  to  time, 
but  having  them  open  all  the  time  to  the  public;  in  other  words, 
having  them  practically  kept  by  public  accountants? 

Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  Who  will  represent  the  public,  rather  than 
the  corporation  ? 


44       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CUMMIN.  Yes;  perhaps  keep  it  in  parallel  with  them;  but  at 
least  I  think  it  is  necessary  for  public  control  of  the  entire  making 
of  those  accounts. 

Commissioner  WEHLE.  The  idea  being  that  the  public  mind  must 
be  impressed  with  the  fact  that  there  is  no  underhanded  work 
about  it  ? 

Mr.  CUMMIX.  Absolutely.  It  must  be  made  clear  to  the  public 
that  there  is  absolutely  no  chance  for  anything  to  be  put  over.  That 
thing  has  been  overlooked  again  and  again.  Utilities  will  get  into 
a  rate  dispute  and  the  other  side  will  bring  up  some  perfectly  fool- 
ish arguments.  They  may  be  foolish  arguments,  but  people  be- 
lieve them,  and  the  utility  that  takes  the  stand  when  those  things 
come  up  and  tries  to  fight  them  by  simply  saying  they  are  foolish, 
and  refusing  to  pay  any  attention  to  them,  and  calling  the  man  who 
makes  them  names  of  various  kinds — they  are  not  getting  any  place ; 
they  are  not  impressing  the  people  and  the  other  fellow  is  impress- 
ing the  people.  That  ammunition  can  be  taken  out  of  the  agitator's 
hands  entirely,  if  they  start  out  to  do  it.  For  instance,  if  the  leader 
of  an  agitation  against  an  increased  fare  disagrees  \vith  a  valuation 
that  has  been  made  upon  which  this  increased  fare  is  based,  and  says 
that  he  does  not  believe  that  is  the  value,  even  though  it  has  been 
made  by  a  competent  man,  the  very  obvious  thing  to  do,  from  a  sen- 
sible standpoint,  is  to  say  to  him :  "  Whom  would  you  believe  ?  Is 
there  some  man  who  specializes  in  this  work  that  you  would  be- 
lieve?" And  if  he  says,  "  Yes;  so  and  so."  "  All  right,  we  will  get 
him  in  here  to  check  that  valuation."  This  man  may  not  have 
known  at  all  what  he  was  talking  about,  but  you  will  kill  his  argu- 
ment if  you  get  in  the  man  he  says  he  will  trust  to  check  that  valua- 
tion. That  is  just  an  illustration  of  the  principle  that  has  to  be 
followed.  The  utility  gets  no  place  at  all  by  simply  saying  that 
these  arguments  are  foolish. 

Commissioner  WEHLE.  How  do  you  think  the  valuation  of  street- 
railway  properties  ought  to  be  made?  Should  it  be  entirely  upon 
the  basis  of  physical  properties? 

Mr.  CUMMIN.  It  should  be  on  the  basis  of  the  investment,  if  that 
can  be  discovered. 

Commissioner  WEHLE.  In  many  cases  is  not  that  absolutely  impos- 
sible? 

Mr.  CUMMIN.  Yes;  a  valuation  is  always  a  case  of  getting  an  ap- 
proximation.of  the  truth. 

Commissioner  WEHLE.  I  think  you  said  you  had  been  employed 
part  of  your  life  for  private  corporations? 

Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  If  you  are  willing  to  make  a  'statement  on 
that  point,  I  wish  you  would — as  to  whether  it  is  not  a  very  common 
thing,  and  from  your  own  experience  .and  observation  you  do  not 
known  it  to  be  so,  for  these  street-railway  corporations  to  water  their 
slock,  as  we  say ;  in  other  words,  to  issue  an  amount  of  stock  entirely 
out  of  proportion  to  the  actual  cash  investment. 

Mr.  CUMMIN.  There  is  no  question  but  for  a  number  of  years  the 
securities  were  issued  on  what  they  could  earn,  and  not  on  what  they 
had  in  them. 

Commissioner  WEHLE.  Don't  you  know  cases  where  this  has  been 
done :  That  bonds  have  been  issued  and  sold  for  practically  the  entire 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      45 

investment,  and  the  stock  has  been  issued  on  nothing  that  was  ac- 
tually paid  for? 

Mr.  CUMMIN.  I  do  not  know;  I  do  not  believe,  at  the  present 
time • 

Commissioner  WEHLE.  I  do  not  mean  at  the  present  time.  I  mean 
in  years  past. 

Mr.  CUMMIN.  Yes ;  I  do  not  doubt  that  at  all. 

Commissioner  GADSDEN.  How  many  years  ago  since  that  practice 
has  stopped? 

Mr.  CUMMIN.  I  do  not  know  that  I  can  answer  that  question  di- 
rectly, because  I  think  it  is  very  largely  a  question — I  do  not  believe 
it  was  stopped  until-  people  could  not  do  it.  It  is  possible  that  even 
up  to  late  years  people  could  have  done  it.  I  think  there  always 
were  some  people  who  were  willing  to  do  it. 

Commissioner  GADSDEN.  Economically  it  has  been  impossible  for  a 
good  many  years,  has  it  not  ? 

Mr.  CUMMIN.  Theoretically. 

Commissioner  WEHLE.  Practically  ? 

Mr.  CUMMIN.  For  street  railroads. 

Commissioner  SWEET.  Street  railroads  have  not  been  paying  divi- 
dends? 

Mr.  CUMMIN.  No. 

Commissioner  SWEET.  And  people  would  not  invest? 

Mr.  CUMMIN.  No. 

Commissioner  SWEET.  You  spoke  of  two  kinds  of  street  railroads; 
one  kind  that  was  hopelessly  gone,  practically — 

Mr.  CUMMIN.  Where  the  earning  capacity  is  not  there. 

Commissioner  SWEET.  Where  the  construction  has  been  in  locali- 
ties that  have  not  the  resources  upon  which  a  railroad  could  live? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  If  I  understand  you  aright,  you  do  not  pre- 
tend to  have  any  remedy  for  that  kind  of  a  street  railroad.  It  has 
simply  got  to  go  by  the  board  ? 

Mr.  CUMMIN.  No;  I  say  that  means  public  partnership,  public 
subsidy,  or  public  ownership. 

Commissioner  SWEET.  You  mean  that  the  public  has  to  be  taxed 
to  keep  it  alive  in  some  way  ? 

Mr.  CUMMIN.  The  community  need  must  be  met  by  taxing  the 
community,  that  is  all.  If  the  road  is  a  necessity  to  the  communit}', 
the  only  way  the  community  can  preserve  that  is  by  paying  the 
deficit.  I  do  not  care  how  they  do  it.  They  can  do  it  as  a  partner- 
ship, they  can  do  it  as  a  subsidy,  or  as  full  owner,  but  it  has  to  be 
paid. 

Commissioner  SWEET.  It  can  not,  in  your  judgment,  be  made  a 
paying  proposition  from  the  standpoint  of  a  business  operation? 

Mr.  CUMMIN.  No;  I  do  not  believe  so,  in  the  small  town. 

Commissioner  SWEET.  It  must, be  treated,  then,  as  merely  a  public 
convenience? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  And  paid  for  by  the  public  because  of  that 
fact? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWKET.  In  some  way,  either  by  taxation,  or  by 
some  sort  of  contribution? 


46       PROCEEDINGS  OF  FEDERAL.  ELECTRIC  RAILWAYS  COMMISSION. 

Mr,  CUMMIN.  Yes. 

Commissioner  SWEET.  You  spoke  of  another  class  of  street  rail- 
roads that  you  think  are  good  business  propositions  and>  with  fair 
treatment,  or  with  the  right  kind  of  treatment,  would  not  need  any 
outside  help? 

Mr.  CUMMIN.  They  have  the  earning  capacity. 

Commissioner  SWEET.  They  have  the  earning  capacity  ? 

Mr.  CUMMIN.  Yes.  In  other  words,  an  increase  in  fares,  and  prob- 
ably some  lopping  off  of  unjust  burdens  in  the  way  of  street  paving 
and  undue  proportions  of  bridges  and  things  of  that  kind. 

Commissioner  SWEET.  I  want  to  ask  you  some  questions  about 
that  before  I  get  through,  but  right  on  this  point,  first :  Is  the  state- 
ment you  have  made  to  us  with  regard  to  such  an  arrangement  as 
would  make  it  an  object  for  the  general  public  to  use  the  railroads 
and  feel  an  interest  in  their  success  and  for  the  management  also 
to  be  interested  and  try  to  keep  expenses  down — do  you  regard  that 
as  a  sufficient  panacea  for  the  ills  of  what  you  would  rank  as  the 
better  class  of  railroads? 

Mr.  CUMMIN.  I  think  that  is  a  promising  solution.  I  do  not  say, 
in  any  particular  case,  that  it  would  be  a  complete  panacea.  I  think 
there  will  be  a  necessity,  probably,  under  present  prices,  which  are 
likely  to  continue  for  a  long  time,  to  use  every  method  which  can 
possibly  be  used. 

Commissioner  SWEET.  All  right.  Let  us  go  to  the  other  methods. 
What  do  you  say  about  paving  between  the  tracks  and  for  a  foot  or 
so  outside? 

Mr.  CUMMIN.  The  cost  of  paving  between  the  tracks  and  for  a 
foot  or  two  outside  is  an  unjust  burden  on  the  street-railroad  com- 
panies at  present.  Our  street  paving  wras  started  in  this  country 
when  we  had  horse-cars,  and  the  horses  did  wear  out  the  pavement, 
and  that  is  the  reason  it  started  in  that  way;  and  it  has  been  put  in 
every  franchise,  or  almost  every  franchise,  ever  since,  because  the 
street  railroads  could  not  get  out  of  it  and  they  just  had  to  submit 
to  it.  There  is  an  undue  burden.  The  maintenance  of  it,  and  any 
extra  cost  due  to  the  track,  should  be  paid  by  the  street  railroad — 
that  is  perfectly  proper — but  the  pavement  itself  should  not. 

Commissioner  WEHLE.  You  mean  that  part  of  the  cost  of  mainte- 
nance that  is  not  due  to  the  wear  and  tear  of  other  vehicles? 

Mr.  CUMMIN.  In  fact,  the  most  of  the  cost  of  maintenance  of  the 
pavement  between  the  car-tracks  is  due  to  the  rails  and  operation 
over  them.  They  have  to  be  cut  into  fairly  frequently — a  joint  goes 
down,  and  it  will  break  up  the  pavement  for  a  little  distance  around ; 
soft  spots  develop  in  the  roadbed,  and  it  will  result  in  raises  and  de- 
pressions, etc.,  and  the  big  bulk  of  your  maintenance  is  main- 
tenance that  is  fairly  well  traceable  to  the  street  railroad.  The 
maintenance  is  a  proper  charge  against  the  street  railroad. 

Commissioner  SWEET.  But  the  original  construction  is  not? 

Mr.  CUMMIN.  The  original  pavement,  except  that  part  of  it  which 
may  be  an  extra  due  to  the  cost  of  paving  around  the  rails,  and 
things  of  that  kind,  if  it  should  exist,  should  not  be  paid  b}'  the  rail- 
roads. The  extra  cost,  of  course,  that  is  necessitated  by  reason  of 
the  pavement  being  laid  around  the  rails,  should  be  paid  by  the  road. 

Commissioner  SWEET.  Even  at  that,  bearing  in  mind  the  fact  that 
the  public  is  so  deeply  interested  in  having  the  advantage  of  the 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      47 

street  railroad  there,  is  there  any  unfairness  in  having  the  public 
pay  for  all  the  paving  ? 

Mr.  CUMMIN.  If  they  want  to;  but  I  think  if  they  pay  the  main- 
tenance as  well — I  do  not  believe  it  is  going  to  be  a  practical  op- 
erating proposition,  because  a  large  part  of  that  maintenance  may 
have  to  be  done  by  the  trackmen  of  the  street  railroad,  the  jnen  who 
are  taking  care  of  the  track. 

Commissioner  SWEET.  Can  you  give  us  any  definite  idea  as  to 
what  would  be  the  saving  to  the  electric  railways  of  the  country  if 
the  construction  of  the  pavement  between  the  tracks  and  just  outside 
were  to  be  borne  by  the  public  instead  of  by  the  street-railway  com- 
pany ?  How  much  would  the  saving  be  ? 

Mr.  CUMMIN.  Of  course,  that  would  vary  very  widely.  I  know 
of  one  case  where  a  street  railroad  in  Dayton  had  an  expense  for 
paving  for  one  year  of  $200,000. 

The  CHAIRMAN.  What  per  cent  of  its  operating  cost  was  that? 

Mr.  CUMMIN.  I  would  not  have  any  idea. 

Commissioner  SWEET.  That  would  not  be  a  real  test  unless  you 
knew  that? 

Commissioner  BEALL.  There  are  four  street  railways  in  Dayton, 
are  there  not? 

Mr.  CUMMIN.  Four  or  five. 

Commissioner  BEALL.  None  of  the  four  are  very  large  properties ; 
but  the  point  I  think  you  want  to  make  is  that  it  was  a  very  large 
cost? 

Mr.  CUMMIN.  It  was. 

Commissioner  BEALL.  I  doubt  if  the  net  earnings  of  the  street- 
railway  company  were  as  big  as  $200,000  ? 

Mr.  CUMMIN.  They  were  not.    The  net  earnings  were  below  that. 

Commissioner  SWEET.  That  might  have  prevented  them  from  be- 
ing on  an  earning  basis  ? 

Mr.  CUMMIN.  Yes;  although  that  line,  I  think,  never  has  been  on 
an  earning  basis.  When  they  were  put  in,  they  dodged  the  paved 
streets.  They  were  the  newest  line  in  town,  and  ever  since  then  they 
have  been  paving  those  streets.  It  is  a  pretty  long  line,  and  I  guess 
they  have  spent  everything  they  could  get  together  in  paving. 

Commissioner  SWEET.  Could  you  give  us  any  idea  of  the  main- 
tenance cost  per  year  for  maintaining  the  paving  between  tracks 
and  just  outside? 

Mr.  CUMMIN.  That  varies  a  great  deal  with  your  subsoil,  with 
your  class  of  construction,  and  with  your  traffic  that  is  carried.  It 
would  be  pretty  hard  to  say  what  that  would  amount  to. 

Commissioner  SWEET.  If  you  are  not  in  a  position  to  give  us  fig- 
ures on  that  now,  could  you  prepare  them  and  give  them  to  us  later, 
or  got  them? 

Mr.  CUMMIN.  Well,  the  only  way  to  do  that  would  be  to  take  up 
a  special  case  and  get  the  figures.  It  is  a  local  issue.  Your  main- 
tenance in  one  town  may  not  bear  any  relation  to  the  maintenance 
in  the  next  town,  for  exactly  the  same  kind  of  paving. 

Commissioner  SWEET.  Or  in  the  same  town  next  year? 

Mr.  CUMMIN.  That  is  correct. 

Commissioner  SWEET.  But  still  it  would  be  possible,  would  it  'not, 
to  reach  a  sort  of  a  general  average  or  estimate  that  would  be  fairly 
accurate  ? 


48       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CUMMIN.  Probably  it  would,  scattered  around  in  different 
places. 

Commissioner  SWEET.  I  think  it  might  help  if  we  knew  rather 
definitely  what  the  cost  of  construction  and  of  maintenance  both  was, 
with  regard  to  this  paving,  because  that  question  has  been  raised, 
and  we  want  to  look  into  it. 

Mr.  CUMMIN.  There  are  two  parts  in  the  paving  to  the  street  rail- 
road. One  of  them  is  absolutely  charged  against  the  street  railroad, 
and  that  is  the  cost  of  preparing  the  roadbed  and  putting  in  the  new 
track  and  ties  and  concreting  in  the  ties.  They  concrete  them  in, 

fetting  up  to  the  point  where  the  surface  is  to  go  on.  That  is  per- 
sctly  all  right.  That  is  chargeable  actually  to  the  company.  Then 
the  rest  of  it  is  generally  charged  for  at  just  the  same  price  as  for 
the  rest  of  the  paving  job,  per  square  yard.  In  most  cases  the  con- 
tractor makes  no  difference  for  the  paving  between  the  rails  and  a 
foot  outside  as  compared  with  the  rest  of  the  paving. 

Commissioner  SWEET.  Is  the  paving  requirement  of  a  privately 
owned  street-railroad  company  universal  in  this  country,  or  does, 
that  vary? 

Mr.  CUMMIN.  As  far  as  I  know,  I  have  not  been  in  any  city  yet 
where  it  was  not  required,  and  in  my  experience  I  have  never  seen 
any  franchise  where  it  was  not  required. 

Commissioner  SWEET.  So  that  as  far  as  you  know  it  is  a  uniform 
requirement  ? 

Mr.  CUMMIN.  Yes;  and  that  is  an  unjust  burden.  That  is  some- 
thing that  can  be  taken  off.  I  think  the  same  thing  occurs  on  some 
bridge  rentals.  In  some  cases  they  have  not  been  rentals,  but  they 
have  paid  a  lump  sum,  I  think,  in  some  cases,  and  that  has  been  toa 
big. 

I  think  it  proper  that  a  street  railroad  should  compensate  for 
extra  cost  in  making  that  bridge  strong  enough  to  carry  the  addi- 
tional loads  put  on  it,  by  the  street-railroad  company.  It  perhaps 
should  pay  a  small  additional  rent,  but  I  think  in  some  instances  the 
amount  required  to  be  paid  has  been  unreasonable. 

Commissioner  SWEET.  On  this  paving  proposition  I  asked  Judge 
Taft  this  morning,  and  I  would  like  to  ask  you,  whether  there  is  not 
an  injustice  as  between  the  general  public  and  the  riding  public 
under  the  present  system;  whether,  in  the  final  anatysis,  the  pay- 
ment for  the  expense  of  paving  and  maintenance  of  it,  for  that  mat- 
ter— although  we  did  not  dwell  upon  that — is  not  borne,  assuming 
that  the  company  is  solvent,  by  those  who  use  the  street-cars,  those 
who  ride  on  the  street-cars ;  and  those  who  use  automobiles,  and  who 
are  very  much  interested  in  having  good  paving  between  the  tracks 
do  not  pay  a  penny  for  it ;  is  that  true  ? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  Under  the  present  system  ? 

Mr.  CUMMIN.  Of  course,  in  a  great  many  States  they  do  not  pay 
anything  anyway,  because  the  property  owner  stands  most  of  the 
cost  of  paving,  and  not  the  city  at  large. 

Commissioner  SWEET.  That  is  assessed  against  the  property? 

Mr.  CUMMIN.  That  is  assessed  against  the  property. 

Commissioner  SWEET.  But  inasmuch  as  wherever  the  street  is  im- 
proved it  is  assessed  against  each  property,  on  one  street,  and  then 
on  another,  it  balances  up  to  a  certain  extent? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      4$ 

Mr.  CUMMIN.  When  they  all  get  paid. 

Commissioner  SWEET.  But  in  Grand  Rapids,  and  in  many  other 
cities,  at  street  intersections  the  city  does  pay? 

Mr.  CUMMIN.  Yes;  at  intersections. 

Commissioner  SWEET.  And  that  payment  is  made  out  of  public 
funds,  raised  by  taxation? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  So  that  the  city  pays  a  good  deal  of  it ;  quite 
a  considerable  amount? 

Mr.  CUMMIN.  About  25  per  cent. 

Commissioner  SWEET.  But  as  between  the  two  elements  in  the  com- 
munity, the  people  who  ride  on  street-cars  and  those  who  ride  in 
automobiles,  there  is  a  distinction  ? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  And  those  who  ride  on  street-cars,  under  the 
present  system,  we  are  trying  to  make,  or  it  has  been  the  custom 
actually  to  try  to  make  them  pay.  Ultimately  their  nickels  go  to  pay 
for  that  paving? 

Mr.  CUMMIN.  That  is  simply  an  illustration  of  the  public  being 
directly  unable  to  see  that  when  they  make  a  public-utility  corpora- 
tion pay  something  they  ought  not  to  pay.  that  it  is  not  the  public- 
utility  corporation  that  pays  it,  but  the  people  who  use  that  public- 
utility. 

Commissioner  SWEET.  That  is  exactly  it. 

Mr.  CUMMIN.  One  reason  why  they  do  not  see  that  is  because  we 
have  had  so  many  fixed  fares  and  so  many  fixed  rates  for  different 
kinds  of  services — rates  fixed  in  franchises — where  they  did  not 
change,  no  matter  what  happened. 

Commissioner  SWEET.  Then,  if  I  am  correct,  a  change  from  the 
present  system  with  regard  to  paving  between  the  tracks  and  to  the 
outside  would  probably  do  two  things,  or,  I  might  say,  would  certainly 
do  two  things:  one,  tend  at  least,  to  make  it  possible  for  the  street- 
railroad  companies  to  live,  which,  under  present  conditions,  they 
find  it  difficult  to  do,  and  the  other,  distribute  more  justly  over  the 
entire  community  the  expense  of  constructing  and  maintaining  this 
pavement? 

Mr.  CUMMIN.  It  would  certainly  be  a  proper  charge  on  the  rest  of 
the  community ;  yes. 

Commissioner  SWEET.  What  about  hydroelectric  current?  Are 
there  not  a  great  many  water  powers  in  this  country  that  are  avail- 
able— that  might  be  developed? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  And  furnish  cheap  power  for  the  operation 
of  street-railroad  companies  that  are  not  being  used? 

Mr.  CUMMIN.  I  doubt  that. 

Commissioner  SWEET.  You  doubt  it? 

Mr.  CUMMIN.  Yes.  I  am  a  constitutional  pessimist  on  water 
powers.  I  have  worked  with  too  many  rivers,  Mr.  Sweet.  I  doubt 
whether  50  per  cent  of  the  water-power  development — I  am  speaking 
of  the  larger  water-power  development  of  the  United  States — would 
ever  have  been  built  if  they  had  known  just  what  they  were  getting. 
They  do  not  get  the  theoretical  power  out  of  it. 


50       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  BEALL.  Are  you  talking  of  ordinary  river  powers, 
or  where  they  have  a  high  head?  There  are  numerous  cases  of 
rivers  where  the  head  is  very  low  and  where  they  are  subject  to 
overflow, — like  the  Mississippi,  to  take  the  most  glaring  example,  of 
course,  where  it  is  almost  impossible  to  control  it,  and  that  is  a 
different  proposition. 

Mr.  CUMMIN.  Yes.  The  point  is,  though,  that  a  lot  of  water- 
power  plants  have  been  built  and  they  have  never  gotten  the  cost 
they  expected  to  get.  In  other  words,  their  fixed  charges  were  con- 
siderably higher  than  they  thought  they  were  going  to  be  per 
kilowatt. 

Commissioner  BEALL.  That  is  limited  to  a  very  small  class.  You 
will  find  the  average  water  power  in  this  country  is  pretty  profitable 
on  its  cost — the  average,  where  they  have  a  high  head. 

Mr.  CUMMIN.  Where  they  have  a  high  head? 

Commissioner  BEALL.  Where  they  have  a  high  head ;  yes.  I  mean 
anything  from  75  feet  up  to  1,800  or  2,200  feet. 

Mr.  CUMMIN.  Yes ;  I  agree  with  that. 

Commissioner  SWEET.  What  distance  is  it  feasible  to  convey  the 
electric  current  without  too  great  loss  to  justify  its  conveyance? 

Mr.  CUMMIN.  I  think  that  is  rather  a  broad  question.  I  believe  it 
is  being  transmitted  over  300  miles  in  California. 

Commissioner  BEALL.  Yes;  it  is. 

Mr.  CUMMIN.  That  probably  is  not  economical  under  low  fuel 
costs.  That  is,  if  you  are  operating  against  a  steam  plant  with  rea- 
sonable fuel  costs  you  might  be  able  to  beat  that. 

Commissioner  BEALL.  Even  in  normal  times  coal  in  most  sections 
of  California  is  $9  or  $10  a  ton,  so  that  you  can  understand  in  Cali- 
fornia you  can  have  water  that  cost,  even  on  prewar  prices,  $250  a 
horsepower  and  make  good  money  out  of  it.  In  New  York  if  you 
go  over  $100  you  want  to  be  very  careful  and  look  out  as  to  your 
proposition.  I  am  going  back  to  prewar  prices.  I  could  not  tell 
you  on  to-day's  prices. 

Commissioner  SWEET.  It  requires  copper  wire,  does  it  not,  or  at 
least  that  is  the  best  ? 

Mr.  CUMMIN.  That  is  the  best;  yes. 

Commissioner  SWEET.  And  alternating  current? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  Is  it  not  a  fact  that  there  are  in  this  country 
a  great  many  practical  water  powers  that  have  not  been  used  at  all  ? 

Mr.  CUMMIN.  Oh,  yes. 

Commissioner  SWEET.  That  are  within,  say,  100  miles  of  cities, 
where  the  current  would  be  very  valuable  for  street-railroad  purposes 
or  for  interurban  purposes,  if  you  please  ? 

Mr.  CUMMIN.  Well,  I  would  be  inclined  to  doubt  that. 

Commissioner  BEALL.  Not  in  this  section  of  the  country. 

Commissioner  SWEET.  Not  in  the  East,  you  mean  ? 

Commissioner  BEALL.  Yes.  Unfortunately  the  greatest  and  most 
valuable  water  powers  are  in  the  West. 

Mr.  CUMMIN.  In  the  far  West  and  in  the  Southern  Appalachians 
there  are  some  good  ones. 

Commissioner  BEALL.  But  you  do  not  get  the  population  there. 

Mr.  CUMMIN.  No:  but  the  powers  are  there.  They  are  not  availa- 
ble to  markets,  however. 


PROCEEDINGS  OF  FEDEBAL  ELECTRIC  RAILWAYS  COMMISSION.       51 

Commissioner  SWEET.  Some  steam  railroads  are  using  electric 
power  in  the  mountains,  like  the  Chicago,  Milwaukee  &  St.  Paul? 

Mr.  CUMMIN.  Yes ;  but  you  take  the  States  where  you  can  not  get 
high  heads,  and  especially  the  great  Middle  Western  territory,  where, 
if  you  are  going  to  regulate  the  flow  of  the  rivers,  so  that  your  motor 
power  during  the  year  will  be  something  that  is  reasonable  at  all  to 
operate  under,  your  cost  per  kilowatt  will  run  out  of  all  reason,  and 
that  is  the  thing  that  makes  those  powers  so  very  expensive. 

For  instance,  it  is  perfectly  feasible,  to  return  to  parts  of  the  coun- 
try that  you  know,  to  get  power  out  of  Grand  River  at  Grand  Rapids 
and  above  Grand  Rapids;  it  would  be  a  matter  of  building  a  huge 
storage  reservoir,  perfectly  feasible  from  a  physical  standpoint,  but 
from  an  economical  standpoint  it  is  absolutely  not  feasible,  as  the 
development  of  that  storage  would  be  so  tremendously  expensive  that 
steam  power  would  not  cost  you  nearly  as  much. 

In  the  same  way  there  is  another  power  there  that  has  been  or  sup- 
posed to  be  before  the  public  up  the  Thorne  Apple  River,  and  an 
analysis  of  that  power  shows  that  by  any  reasonable  amount  of  money 
that  might  be  economically  spent  on  the  development  it  would  not 
give  you  sufficient  storage  to  give  you  a  flow  throughout  the  year  that 
would  justify  you  in  building  that  at  all. 

That  is  the  situation  that  shows  up  about  90  per  cent  of  the  water 
powers  that  you  hear  about;  I  mean  the  water  powers  that  are  not 
being  utilized,  and  are  supposed  to  exist.  You  will  find,  on  analysis, 
that  they  are  not  an  economical  proposition.  When  they  get  to  be  an 
economical  proposition,  they  probably  will  be  developed  shortly, 
unless  there  are  some  outside  reasons  that  absolutely  prevent  it. 

Commissioner  SWEET.  Then  you  would  not  look  upon  that  as  a 
material  relief  for  the  street  railways? 

Mr.  CUMMIN.  No.  I  think  an  analysis  of  cost  will  show  that  sup- 
pose you  did  cut  the  cost  of  electricity  15  or  20  per  cent  to  them,  that 
would  not  help  them  out  a  great  deal. 

Commissioner  SWEET.  Every  little  would  help. 

Mr.  CUMMIN.  I  know;  but  it  would  not  help  out  as  much  as  one 
might  think  at  first. 

Commissioner  SWEET.  From  your  acquaintance  with  the  operation 
of  electric  railways,  is  the  generation  of  current  by  the  present 
methods  the  most  economical  ?  Are  they  using,  in  other  words,  up-to- 
date  methods  as  a  rule? 

Mr.  CUMMIN.  Of  course,  there  are  many  plants  that  are  using  the 
most  up-to-date  methods,  and  of  course,  there  are  others  that  are  not. 
You  will  find  all  classes  of  machinery  scattered  over  the  country  in 
these  different  street-railway  plants.  Where  they  have  not  put  in 
modern  machinery  in  many  instances  it  has  been  simply  a  case  of 
where  it  was  impossible  to  finance  it.  You  may  know  that  you  can 
save  money  by  spending  some  money,  but  if  you  can  not  get  that 
money  to  spend,  you  will  just  have  to  go  on  and  keep  wasting  it. 

Commissioner  SWEET.  It  might  have  quite  a  bearing  upon  the  find- 
ings of  this  commission  if  we  were  satisfied  that  the  reason  why  street- 
railway  companies  are  in  such  bad  financial  condition  is  that  they  are 
using  machinery  that  ought  to  be  discarded  and  scrapped  instead  of 
being  used. 


52        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CUMMIX.  I  do  not  believe  that  you  will  find  that.  That  will 
be  a  factor  more  or  less  in  different  cases,  but  I  do  not  believe  that  is 
the  serious  thing. 

Commissioner  BEALL.  That  is  one  of  the  smallest  parts  of  their 
operating  expenses,  is  it  not? 

Commissioner  SWEET.  The  coal  ? 

Mr.  CUMMIN.  No;  electricity. 

Commissioner  SWEET.  The  coal  required  to  produce  electricity? 

Commissioner  BEALL.  There  is  a  big  difference, -though,  between  a 
city  like  Washington,  that  is  level,  and  Kansas  City,  which  is  all 
hill — a  big  difference. 

Commissioner  SWEET.  In  what  way? 

Mr.  CUMMIN.  In  the  amount  of  power.  • 

Commissioner  BEALL.  In  the  amount  of  power  required.  You  havo 
to  have  more  motors  in  the  car,  and  heavier. 

Commissioner  SWEET.  Heavier  motors? 

Commissioner  BEALL.  Yes. 

Mr.  CUMMIN.  That  would  be  a  hard  thing  to  generalize  on,  and  I 
do  not  believe,  as  I  say,  that  a  reduction  of  15  or  20  or  25  per  cent  in 
the  cost  of  electricity  would  make  any  serious  inroad  on  the  present 
deficits  of  the  companies. 

Commissioner  SWEET.  How  about  the  other  economies,  or  possible 
economies;  can  you  suggest  any? 

Mr.  CUMMIN.  A  possible  economy,  of  course,  not  practicable  for 
some  large  cities,  is  the  one-man  car.  That  is  a  practical  economy 
under  a  great  many  conditions. 

Commissioner  SWEET.  The  motorman  practically  acting  as  con- 
ductor and  motorman,  you  mean? 

Mr.  CUMMIN.  The  motorman  operates  the  car  and  the  entrance  is 
nt  the  front ;  the  people  have  to  come  in  and  go  out  at  the  front  of 
the  car. 

Commissioner  SWEET.  Where  is  that  system  in  operation? 

Mr.  CUMMIN.  That  system  is  in  operation  in  a  number  of  the 
smaller  cities. 

Commissioner  SWEET.  Is  it  satisfactory? 

Mr.  CUMMIN.  They  have  not  gotten  the  reduction  in  cost  that  they 
hoped ;  or  rather,  costs  have  raised  the  value  of  things  so  that  it  has 
not  made  a  great  effect  upon  the  operating  expense. 

Commissioner  BEALL.  Is  not  the  real  reason  for  this  that  it  is  used 
almost  entirely  on  lines  that  never  were  profitable  anyway — it  is  an 
effort  to  get  a  further  reduction  of  expense  on  something  that  always 
will  be  unprofitable? 

Mr.  CUMMIN.  Yes. 

Commissioner  SWEET.  Do  you  think  that  would  be  a  feasible  plan 
in  a  city  of  40.000  or  50,000  ? 

Mr.  CUMMIN.  In  a  city  of  40,000  or  50,000,  yes. 

Commissioner  BEALL.  But  only  on  their  outlying  lines ;  not  where 
the  congestion  is? 

Commissioner  SWEET.  In  the  heart  of  the  city? 

Mr.  CUMMIN.  In  a  town  of  40,000  or  50,000  people  I  think  it  is 
quite  possible  that  it  might  be  used.  It  would  depend  somewhat  on 
the  situation;  but  I  should  say  in  most  towns  of  that  size  it  could  be. 

Commissioner  SWEET.  Are  they  a  smaller  car,  or  a  standard  size  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       53 

Mr.  CUMMIN.  That  is  another  economy  that  has  been  practiced — 
the  use  of  a  lighter  car.  I  do  not  know  enough  about  the  compara- 
tive maintenance  costs  of  the  heavy  car  and  the  light  car  to  know 
whether  that  is  a  true  economy  or  not,  especially  on  heavy  traffic 
lines. 

Commissioner  BEALL.  Is  not  the  answer  to  that  that  you  have 
really  got  to  have  the  expense  in  your  power  house  anyway,  and  the 
heavy  car  costs  more,  but  the  light  car  wears  out  faster  ? 

Mr.  CUMMIN.  Yes;  there  is  some  point  in  that. 

Commissioner  BEALL.  There  is-  a  balance? 

Mr.  CUMMIN.  There  is  a  question  as  to  where  you  have  the  most 
economical  point;  but  that  is  suggested  as  a  possible  source  of 
economy. 

Commissioner  SWEET.  Have  you  had  any  experience  with  the  skip- 
stop,  so  termed,  that  has  been  tried  in  many  cities  during  the  war? 

Mr.  CUMMIN.  Yes;  in  the  smaller  cities  the  skip-stop  saves  noth- 
ing. 

Commissioner  SWEET.  How  is  it  in  the  larger  cities? 

Mr..  CUMMIN.  In  the  larger  cities  I  am  not  familiar  with  the 
actual  figures,  but  I  should  say  that  there  was  a  possibility  that  it 
did  save  something.  That  is,  it  might  enable  them  to  take  out  a  car 
or  so  on  a  line  at  certain  times  by  increasing  the  speed  at  which  they 
can  get  over  the  route.  In  a  town  of  30,000  or  40,000  or  50,000  peo- 
ple it  does  not  do  it.  You  have  to  deal  in  car  units,  and  you  do  not 
save  enough  time  to  get  rid  of  one  car.  If  you  are  running  15  cars 
at  a  time  you  can  not  cut  it  to  14. 

Commissioner  GADSDEN.  As  a  matter  of  fact,  is  not  the  greatest 
demand  for  power  in  the  starting  of  the  car  ? 

Mr.  CUMMIN.  Yes. 

Commissioner  GADSDEN.  Does  not  the  car  use  two  or  three  times 
the  amount  of  power  in  starting  that  it  does  after  it  gets  its  head- 
way ? 

Mr.  CUMMIN.  Yes. 

Commissioner  GADSDEN.  Therefore,  every  stop  you  cut  out  saves 
that  appreciable  amount  of  power,  does  it  not  ? 

Mr.  CUMMIN.  It  saves  some  power,  yes. 

Commissioner  GADSDEN.  An  appreciable  amount? 

Mr.  CUMMIN.  Yes. 

Commissioner  GADSDEN.  And  that  reflects  itself  in  the  total  gen- 
eration at  the  power  station  and  is  appreciable,  if  it  is  a  big  enough 
system  ? 

Mr.  CUMMIN.  Yes;  but  it  does  not  affect  it  as  much  us  you  would 
imagine,  because  when  you  are  generating  1,000  kilowatt  hours  and 
have  to  generate  1,200,  provided  it  is  well  within  your  capacity — that 
extra  200 — it  does  not  cost  you  one-fifth  more,  by  a  whole  lot. 

Commissioner  GADSDEN.  But  it  does  reduce  your  cost  per  kilo- 
watt? It  does  save  a  few  kilowatts,  and  if  you  save  kilowatts,  you 
save  so  many  dollars,  do  you  not? 

Mr.  CUMMIX.  It  does  not  work  out  quite  that  way.  For  instance, 
if  you  save  1,000  kilowatts  out  of  a  total  of  10.000  kilowatts,  you 
would  not  cut  your  cost  10  per  cent. 

Commissioner  GADSDEN.  I  did  not  say  that,  but  you  would  save  a 
substantial  amount  of  money  I 


54       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  CUMMIN.  They  Blight  save  a  little. 

Commissioner  SWEET.  You  said  that  the  automobile  was  having 
a  very  material  effect  in  diminishing  the  travel  upon  street  rail- 
ways, and  consequently  diminishing  their  earning  capacity.  Can 
you  see  any  remedy  for  that  from  the  street-railway  standpoint? 

Mr.  CUMMIN.  No;  I  do  not  know  that  I  can.  I  think  the  use 
of  the  automobile  is  going  to  increase  rather  than  decrease,  and  the 
only  thing  I  can  see  is  for  the  street  railroads  to  try  to  work  out 
some  scheme  to  make  riding  on  street  railroads  more  attractive  than 
riding  in  'Fords.  If  they  can  do  that,  they  can  perhaps  make  in- 
roads on  these  deficits.  But  there  is  the  situation:  A  man  owns  a 
car,  and  he  goes  back  and  forth  to  work  in  it,  and  he  used  to  ride 
in  a  street-car ;  and  he  will  probably  seat  two  or  three  of  his  friends, 
or  at  least  one  friend,  probably  an  average  of  three  or  four  a  week ; 
he  will  take  them  out  with  him  as  he  passes  them  on  the  street. 
Those  all  are  potential  street- railroad  fares,  that  would  be  street- 
railroad  fares  if  it  were  not  for  that  automobile;  and  you  multiply 
that  by  thousands  and  thousands  of  cases,  and  you  make  a  very  de- 
cided inroad  on  the  earnings  of  the  street  railway. 

Commissioner  SWEET.  Of  the  two  kinds  of  street  railroads  you 
spoke  of,  those  that  are  almost  hopeless,  or  practically  so,  and  those 
that  are  not,  which  would  be  the  more  affected  by  the  automobile 
competition  ? 

Mr.  CUMMIN.  I  do  not  see  that  it  would  make  any  particular 
difference. 

Commissioner  SWEET.  Don't  you  think  that  these  street  railroads 
that  I  think  you,  or  perhaps  Judge  Taft,  said  never  ought  to  have 
been  built,  that  there  was  no  logical  reason  for  building,  out  into 
the  suburbs,  would  be  more  affected,  in  proportion,  than  those  in  the 
center  of  the  city? 

Mr.  CUMMIN.  Oh,  yes.  Take  a  line  that  is  built  into  a  high- 
class  residential  district,  and  it  might  be  pretty  nearly  put  out  of 
business  by  the  automobile  traffic.  You  take  lines  in  the  city  of 
New  York,  and  they  might  be  very  little  affected.  I  mean,  the 
percentage  is  probably  very  much  less  than  it  would  be  in  a  smaller 
city,  but  that  is  taking  the  extremes,  of  course.  I  believe  if  you  take 
cities  the  size  of  Detroit  and  Cleveland  and  cities  of  that  general 
class,  you  will  find  that  the  automobile  has  cut  very,  very  heavily 
into  the  revenues  of  the  street-railway  companies.  It  is  easy  enough 
to  simply  go  out  in  the  street  and  count  them  up — what  would  be 
street-car  fares  if  it  were  not  for  the  automobiles. 

Commissioner  SWEET.  In  the  cases  you  have  in  mind,  is  the  jitney 
playing  any  part,  in  your  estimate? 

Mr.  CUMMIN.  Under  certain  circumstances  and  in  certain  cases 
the  jitney  may  be  a  very  serious  competitor;  but  taking  the  question 
and  generalizing  upon  it,  the  serious  thing  is  the  automobile  as  a 
whole — the  privately  owned  automobile  and  the  jitney  and  every- 
thing all  together;  that  is  the  thing  that  the  street  railroads  must 
face,  the  competition  of  the  automobile.  The  jitney  competition  you 
can  control.  The  private-automobile  competition  you  can  not  control. 

Commissioner  SWEET.  That  is  likely  to  grow  worse,  rather  than 
better? 

Mr.  CUMMIN.  I  would  judge  so,  at  least  by  the  plans  that  the 
automobile  manufacturers  have. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       55 

Commissioner  MEEKER.  There  was  one  point  that  I  wanted  to 
bring  out — although  I  think  perhaps  it  has  already  been  covered  by 
questions  which  have  been  asked — and  that  was  in  reference  to  auto- 
mobile transportation,  either  by  jitney  or  automobile  bus.  As  a 
matter  of  fact,  is  transportation  by  automobile  bus  to-day  as  cheap 
as  transportation  by  street  railways,  in  reasonably  crowded  districts  ? 

Mr.  CUMMIN.  The  figures  that  I  have  seen  are  pretty  conflicting  on 
that  point.  I  do  not  know. 

Commissioner  MEEKER.  But  that  is  a  serious  thing,  and  must  be 
considered  by  this  commission — the  competition  of  the  jitney  trans- 
portation or  the  automobile  bus. 

Mr.  CUMMIN.  As  I  say,  in  certain  local  situations  it  may  be  very 
serious.  I  would  judge,  for  instance,  in  Minneapolis  that  the  big 
automobile  buses  there  were  a  serious  factor  in  the  earnings  of  the 
Twin  Cities  Railroads. 

Commissioner  MEEKER.  It  is  quite  possible  that  in  the  future  im- 
provements in  the  gas  engines  may  be  made  so  that  the  street  railway 
properties  in  some  districts  will,  as  suggested  by  the  chairman  this 
morning,  become  obsolete,  or  at  least  obsolescent,  so  that  the  street 
railway  companies  in  those  localities  will  have  to  prepare  to  write 
off  a  large  part  of  or  perhaps  the  entire  cost  of  their  investment. 
You  agree  with  that,  do  you? 

Mr.  CUMMIN.  Yes ;  that  is  possible. 

Commissioner  BEALL.  You  probably  know  this — that  in  Dallas 
and  Los  Angeles,  Calif.,  until  the  jitneys  were  regulated  by  law, 
principally  by  compelling  the  furniGhing  of  indemnity  bonds  against 
injuring  people  and  property — I  have  not  the  exact  figures  in  mind — 
but  it  affected  the  gross  earnings  of  those  properties  something  like  30 
or  40  ner  cent  or  more — not  less.  That  is  how  serious  it  was. 

Mr.  CUMMIN.  Yes. 

Commissioner  BEALL.  It  was  also  very  serious  in  Seattle ;  but  that 
has  been  almost  entirely  eliminated  in  those  places  by  a  new  law. 

Mr.  CUMMIN.  As  to  the  Minneapolis  situation,  they  are  regulated 
there,  but  they  have  these  great  big  buses  that  seem  to  be  operating 
pretty  frequently,  and  I  should  imagine  they  cut  into  the  street 
railway  revenues  considerably. 

Commissioner  BEALL.  They  did  between  Dallas  and  Fort  Worth ; 
they  almost  put  the  interurban  line  out  of  business — but  that  is  inter- 
urban.  I  was  speaking  of  the  cities'  lines. 

Mr.  CUMMIN.  The  same  thing  is  happening  to  interurban  lines  in 
the  Middle  West  where  good  roads  are  put  in.  Where  good  roads 
are  put  in,  the  jitney  buses  promptly  take  a  large  part  of  the  busi- 
ness away  from  them.  But  I  think  the  whole  question  goes  right 
back  to  the  automobile  generally;  if  you  attempt  to  generalize,  you 
have  to  treat  it  as  the  automobile,  and  not  simply  as  the  jitney  bus; 
because  the  jitney  bus  is  local. 

Commissioner  WEHLE.  Has  any  study  of  costs  been  made  with 
reference  to  these  Minneapolis  buses? 

Mr.  CUMMIN.  Not  that  I  have  ever  seen.  The  few  costs  I  have 
ever  seen  on  buses  have  been  rather  conflicting. 

Commissioner  WEIILE.  Has  the  engineering  proposition  ever  been 
made  that  street  railroads  might  be  propelled  by  gasoline  instead  of 
electricity? 


56       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CUMMIN.  Henry  Ford  has  proposed  it,  and  he  says  he  is  going 
to  build  a  car. 

Commissioner  GADSDEN.  Nobody  else  has? 

Mr.  CUMMIN.  Oh,  it  has  been  proposed. 

Commissioner  WEHLE.  Has  it  been  proposed  in  any  serious  way, 
so  far,  so  that  there  might  be  data  on  it,  or  reliable  estimates  on  that 
subject  ? 

Mr.  CUMMIN.  There  is  no  data  that  I  know  of.  The  only  gasoline 
operation  of  a  car  was  some  few  years  ago,  when  they  operated  some 
gasoline  cars  on  some  branches  of  steam  railroads. 

Commissioner  BEALL.  Yes. 

Mr.  CUMMIN.  Several  of  them  out  in  Oregon,  I  think. 

Commissioner  BEALL.  Some  in  California,  too. 

Mr.  CUMMIN.  I  have  not  heard  much  about  them  lately,  so  I 
imagine  they  were  not  a  howling  success. 

Commissioner  WEHLE.  There  would  naturally  be  a  great  deal  of 
opposition  to  the  development  of  the  idea  from  those  who  are  in- 
terested in  the  investments  in  electric  properties,  would  there  not? 

Mr.  CUMMIN.  Oh,  I  don't  know. 

Commissioner  WEHLE.  It  would  necessarily  mean  discarding  these 
electric  properties,  would  it  not,  if  that  idea  should  ever  come  to  the 
fore  ? 

Mr.  CUMMIN.  Yes,  of  course;  but  I  think  that  when  any  live 
business  realizes  a  situation  of  that  kind,  there  is  only  one  thing  for 
them  to  do,  and  that  is  to  accept  it  and  write  off  the  losses ;  they  do 
not  have  to  write  off  all  the  losses  in  one  year. 

Commissioner  WEHLE.  I  do  not  think  people  like  to  write  off 
losses. 

Mr.  CUMMIN.  No ;  they  do  not.  They  do  not  like  to  write  off  losses, 
but  if  they  do  not  do  it,  somebody  else  will  get  the  business,  and  they 
know  that,  and  then  they  will  not  only  have  their  losses  to  wTrite  off, 
but  they  will  have  lost  their  chance  to  render  the  service  with  tha 
new  thing. 

Commissioner  BEALL.  That  is  what  did  occur  in  the  change  from 
horse  to  cable,  and  from  cable  to  electric  power,  is  it  not? 

Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  Exactly.  You  have  stated  that  there  is  a 
type  of  electric-railway  property  which  is  inherently  impossible  to 
successful  private  operation ;  that  is,  a  small  town  property  ? 

Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  Have  you  in  your  possession,  or  could  you 
file  in  this  record,  any  detailed  statement  specifying  the  properties 
which  come  within  that  description,  within  that  type?  You  have 
only  given  us  one  instance,  so  far — Jackson,  Miss. — have  you  not? 

Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  Which,  in  your  opinion,  illustrates  the 
type? 

Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  Do  you  think  that  your  information  is  suf- 
ficient to  enable  you  to  say  that  there  is  a  large  number  of  proper- 
ties which  conform  to  thai  type  ? 
Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  And  which  can  never  be  operated  success- 
fully under  privat3  operation,  from  a  business  standpoint? 


PROCEEDINGS  OF  FEDERAL  ELECTBIC  RAILWAYS  COMMISSION.       57 

Mr.  CUMMIN.  They  probably  never  can.  In  fact,  I  imagine  you 
will  find  a  great  many  that  never  have  been  operated  at  a  profit. 

Commissioner  WEHLE.  We  know  that  that  is  true,  of  course,  but 
that  may  easily -be  due  to  errors  in  management,  or  various  kinds  of 
special  circumstances.  But  you  are  talking  now  in  the  abstract,  as  I 
understand  it? 

Mr.  CUMMIN.  Yes. 

Commissioner  WEHLE.  And  you  are  assuming  that  the  founda- 
tions for  operation  have  been  laid  in  a  businesslike  way  to  begin  with, 
and  that  the  demonstration  is  that  these  properties  are  a  blind  alley, 
speaking  in  terms  of  business.  Can  jou  give  instances  of  that,  be- 
sides Jackson,  Miss.,  if  you  would  be  willing  to  do  so? 

Mr.  CUMMIX.  Another  one  I  happen  to  know  about  is  Fond  du  Lac, 
Wis.,  and  Oshkosh,  Wis.  Those  are  two  that  I  happen  to  know  of. 
Oshkosh  is  a  case  where  they  have  got  a  large  part  of  their  mileage 
that  is  pretty  dead,  and  always  will  be,  possibly ;  at  least  for  a  great 
many  years  it  is  going  to  be  pretty  dead ;  they  get  very  little  traffic 
from  it,  and  yet  they  have  got  to  operate. 

Commissioner  WEHLE.  In  Jackson,  Miss.,  was  there  an  overbuild- 
ing of  the  property  there  into  territory  that  was  really  dead  ? 

Mr.  CUMMIN.  Not  to  any  serious  extent. 

Commissioner  WEHLE.  So  that  you  think  that  the  conditions  at 
Jackson,  Miss.,  are  such  that  they  really  prove  your  proposition  ? 

Mr.  CUMMIN.  Oh,  I  think  it  is  utterly  hopeless  for  any  street  rail- 
road in  Jackson,  Miss.,  to  ever  earn  its  salt.  It  has  got  to  be  helped 
along  by  a  stronger  sister,  which  it  always  has  been,  down  there ;  and, 
in  fact,  the  city  has  more  or  less  recognized  that,  and  the  street-rail- 
road franchise  is  concurrent  with  an  electric-light-and-power  fran- 
chise, so  that  evidently  the  situation  was  recognized. 

I  can  not  cite  you  a  lot  of  cases,  but  I  think  that  the  public-service 
commissioner  right  here  could  probably  give  you  a  dozen  of  them 
within  40  miles  of  the  city  of  New  York.  I  do  not  think  you  will 
have  to  go  any  further  away  than  that,  where,  if  you  allowed  them 
to  charge  anything — I  make  the  distinction  there  of  where  you  allow 
them  to  charge  any  rate  of  fare  they  want  to  charge — they  can  not 
stand  on  their  financial  feet.  Take  the  lid  off,  and  let  them  charge 
anything  they  want — the  business  is  not  there.  In  other  words, 
they  can  not  increase  their  gross  revenue  appreciably,  no  matter 
what  they  make  their  fare. 

Commissioner  SWEET.  But  as  the  rate  goes  up,  the  patronage  goes 
down  ? 

Mr.  CUMMIN.  Yes;  and  it  goes  down  in  the  smaller  cities  so  fast 
that  you  simply  can  not  gain  anything  by  putting  on  the  higher 
rate.  Let  them  charge  10,  15,  or  20  cents,  and  it  would  not  help 
matters  any.  There  is  a  case  where  regulation  of  fares  is  not  neces- 
sary by  a  public-service  commission.  It  does  not  make  any  dif- 
ference what  they  charge.  There  are  plenty  of  instances  of  just 
that,  at  the  present  time. 

Commissioner  MEEKER.  You  spoke  of  service  at  cost.  Of  course, 
it  Avould  be  necessary  to  have  a  physical  valuation  of  the  plant  to 
get  at  what  the  service  cost.  You  said,  as  I  understood  you  at  least, 
that  the  ideal  method  of  getting  at  the  value  of  the  plant  would  be 
to  fret  the  amount  invested? 

Mr.  CUMMIN.  Yes;  if  you  can  get  it. 

1(50043°— 20 5 


58       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  MEEKER.  Suppose  we"  can  get  it.  Suppose  it  can 
be  gotten.  Suppose  the  investment  has  been  an  unwise  one,  as  it 
would  seem  the  investment  in  Jackson,  Miss.,  was? 

Mr.  CUMMIN.  That  would  have  to  be  taken  into  consideration.  In 
that  particular  case,  as  I  say,  the  situation  was  recognized,  appar- 
ently, by  the  franchise.  It  was  recognized  that  the  electric-light 
plant  would  have  to  support  the  street  railroad,  more  or  less. 

Commissioner  MEEKER.  Then  what  you  mean  really  is  to  get  at 
the  prudent  investment,  is  it  not  ? 

Mr.  CUMMIN.  Yes.  There  was  a  public  service  that  was  needed, 
the  town  wanted  it,  and  made  that  arrangement  in  order  to  get  it. 
There  will  be  a  number  of  street  railroads,  I  think,  as  your  investi- 
gation goes  on,  where  you  will  find  there  probably  is  not  a  financial 
basis  to  justify  their  being  there,  even  in  normal  times,  but  that  they 
are  a  real  community  need,  and  some  arrangement  has  been  entered 
into  whereby  that  community  need  can  be  filled.  That  has  to  be 
taken  into  consideration  as  well  as  the  lack  of  wisdom  as  a  straight 
business  investment.  That  is,  sometimes  the  community  need  has 
been  filled  at  an  actual  business  loss. 

Commissioner  MEEKER.  And  there  must  be  some  arrangement, 
.  either  by  writing  off  the  capital  or  by  subsidy  of  public  ownership  or 
partnership,  in  order  to  maintain  this  service? 

Mr.  CUMMIN.  Yes.  You  can  not  get  an  investor  to  put  any  money 
into  that  in  order  to  give  the  service  which  the  public  needs  unless 
you  let  it  stand  on  its  feet. 

Commissioner  MEEKER.  You  said  getting  at  the  valuation  was  but 
an  approximation  in  any  case.  Do  you  think  it  is  possible  to  get  a 
physical  valuation  that  is  accurate  enough  to  base  their  fares  upon? 

Mr.  CUMMIN.  You  face  this  situation  in  a  valuation — securing 
a  fair  value  or  physical  value  or  anything  else  of  that  kind — that 
you  can  not  get  the  exact  truth.  If  you  try  to  get  the  exact  truth, 
you  will  spend  so  much  time  in  splitting  hairs  over  things  that  are 
matters  of  opinion  and  have  to  be  based  on  hypotheses  that  your 
results  are  not  going  to  be  worth  the  amount  of  time  you  put  in. 
What  you  must  expect  to  get  is  the  closest  possible  approximation 
to  the  truth.  You  probably  can  have  two  thoroughly  competent  en- 
gineers for  the  same  property  and  they  will  not  agree  even  with  the 
best  intention  in  the  world,  both  of  them  absolutely  trying  to  get  at 
the  truth.  They  will  not  agree  and  they  may  not  agree  within  quite 
a  large  margin,  and  yet  both  of  them  have  an  approximation  of  the 
truth.  You  can  not  expect  to  get  any  better  than  an  approximation, 
and  the  thing  you  must  aim  at  is  to  get  the  best  approximation  that 
you  can  get.  You  have  to  start  from  some  point  in  making  your 
fares.  Well,  now,  there  is  only  one  thing  to  do  and  that  is  to  work 
out  some  way  of  agreeing  upon  that  basis.  It  may  not  be  the  truth, 
but  if  it  is  the  closest  approximation  of  the  truth  you  can  get  it  is 
satisfactory  as  a  starting  point.  After  that,  with  accounting  control, 
you  can  see  that  your  books  are  kept  so  that  you  can  keep  right  on 
upon  that  basis. 

Commissioner  MEEKER.  You  think  the  deviation  from  the  mean  in 
these  engineers'  estimates  is  within  a  sufficiently  narrow  limit  so  that 
these  various  estimates  may  be  taken  as  the  basis  of  adjusting  fares? 

Mr.  CUMMIN.  I  would  say  so  in  the  case  of  engineers  who  are 
recognized  as  being  disinterested.  Some  of  them  are  not. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       59 

Commissioner  MEEKER.  You  spoke  of  taxation  and  also  paving 
charges  as  coming  from  the  public.  Taxation  from  the  public,  pav- 
ing charges  from  the  riding  public.  That  would  not  necessarily  be 
true,  would  it  ?  In  fact,  were  not  those  charges — paving  charges  and 
taxation — resorted  to  by  the  public  because  the  street  railways  were 
making  a  good  deal  of  money,  and  they  were  charged  with  the  pav- 
ing charges  and  with  franchise  charges  in  order  to  take  some  of  their 
profits  away  from  them? 

Mr.  CUMMIN.  That  was  the  original  idea.  I  think  you  misunder- 
stood my  statement  somewhat,  because  when  I  spoke  of  taxation  I 
meant  that  deficits  would  have  to  be  handled  by  the  public,  some 
through  taxation,  either  as  a  partner  or  as  operating  the  business 
themselves.  If  the  deficit  existed,  it  would  have  to  be  paid  for  by  the 
public,  and  paid  for  by  taxation.  I  entirely  agree  that  the  utility 
should  be  taxed  on  just  the  same  basis  as  anything  else.  I  think  that 
is  entirely  proper.  I  do  not  believe  there  should  be  any  change  made. 
If  you  stop  taxing  the  utility,  you  are  paying  it  a  subsidy ;  I  do  not 
care  what  you  call  it  or  how  you  do  it. 

Commissioner  MEEKER.  It  is  very  desirable  to  resort  to  indirect 
taxation  if  it  can  be  avoided;  that  is,  allowing  the  street-railway 
corporation  to  collect  in  fares  an  amount  that  does  give  them  an  in- 
come above  a  reasonable  income  on  the  investment  which  is  to  be 
taken  from  them  through  the  taxing  power  of  the  State;  It  is  better 
to  reduce  the  fares  and  reduce  income  in  that  way  ? 

Mr.  CUMMIN.  Yes. 

Commissioner  MEEKER.  So  as  to  avoid  the  waste  of  pouring  water 
from  one  vessel  into  another  repeatedly? 

Mr.  CDMMIN.  Yes. 

Commissioner  MEEKER.  Just  one  thing  more.  To  what  extent  is 
it  possible  in  your  experience  as  an  engineer  to  improve  the  imple- 
ments of  street-railway  transportation,  and  thereby  assist  to  put 
the  companies  back  on  their  feet?  Is  there  much  of  a  margin  to  be 
gained  in  that  direction  ? 

Mr.  CUMMIN.  Of  course,  there  is  quite  a  margin  in  some  cases. 
You  will  find  some  roads  that  are  in  very  bad  physical  condition. 
They  are  in  very  bad  physical  condition  in  many  cases  because  they 
have  not  been  able  to  get  the  money  to  keep  themselves  in  good  physi- 
cal condition,  and  now  their  operating  costs  and  maintenance  costs 
are  out  of  all  reason  on  account  of  their  physical  condition.  There 
is  a  case  where,  if  the  money  could  be  put  into  it,  a  considerable 
amount  could  be  saved. 

As  far  as  new  devices  are  concerned,  I  should  say  that  these  gen- 
tlemen of  the  Electric  Railway  Association  can  tell  you  a  whole  lot 
more  about  them  than  I  can,  because  they  keep  in  very  clos"e  touch 
with  them. 

I  think  that  anything  that  promised  a  saving  the  street-railway 
companies  would  be  only  too  glad  to  adopt. 

Commissioner  MEEKER.  I  think  the  commission  would  be  inter- 
ested in  getting  your  views  of  how  money  can  be  obtained  by  these 
railways  of  which  you  spoke  when  you  said  if  they  could  put  more 
money  in  their  investment,  in  their  equipment,  they  could  cut  down 
their  operating  costs  and,  incidentally,  increase  their  income;  and 
they  can  not  borrow  the  money.  What  is  to  be  done? 


60       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  CUMMIN.  They  are  in  the  position  of  the  two  mining  partners, 
one  of  whom  stayed  out  West  to  develop  the  prospect  and  the  other 
came  East  to  sell  the  stock;  and  the  one  who  came  East  to  sell  the 
stock  could  not  sell  the  stock  because  the  other  fellow  could  not  dis- 
cover any  gold,  and  the  fellow  out  West  could  not  discover  any  gold 
because  the  fellow  in  the  East  could  not  sell  any  stock.  That  is  just 
the  situation  the  street  railroads  are  in.  They  can  not  get  any  earn- 
ings until  they  can  invest  some  more  money  in  their  plants  to  get 
them  in  shape,  and  they  can  not  get  any  more  money  to  invest  in 
their  claims  until  they  get  some  more  earnings. 

Commissioner  MEEKER.  You  have  just  repeated  my  question  to  you 
to  me.  Now,  what  is  the  answer  ? 

Mr.  CUMMIN.  That  is  the  situation.  The  answer,  in  a  situation  of 
that  kind,  is  that  I  do  not  see  anything  can  be  done,  except  I 
think  if  an  agreement  can  be  secured  that  will  reasonably  assure  the 
company  of  being  able  to  get  back  upon  a  business  basis  that  possibly 
financial  arrangements  could  be  made. 

Commissioner  MEEKER.  Do  you  suggest  the  loaning  of  public 
funds? 

Mr.  CUMMIN.  I  think  that  is  bad  public  policy. 

Commissioner  MEEKER.  Why  ? 

Mr.  CUMMIN.  Because  if  it  is  done  once  it  is  likely  to  be  pretty 
hard  to  tell  where  it  will  stop. 

Commissioner  SWEET.  It  will  become  a  habit? 

Mr.  CUMMIN.  Yes. 

Commissioner  MEEKER.  Guaranteeing  income  ? 

Mr.  CUMMIN.  I  think  there  might  be  something,  perhaps,  done 
along  that  line  of  where  the  city  would  borrow  upon  its  credit  and 
in  turn  lend  to  the  utility,  taking  proper  security  to  cover  its  advance- 
ment. I  think  something  of  that  kind  might  be  worked  out,  but  I 
do  not  believe  that  is  advisable  if  something  else  can  be  done.  I  am 
a  little  jealous  of  diverting  the  public  funds  to  bolstering  up  private 
credit  on  anything.  It  is  bad  enough  to  have  to  do  it  directly  as  a 
subsidy.  I  doubt  its  policy  as  a  matter  of  loan. 

Commissioner  MEEKER.  Just  one  question  more:  Who  is  to  deter- 
mine these  properties  that  would  pay  if  you  would  put  more  capital 
into  them? 

Mr.  CUMMIN.  Just  like  everything  else,  it  is  a  pure  matter  of  judg- 
ment. You  can  not  draw  up  any  formula  and  make  it  fit  all  cases. 
You  have  to  work  out  the  special  case  and  come  just  as  nearly  to  the 
truth  as  you  can  come  and  then  decide  as  may  seem  best  in  that  case. 
I  can  not  see  that  you  can  draw  up  any  formula  that  you  can  fit  to 
any  cases  that  may  arise. 

Commissioner  WEHLE.  I  am  coming  back  to  that  subject  of  the 
small  town  that  you  spoke  about.  Is  there  any  way  in  which  you 
can  suggest  to  us  that  we  obtain  data  especially  on  that  kind  of  a 
town  ?  Because  there  are  a  great  many  towns  of  that  general  sort  in 
the  country,  and  they  would  all  be  interested. 

Mr.  CUMMIN.  I  should  imagine  that  the  Electric  Railway  Associa- 
tion could  furnish  you  a  very  large  number  of  instances. 

Commissioner  WEHLE.  Is  there  any  person  outside  of  the  Electric 
Railway  Association,  or  is  there  any  source — any  statietical  source — 
that  you  know  of  outside  of  that  that  could  gwe  us  light  on  that 
subject? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       61 

Mr.  CUMMIN.  Perhaps  some  of  the  State  utility  commissions  could 
give  you  information  on  that.  For  instance,  the  statistician  of  the 
Wisconsin  Commission  could  probably  give  you  considerable  in- 
formation on  just  that  point,  and  that  probably  would  be  true  of  a 
number  of  the  other  State  commissions. 

Commissioner  WEHLE.  You  made  one  rather  clear-cut  generali- 
zation that  I  should  like  to  have  a  little  examination  of.  We  were 
talking  about  the  cost  of  construction  of  streets  in  between  the  tracks 
and  on  both  sides,  and  your  view  seemed  to  be  that  no  part  of  that 
cost  should  be  borne  by  the  street-railway  company — that  is,  the  con- 
struction. What  would  you  say  to  this  sort  of  a  situation:  Suppos- 
ing that  a  street-railway  company,  in  order  to  reach  an  outlying 
suburb  which  promised  considerable  traffic,  extends  its  line  to  that 
suburb  in  order  to  bring  in  that  community  within  its  operations  and 
into  its  revenues,  and  thereby  necessitates  the  building  up  of  the  line 
through  the  opening  up  of  that  roadway  for  more  people,  necessi- 
tates the  paving  of  that  street.  In  view  of  the  fact  that  the  railway 
company  is  expecting  to  add  to  the  population  of  the  street  and  of  that 
suburb,  and  to  gain  a  considerable  profit  through  that  operation, 
can  we  say,  as  a  categorical  matter,  that  it  should  not  stand  any  part 
out  of  its  profits,  or  before  it  makes  its  profits,  we  might  say,  of 
the  cost  of  constructing  that  street  in  between  the  tracks  ? 

Mr.  CUMMIN.  No;  because  it  is  not  the  street  railroad  that  has 
made  that  paving  necessary.  The  street  railroad  may  have  built  out 
to  that  suburb  and  increased  the  population  of  it  very  materially, 
by  furnishing  transportation  facilities.  The  thing  that  makes  the 
street  paving  necessary  is  the  fact  that  the  people  who  live  out  there, 
and  the  people  who  want  to  ride  out  there  and  do  not  want  to  ride 
on  the  street  car,  want  to  use  the  street. 

Commissioner  WEHLE.  Are  there  not  a  great  many  conveniences 
that  people  have  that  make  a  street  necessary  ? 

Mr.  CUMMIN.  Yes;  but  a  street  is  necessary  as  a  community  need. 
It  is  not  caused  by  the  building  of  a  railroad.  It  is  caused  by  the 
people  being  out  there  and  needing  the  street. 

Commissioner  WEHLE.  Don't  you  think  it  rather  a  difficult  thing 
to  separate  that — I  am  not  ready  to  argue  with  you  or  disagree  with 
you — but  whenever  you  undertake  to  make  an  out-and-out  declara- 
tion of  where  the  right  is  and  where  the  wrong  is,  I  would  like  to 
see  whether  we  have  made  it  safely. 

Mr.  CUMMIN.  Your  basis  for  assessing  abutting  property  for  the 
pavement  of  a  street — that  is,  the  theoretical  basis  for  it,  anyway — is 
that  the  pavement  of  that  street  added  to  the  value  of  that  property, 
and  that  therefore  it  is  proper  to  tax  for  the  pavement  of  that  street ; 
in  other  words,  a  special  benefit  is  derived. 

Commissioner  WEHLE.  But  the  paving  of  the  street,  in  so  far  as  it 
leads  to  any  thicker  populating  of  that  part  of  the  town,  through 
making  it  more  acceptable  for  general  traffic,  adds  to  the  traffic  of 
the  street-railway  company,  does  it  not? 

Mr.  CUMMIN.  No;  it  may  not.    It  may  do  just  the  opposite. 

Commissioner  WEHLE.  But  it  may,  may  it  not? 

Mr.  CUMMIN.  You  take  the  case  I  cited  here  a  little  while  ago, 
where  an  interurban  line  is  paralleled  by  a  hard-surfaced  road,  and 
the  business  is  taken  away  from  the  interurban  line  by  jitneys,  auto- 
mobiles, etc.  The  paying  of  that  street  may  be  an  actual  detriment. 


62       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

In  any  case,  I  can  not  see  why  it  is  brought  on  except  by  very  indi- 
rect methods  by  the  street-railroad  company  building  that  exten- 
sion. I  still  think  my  generalization  is  good. 

The  CHAIRMAN.  Isirt  it  a  fact  that  there  is  comparatively  heavier 
maintenance  on  the  paving  between  and  immediately  on  each  side  of 
the  tracks? 

Mr.  CUMMIN,  As  I  say,  the  maintenance  is  caused  very  often  by 
the  breaking  down  of  joints,  it  is  caused  by  having  to  cut  in  to  repair 
bonds  and  by  conditions  in  the  subgrade  underneath  the  ties,  and  by 
the  failure  of  the  ties  and  the  rails,  etc.,  and  the  maintenance  of 
pavement  in  street-car  tracks  is  always  very  much  heavier  than  it  is 
any  place  else.  If  you  go  out  and  go  over  a  street  that  has  been 
paved  a  number  of  years,  and  go  along  the  street-railroad  tracks, 
you  caoi  see  the  condition  that  the  street-railroad  tracks  put  it  in. 
Numerous  efforts  have  been  made  to  get  away  from  that  high  cost  of 
maintenance,  some  fairly  successful  and  some  not  so  successful,  in  the 
way  of  using  practically  monolithic  pieces  of  various  kinds. 

1'he  CHAIRMAN.  Are  there  any  further  questions  of  this  witness? 
[No  response.] 

Are  there  any  other  witnesses  who  wish  to  be  heard  by  the  com- 
mission this  afternoon?  [No  response.] 

The  commission  stands  adjourned,  then,  until  further  notice. 

(Whereupon,  at  4.30  o'clock  p.  m.,  an  adjournment  was  taken 
sine  die.) 

WASHINGTON,  D.  a,  July  15,  1919. 

The  commission  met,  pursuant  to  notice,  at  10  o'clock  a.  m. 

Present:  Charles  E.  Elmquist  (chairman),  Edwin  F.  Sweet  (vice 
chairman),  Roy^al  Meeker,  C.  W.  Beall,  L.  B.  Wehle,  and  Philip  H. 
Gadsden,  commissioners. 

Appearances:  Mr.  Bently  W.  Warren,  Boston,  Mass.,  and  John  H. 
Pardee,  New  York,  N.  Y.,  representing  the  American  Electric  Rail- 
way Association. 

PROCEEDINGS. 

The  CHAIRMAN.  Mr.  Pardee,  the  commission  is  ready  to  hear  the 
Electric  Railway  Association. 

STATEMENT  OF  MR.  JOHN  H.  PAHDEE. 

Mr.  PARDEE.  Mr.  Chairman  and  gentlemen,  I  appear  before  you 
as  president  of  the  American  Electric  Railway  Association,  an  or- 
ganization which  represents  a  very  large  part  of  the  electric-railway 
mileage  of  this  country  and  a  very  large  part  of  the  capital  invested 
in  the  electric  railways  in  urban  and  rural  communities. 

This  organization  has  been  in  existence  since  1882  and  has  been 
the  spokesman  of  the  industry  through  all  the  phases  of  its  develop- 
ment from  the  original  horse-car  lines  to  the  cable  road  and  through 
the  period  of  evolution  from  the  first  commercially  successful  electric 
railway  of  the  city  of  Richmond,  Va.,  in  1888,  to  the  present-day 
trolley  which  is  part  of  the  social  and  economic  life  and  industrial 
life  oi  almost  every  city  of  any  size  in  this  country  and  in  many  of 
the  rural  communities.  I  feel,  therefore,  as  president  of  this  asso- 
ciation, and  speaking  with  the  authority  of  its  members,  I  am  pre- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       63 

senting  to  you  the  views  and  wishes  of  an  industry  representing  an 
invested  capital  of  over  $6,000,000.000  and  which  operates  more  than 
44,000  miles  of  electric-railway  track  in  the  cities  and  rural  districts 
of  the  United  States. 

We  are  before  your  commission  because  a  crisis  has  been  reached 
in  the  conduct  of  this  very  important  and  essential  enterprise.  It  is 
not  too  much  to  say  that  we  are  no  longer  able,  under  existing  condi- 
tions and  with  the  revenue  which  we  are  receiving,  to  continue  in 
the  performance  of  the  functions  which  the  electric  railways  are  de- 
signed to  perform.  It  is  no  longer  a  question  of  what  return  shall  be 
allowed  to  the  owners,  it  is  a  question  as  to  what  service,  if  any,  shall 
be  rendered  to  the  public.  It  is  a  situation  which  very  intimately 
concerns  these  three  classes: 

First,  and  most  important,  the  public,  which  is  threatened — and  I 
am  not  now  speaking  in  parables,  but  am  dealing  with  actual  facts — 
in  many  cases  with  the  entire  loss,  and  in  nearly  all  cases  with  a  very 
great  deterioration  of  the  service  which  it  requires. 

Second,  the  more  than  300,000  employees,  who,  in  the  end,  in  spite 
of  theories  or  pronouncements  of  arbitration  boards,  must  depend 
for  their  wages  upon  the  financial  ability  of  the  companies  to  pay. 

Third,  the  owners  of  the  properties  whose  investment — made,  it  is 
true,  with  the  object  of  legitimate  compensation,  but  made,  neverthe- 
less, in  the  interest  of  the  entire  people — is  now  jeopardized. 

The  peculiar  conditions  surrounding  the  operation  of  all  public 
utilities,  and  especially  of  transportation  utilities,  is  the  direct  cause 
of  our  being  before  you.  Owing  to  the  complete  system  of  control 
and  regulation  exerted  over  us  by  the  public  authorities,  which  both 
prescribe  our  service  and  control  our  rates,  we  are  unable  to  readjust 
ourselves  to  changing  conditions  as  every  other  industry  not  so  ham- 
pered is  readjusting  itself.  On  the  one  hand,  we  can  neither  decrease 
to  any  considerable  extent  the  quantity  or  quality  of  our  product,  or, 
on  the  other  hand,  increase  the  price  of  this  product,  without  the 
consent  and  cooperation  of  the  public,  acting  through  the  constituted 
authorities,  which  means  in  the  end  that  to  put  into  effect  measures 
for  our  salvation  we  must  obtain  the  consent,  or  at  least  the  acquies- 
cence, of  the  public  itself. 

We  realize  fully  that  your  commission  is  without  power  to  take 
peremptory  action  or  to  directly  put  into  effect  any  recommendations 
which  you  may  make.  You,  however,  bear  the  commission  of  the 
President  of  the  United  States;  you  were. appointed  at  the  joint  sug- 
gestion of  the  Secretaries  of  Commerce  and  of  Labor,  made  because 
these  gentlemen  realized  the  important  bearing  upon  the  national 
interests  intrusted  to  their  charge  of  the  precarious  situation  of  the 
electric  railways  and  saw  the  necessity  for  its  correction  in  the  na- 
tional interest.  Your  conclusions  and  recommendations  will  have 
the  confidence  of  the  people  and  will  carry  with  them  the  weight 
that  must  always  be  attached  to  the  wishes  and  conclusions  of 
the  national  administration.  Your  appointment  gave  to  the  elec- 
tric-railway industry  an  opportunity  of  presenting  to  the  public, 
whose  representatives  you  are,  a  true  picture  of  the  state  into  which 
it  has  fallen  through  no  fault  of  its  own.  We  have  no  desire  ro 
"make  a  technical  case"  in  the  legal  sense;  what  we  want  to  give 
you,  and  through  you  to  the  people  of  the  country,  are  the  facts,  and 


64        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

all  £>f  the  facts,  to  the  end  that  with  your  help  and  with  their  coop- 
eration a  solution  may  be  found. 

We  are  before  you  then,  because  we  believe  that  the  solution  of 
our  problem  is  as  much  a  matter  of  concern  to  the  people  as  it  is  to 
the  shareholders  and  operators  of  the  properties,  and  because  we 
believe  that  the  solution  can  only  be  properly  arrived  at  through  the 
cooperation  of  a  public  educated  to  the  needs  of  the  railways  as 
these  needs  affect  the  needs  of  the  communities. 

In  my  opinion,  and  I  am  confident  that  in  this  opinion  I  will  be 
supported  by  the  industry,  there  are  two  major  phases  of  the  situa- 
tion which  we  now  face.  The  first  concerns  the  absolutely  uneco- 
nomic and  unsatisfactory  basis  upon  which  the  relations  between  the 
electric  railways  and  the  public  have  rested  since  the  enterprise  was 
inaugurated ;  and  by  this  I  mean  that  there  has  never  been  a  proper 
conception  either  on  the  part  of  the  owners  of  these  properties  nor 
on  the  part  of  the  public  as  to  the  factors  which  should  govern  tha 
service  to  be  rendered  or  the  fares  to  be  charged  by  electric  railways. 
This  is  a  situation  which  has  existed  during  the  entire  life  of  the 
industry  and  is  responsible  for  much  of  the  misunderstanding  be- 
tween the  companies  and  the  public.  It  existed  before  the  war,  is 
entirely  unconnected  with  the  changes  wrought  by  the  war,  but  it  is 
one  of  the  fundamental  reasons  why  the  war  has  helped  to  bring  dis- 
aster upon  us. 

The  second  phase  was  the  direct  result  of  the  war.  It  first  de- 
veloped immediately  after  the  declaration  of  war  in  1914  and  was 
vastly  accentuated  by  the  entrance  of  the  United  States  into  the  war 
in  1917.  The  national  war  program,  to  which  we,  as  railway  men, 
all  subscribed,  and  to  the  fulfillment  of  which  we  lent  our  very  best 
endeavors,  involved  the  electric  railways  and  other  public  utilities 
to  an  extent  immeasurably  greater  than  that  in  which  any  other 
national  industry  was  involved.  The  Government  took  control  of 
our  labor,  it  raised  the  wages  of  our  employees  in  many  ca'ses  as 
much  as  100  per  cent ;  it  took  command  of  our  fuel  supply,  and  fixed 
the  prices  which  we  were  compelled  to  pay  for  coal ;  it  fixed  the  price 
of  every  commodity  that  entered  in  the  maintenance  and  operation 
of  electric  railways ;  in  a  vast  number  of  cases,  it  prescribed  the  serv- 
ice which  we  were  to  perform,  and  called  upon  us  companies  for  con- 
struction involving  many  millions  of  dollars.  In  fact,  there  was  not 
a  phase  of  electric-railway  operation  in  which  the  Government  did 
not  interfere,  with  the  result  that  the  cost  of  operating  our  roads 
was  very  greatly  and  materially  increased.  Thus  it  did  to  add  to  our 
burdens ;  to  assist  us  in  bearing  these  burdens  and  to  meet  these  obli- 
gations, it  did  nothing. 

We  are  not  here  to  claim  that  this  action  of  the  Government  w7as 
not  entirely  necessary  and  entirely  proper,  or  that  it  exclusively 
affected  our  industry.  But  we  do  say  that  its  effect  upon  the  rail- 
ways of  the  country  was  the  more  pronounced  and  the  more  disastrous 
because  alone  of  all  the  industries  affected,  the  public  utilities  were 
unable  to  apply  the  obvious  remedy — an  increase,  on  their  own 
\7olition,  in  the  price  of  their  product  to  meet  the  increase  in  its 
cost  thus  forced  upon  them. 

These  two  phases  of  the  situation  we  propose  to  lay  before  you  in 
detail,  showing  by  the  testimony  of  those  best  acquainted  Avith  the 
various  groups  of  facts,  what  is  the  present  condition  of  the  in- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       65 

dustry,  what  were  the  causes  of  this  condition,  and  what  are  the 
avenues  of  escape. 

We  believe  that  our  problem,  in  the  solution  of  which  we  claim 
your  assistance,  is  a  problem  of  readjusting  an  essential  industry  to 
conditions  that  have  materially  changed — first,  because  of  the  natural 
development  of  the  business  and  the  changing  civic  and  social  life  of 
the  communities;  and  second,  because  the  Great  War  has  wrought  a 
great  change  in  national  concepts  of  industrial  and  social  relations. 

As  I  see  it,  the  elements  that  go  to  make  up  these  changed  condi- 
tions as  they  directly  affect  electric  railways  are : 

First,  the  higher  price  level  upon  which  not  only  the  United  States 
but  the  entire  world  has  entered,  which  seems  bound  to  obtain  for 
an  indefinite  period  of  years. 

Second,  the  conditions  surrounding  the  employment  of  labor, 
which  is  a  larger  part  of  the  cost  of  operation  of  electric  railways 
than  it  is  of  any  other  industry  with  which  I  am  acquainted.  In 
this  connection,  I  believe  that'it  must  be  evident  to  any  unbiased  and 
unprejudiced  student  of  present-day  conditions  that  labor  is  demand- 
ing and  will  receive  a  greater  share  in  the  wealth  that  it  produces 
than  ever  before  in  the  history  of  the  world.  Everywhere  industry 
is  adjusting  itself  to  meet  these  demands,  and  no  lasting  solution  of 
the  railway  problem  can  be  reached  unless  this  industry  is  put  in  a 
financial  position  where  it  can  render  the  same  meed  of  justice  to  its 
employees  as  is  expected  from  industry  generally. 

Third,  the  introduction  of  a  new  competitive  factor  in  the  auto- 
mobile, not  only  the  so-called  "  jitney,"  but  more  especially  the 
privately  owned  automobile  and  the  motor  truck. 

Fourth,  the  enlarged  functions  of  street-railway  systems,  which 
with  the  growth  of  the  communities  they  serve  have  ceased  to  be 
private  enterprises,  with  the  sole  aim  of  adding  to  the  comfort  and 
convenience  of  the  public,  and  have  become  absolutely  essential  to  the 
community  growth,  development,  health,  and  welfare,  with  the  result 
that  it  is  no  longer  possible  to  consider  either  service  or  rates  from 
the  standpoint  of  business  principle  alone. 

The  association  which  I  represent,  and  the  Committee  of  One  Hun- 
dred, to  which  it  has  intrusted  the  presentation  of  its  case  before  your 
commission,  does  not  intend  to  impress  upon  you  in  detail  its  own 
views  as  to  the  remedies  which  should  be  applied  to  the  cure  of  the 
situation.  We  do  believe,  however,  that  there  are  two  fundamental 
ideas  which  will  inevitably  force  themselves  upon  you  for  your  con- 
sideration. The  first  of  these  is  that  the  cooperation  of  the  public  is 
sine  qua  non  to  the  stabilizing  of  electric-railway  conditions:  that 
there  must  be  impressed  upon  the  public  a  new  conception  of  the 
relations  between  the  communities  and  the  public  utilities  which  serve 
them;  that  the  antagonism  which  has  hereto  prevailed  is  disastrous 
to  both  interests,  and  that  only  when  the  public  and  the  companies 
work  together  to  secure  efficiency  and  economy  in  operation  can  the 
desired  service  be  furnished  at  a  reasonable  price. 

The  second  is  that  in  order  to  provide,  through  the  employment  of 
private  capital,  proper  transportation  facilities  for  cities  and  for 
rural  districts,  the  basis  of  compensation  must  be  so  determined  as  to 
provide  an  assured,  reasonable  return  and  a  rate  of  faro  so  flexible 
as  to  readily  and  automatically  adjust  itself  to  the  cost  of  providing 
the  service. 


66       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

I  thank  you,  Mr.  Chairman.  The  association  Committee  of  One 
Hundred  has  asked  Mr.  Bently  Warren,  of  Boston,  to  represent  it 
in  the  presentation  of  this  case. 

The  CHAIRMAN.  You  may  proceed  in  the  method  which  you  desire. 

STATEMENT  OF  ME.  BENTLY  W.  WARREN. 

Mr.  WARREN.  Mr.  Chairman  and  gentlemen  of  the  commission, 
Mr.  Pardee  has  stated  our  purpose  and  hope  in  coming  before  the 
commission.  We  are  here,  as  he  said,  because  of  the  very  serious 
situation  confronting  this  industry.  We  expect,  and  shall  endeavor 
to  lay  before  the  commission,  a  very  full  statistical  statement  of  the 
present  condition  of  these  railways  and  of  the  causes  and  possible 
suggested  remedies  for  that  situation. 

That  the  situation  is  extraordinarily  serious  is  shown,  I  think,  by 
the  figures  which  happen  to  be  available  for  the  last  calendar  year 
in  one  State — my  own  State  of  Massachusetts.  In  Massachusetts, 
as  we  shall  show  you  from  statements  from  our  public-service  com- 
mission, with  an  investment  of  almost  a  quarter  of  a  billion  dollars 
in  the  street-railway  industry — exactly  $241,000,000  odd,  with  gross 
receipts  of  $45,000,000  last  year,  in  1918 — the  combined  street  rail- 
ways of  that  Commonwealth  failed  by  $2,858,000 — almost  $3,- 
000,000 — to  earn  their  operating  expenses  and  fixed  charges,  earn- 
ing not  a  cent  toward  a  dividend  upon  the  capitalization  of  $106,- 
000,000  and  paid-in  premium  of  $6,000,000,  or  a  total  of  $113,000,000 
of  paid-in  capital  and  paid-in  premium,  except  such  dividends  as 
were  paid  upon  leased  lines  under  lease  contract. 

I  mention  that  simply  as  an  illustration.  We  shall  not  be  able 
to  give  figures  for  1918  for  the  entire  country,  much  as  we  should 
like  to  do,  because  we  believe  that  those  Massachusetts  figures  are 
typical.  We  shall  be  able  to  give  you  estimates  of  various  operat- 
ing results  for  the  United  States  for  the  year  1918  through  reports 
from  special  companies  made  to  the  American  Electric  Railway  As- 
sociation. 

What  we  shall  try  to  do,  as  Mr.  Pardee  has  told  you,  is  to  lay 
before  you  the  general  situation  regarding  this  industry  over  the 
whole  country,  both  its  physical  condition,  its  extent,  and  its  financial 
condition.  We  shall  follow  that  by  endeavoring  to  show  you  the 
causes  which  have  produced  that  situation  and  its  effect  upon  vari- 
ous phases  of  the  industry,  siich  as  the  cost  of  labor,  the  cost  of 
capital,  and  other  costs,  the  social  need  that  is  the  essential  character 
of  the  street  railways  to  the  communities,  some  defects  as  we  conceive 
them  in  the  application  of  public  regulation  to  these  utilities,  and 
finally,  the  theories  advanced  by  many  people  and  many  different 
theories  as  to  what  the  proper  remedies  are. 

I  should  like  first,  before  gojng  into  the  statistical  part  of  our 
presentation,  to  call  upon  Gen.  Tripp,  who  is  chairman  of  the  Com- 
mittee of  One  Hundred.  That  committee  is  serving  voluntarily,  as  I 
understand  it,  at  the  invitation  and  request  of  the  American  Elec- 
tric Railway  Association,  and  is  representative  of  all  the  industries 
directly  affected  by  the  street-railway  industry,  and  is  not  composed 
merely  of  street-railway  men,  but  of  representatives  of  insurance 
companies,  manufacturers,  and  various  industries  which  have  busi- 
ness relations  with  the  street-railway  industry.  I  should  like  now 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      67 

i 

to  call  upon  Gen.  Tripp,  chairman  of  that  committee,  to  explain 
further  the  organization  of  the  committee  and  its  reason  for  being. 

STATEMENT  OF  GEN.  TRIPP. 

Gen.  TKIPP.  Gentlemen  of  the  commission,  I  appear  before  you  as 
chairman  of  a  committee  of  one  hundred  which  was  appointed  by 
the  American  Electric  Railwa}*   Association  to  present  to  you  on    ' 
behalf  of  the  electric-railway  industry  the  present  conditions  of  it. 

I  would  first  like  to  call  your  attention  to  the  character  of  the 
committee,  because  it  indicates  how  varied  are  the  interests  that  are    ; 
affected  by  the  prosperity  or  lack  of  prosperity  of  the  industry. 

You  will  notice  by  examination  of  the  list  of  members  that  has 
been  handed  you  that  it  comprises  not  only  those  men  who  are  en- 
gaged in  the  administration  of  railways,  but  also  includes  officers  of 
insurance  companies,  bankers,  trust  companies,  and  manufacturers. 
So  we  appear  here  not  as  simply  representing  the  investor  in  street- 
railway  securities,  who  has  already  suffered  large  loss  and  is  in  great 
danger  of  suffering  further  loss,  but  as  manufacturers,  bankers, 
insurance  men,  to  present  this  case  to  you  in  its  broadest  aspects, 
and  as  representing  the  financial  and  industrial  elements  of  the 
Nation,  which  are  affected  by  an  industry  which  has  an  investment 
capital  of  something  like  $7.000,000,000  and  an  annual  income  of 
$730,000.000,  and  which  is  in  extreme  danger  of  complete  collapse 
and  dissolution.  This  would  jeopardize  the  interests  not  only  of 
the  individual  investor  in  its  securities,  but  its  effect  would  be  a 
real  cause  for  alarm  on  the  part  of  insurance  companies,  bankers, 
trust  companies,  and  other  fiduciary  institutions  which,  with  sound 
judgment  at  the  time,  have  invested  the  savings  intrusted  to  their 
care  in  the  securities  of  the  electric  railways.  And  it  would  also  be 
a  matter  of  serious  moment  to  manufacturers  who  find  in  the  elec- 
tric railways  a  customer  which  consumes  annually  about  $200,000,- 
000  of  their  product. 

The  appointment  of  your  commission  is  evidence  that  the  present 
condition  in  which  the  street  railways  find  themselves  is  also  a  mat- 
ter of  concern  to  the  United  States  Government.  And  I  take  it  that 
that  concern  is  not  wholly  nor  perhaps  principally  on  account  of 
any  particular  regard  that  the  Government  has  for  the  street  railways 
themselves,  but  rather  that  the  effect  of  the  present  condition  of  the 
industry  upon  the  financial  and  industrial  fabric  of  the  country  was 
the  factor  uppermost  in  causing  the  appointment  of  your  commission. 
And  so  we  find  the  Treasury  Department,  the  Department  of  Labor, 
and  the  Department  of  Commerce  represented  on  your  commission. 
The  Treasury  Department  is  interested  because  an  industry  which 
requires  $200,000,000  of  new  capital  each  year  and  a  larger  sum  than 
that  for  its  refunding  operations  can  not  indefinitely  remain  in  its 
present  condition  without  an  effect  upon  the  financial  system  of  the 
country.  The  Department  of  Labor  is  concerned  because  the  ques- 
tion of  wages,  conditions  of  work  and  employment,  are  concerned  not 
only  as  it  affects  the  railways  themselves  but  as  it  affects  manufac- 
turers who  furnish  materials  and  supplies  to  the  railways.  The  De- 
partment of  Commerce  is  concerned  because  to  an  extent  seldom  real- 
ized until  a  strike  or  some  other  circumstances  operate  to  cause  a  ces- 
sation of  service,  the  industrial  life  of  the  community  is  very  closely 


68       PROCEEDINGS  (XF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

bound  up  with  the  local  transportation  facilities.  The  close  connec- 
tion between  the  industrial  life  of  the  communities  with  local  trans- 
§ortation  service  was  amply  shown  by  the  experience  of  the  United 
tates  Government  during  the  war.  Very  early  in  the  experience 
of  those  departments  which  had  to  do  with  the  production  of  muni- 
tions and  supplies  it  was  found  impossible  to  secure  efficiency  and  to 
maintain  it  without  seeing  to  it  that  the  local  transportation  facili- 
ties were  efficient  and  ample  to  assist  in  the  housing  of  workmen. 
And  so  several  of  the  departments  instituted  independent  bureaus  for 
the  purpose  of  dealing  solely  with  that  problem. 

The  appointment  of  your  commission  is  the  first  opportunity 
that  the  street  railways  have  had  to  present  their  problem  as  a  na- 
tional problem.  The  present  methods  of  regulation  and  control 
have  failed.  It  requires  no  argument  to  prove  that.  The  fact  that 
an  industry  scattered  all  over  the  United  States  and  operating  un- 
der different  local  conditions — the  mere  fact  that  such  an  industry 
is  as  a  whole  on  the  verge  of  bankruptcy  at  a  time  when  unregulated 
industry  is  at  the  height  of  prosperity — speaks  for  itself. 

The  present  sj^stem  of  regulation  and  control  is  entirely  too  in- 
elastic to  respond  to  the  stress  of  changing  conditions,  particularly 
such  as  now  exist,  and  they  do  not  permit  of  the  prompt  adjustment 
of  the  price  of  the  product  or  the  cost  of  the  product.  And  any 
method  of  control  or  regulation  which  does  not  permit  of  the  appli- 
cation of  this  simple  rule  will  always  fail.  I  have  no  doubt  that  this 
is  a  fundamental  truth  which  is  recognized  by  everybody,  but  in 
the  case  of  electric  railways  a  peculiar  psychological  factor  has 
been  introduced  which  has  hindered  the  adjustment  of  electric-rail- 
way problems. 

The  old  system  of  contracts  between  a  municipality  and  a  rail- 
way, under  which  the  railway  agreed  for  a  certain  fixed  fare  to- 
perform  certain  service,  raised  a  popular  belief  that  the  perform- 
ance of  a  railway  service  through  the  medium  of  private  enterprise 
amounted  to  giving  away  public  privileges  to  private  individuals 
out  of  which  enormous  profits  have  been  reaped.  It  has  been  impos- 
sible hitherto  to  eradicate  that  idea  from  the  public  mind.  I  da 
not  believe  that  the  relations  between  municipalities  and  electric 
railways  can  be  satisfactorily  adjusted  upon  the  basis  of  a  simple 
contract  such  as  might  exist  between  two  individuals  or  corporations. 
I  entirely  subscribe  to  the  theory  of  State  regulation  and  control; 
and  that  theory  having  been  admitted,  I  believe  it  is  impossible  for 
the  parties  to  stand  in  simple  contractual  relations  with  each  other, 
and  the  idea  should,  if  possible,  be  entirely  removed  from  the  pub- 
lic mind  and  a  new  conception  of  the  functions  of  electric  railways 
substituted.  That  concept  I  believe  to  be  that  the  electric  rail- 
way is  an  agent  of  the  public  to  furnish  it  service,  and  for  that 
service  it  is  entitled  to  a  fair  and  just  return  upon  capital  honestly 
invested  in  the  service  and  upon  conditions  which  will  respond  to. 
changing  conditions  of  operation  and  of  finance. 

I  think  the  electric-railway  industry  is  facing  three  alternatives 
and  that  the  issue  will  come  immediately :  First,  is  municipal  owner- 
ship ;  second,  private  ownership  and  operation  under  a  sound  funda- 
mental basis  of  regulation  and  control;  and  third,  complete  disap- 
pearance of  the  service.  In  some  cases  the  service  has  already  dis- 
appeared and  the  tracks  have  been  taken-  up,  but  I  believe  that  alter- 
native is  unthinkable  in  large  communities  except  perhaps  in  part. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       69 

I  believe  our  experience  in  the  governmental  operation  of  those 
utilities  which  are  more  or  less  complex  in  character  has  not  been 
reassuring,  and  I  further  believe  that  a  majority  of  the  people  be- 
lieve in  private  operation  under  proper  regulation  and  control. 

Your  commission  was  appointed  by  the  President,  and  as  I  read 
the  commission,  it  is  for  the  purpose  of  inquiring  into  and  making 
recommendations  as  to  ways  and  means  to  place  this  essential  indus- 
try upon  a  sound  basis,  upon  a  basis  which  will  permit  it  to  give 
proper  service  to  the  people,  insure  a  steady  flow  of  capital  into  the 
enterprise  and  safeguard  investment  that  has  already  honestly  been 
made. 

The  Committee  of  One  Hundred  will  present  to  you  through  the 
testimony  of  men  w*ho  are  best  equipped  to  give  testimony  on  the  va- 
rious aspects  of  the  case  a  complete  picture  of  the  street-railway 
situation;  and  we  believe  that  when  you  have  considered  it,  you  will 
realize  that  the  industry  is  in  dire  extremity  and  that  under  present 
conditions  nothing  can  save  it  from  complete  bankruptcy,  and  that 
you  will  also  agree  that  such  a  denouement  is  unnecessary,  unfair, 
and  un-American,  and  that  you  will  also  agree  that  such  a  debacle 
would  throw  the  larger  burden  not  upon  the  rich  but  upon  those  that 
are  not  rich. 

All  the  special  Committee  of  One  Hundred  ask  is  that  the  industry 
be  given  its  place  in  the  sun. 

Mr.  WARREN.  Mr.  Chairman,  would  it  be  proper  at  this  point  to 
ask  for  information  from  the  commission  as  to  the  dates  of  the  hear- 
ings? The  association  has  invited  a  large  number  of  gentlemen  from 
various  parts  of  the  country  to  appear  before  the  commission  on  va- 
rious aspects  of  the  general  subject  and  it  is  very  desirable  that  we 
should  be  able  to  wire  them  as  to  when  we  expect  to  ask  them  to  ap- 
pear before  the  commission,  giving  them  as  nearly  an  exact  data  as 
possible. 

The  CHAIRMAN.  May  I  inquire  how  long  you  think  it  will  take  to 
present  your  case  ? 

Mr.  WARREN.  We  believe  it  will  take  8  to  10  days,  depending 
somewhat  necessarily  upon  the  questions  which  the  commission  mem- 
bers may  desire  to  ask  of  vario  js  witnesses  who  will  appear. 

The  CHAIRMAN.  Is  it  your  pleasure  to  present  your  case  con- 
secutively ? 

Mr.  WARREN.  We  should  prefer  to,  if  that  would  suit  the  con- 
venience of  the  commission.  We  think  we  could  arrange  it  better 
with  the  witnesses. 

The  CHAIRMAN.  The  commission  announces  that  its  hearings  will 
continue  until  you  are  through  with  your  case.  The  hours  will  be 
from  10  to  1  o  clock  in  the  morning  and  from  2  to  5  o'clock  in  the 
afternoon.  If  it  is  necessary  to  hold  night  sessions  to  expedite  this 
work,  the  commission  will  consider  that  later  on. 

Mr.  WARREN.  I  wish  to  say  that  we  appreciate  very  much  the 
kindness  and  consideration  of  the  commission. 

The  CHAIRMAN.  Unless  otherwise  advised,  the  commission  will 
not  sit  on  Saturday. 

Mr.  WARREN.  Then.  I  will  proceed  now? 

The  CHAIRMAN.  You  may  proceed. 

Mr.  WARREN.  I  will  ask  Mr.  Welsh  to  take  the  stand. 


70       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

STATEMENT  OF  MR.  JAMES  W.  WELSH. 

Mr.  WARREN.  Your  full  name? 

Mr.  WELSH.  James  W.  Welsh. 

Mr.  WARREN.  And  what  is  your  occupation? 

Mr.  WELSH.  Statistician  of  the  American  Electric  Railway  Asso- 
ciation. 

Mr.  WARREN.  In  what  were  you  engaged  prior  to  that  ? 

Mr.  WELSH.  Prior  to  that  I  was  connected  with  the  Emergency 
Fleet  Corporation,  in  charge  of  the  transportation  of  employees  to 
the  shipyards  in  the  New  York  district  for  a  period  of  one  year 
during  the  war.  And  prior  to  that  I  was  connected  for  a  period  of 
about  12  years  with  the  Pittsburgh  Railways  Co.,  which  is  the  oper- 
ating company  of  the  electric  railways  in  the  city  of  Pittsburgh. 

Mr.  WARREN.  What  are  your  educational  qualifications? 

Mr.  WELSH.  I  am  a  graduate  of  the  Massachusetts  Institute  of 
Technology  in  electrical  engineering  and  of  Harvard  University  in 
general  course. 

Mr.  WARREN.  Now,  Mr.  Welsh,  in  preparation  for  this  hearing 
have  you  been  preparing  statistics  and  charts  showing  the  condi- 
tion and  operating  conditions  and  general  situation  of  the  street 
railways  ? 

Mr.  WELSH.  We  have. 

Mr.  WARREN.  And  what  have  been  the  sources  from  which  you 
have  drawn  the  information  that  I  am  going  to  ask  you  to  lay  before 
the  commission? 

Mr.  WELSH.  We  have  relied  to  a  very  large  extent  upon  the  special 
reports  of  the  Department  of  Commerce  of  the  Census  Bureau  with, 
reference  to  electric  railways,  from  the  reports  of  1890  to  1917.  We 
received  advance  copies  of  the  latter  report  through  special  courtesy 
of  the  Census  Department.  In  addition  to  that  we  have  sent  out 
questionnaires  and  data  sheets  to  electric-railway  companies  and,  in 
fact,  have  done  that  from  time  to  time  as  a  part  of  the  regular  work 
of  the  association.  We  have  also  relied  upon  other  sources  of  in- 
formation with  reference  to  special  subjects,  but  in  every  case  we 
have,  in  our  presentation  here,  attempted  to  show  very  clearly  the 
source  of  our  information. 

Mr.  WARREN.  I  now  propose  to  take  up  your  various  charts  in  the 
order  in  which  you  think  they  should  be  introduced.  Have  you  the 
large  charts  for  the  commission?  [See  charts  in  Appendix.] 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  Now,  Mr.  Welsh,  what  is  that  chart  designed  to 
show? 

Mr.  WELSH.  The  purpose  of  this  chart  is  to  illustrate  the  growth  of 
electric  railways  from  1890  to  1918.  It  shows  the  principal  elements 
of  electric-railway  property,  such  as  the  passenger  cars  and  the  miles 
of  line  and  the  miles  of -track,  and  we  have  also  shown  upon  the 
chart  the  number  of  employees. 

The  point  of  special  interest  is  the  rate  of  increase  in  these  various 
items.  It  is  notable  that  up  until  1907  there  was  a  rapid  growth; 
and  from  1907  to  1912  all  elements  of  physical  property  declined 
somewhat  in  the  rate  of  increase  with  a  still  further  falling  off  in 
the  rate  of  increase  from  1912  to  1917,  as  indicated  by  the  lesser 
slope  of  the  lines. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       71 

These  same  facts  are  brought  down  in  the  table  which  accom- 
panies this  chart,  at  the  bottom  of  the  page,  where  the  percentage 
increase  for  each  of  these  items  is  shown  over  each  prior  census  year. 

It  is  notable,  for  example,  that  whereas  in  the  case  of  miles  of  line 
the  increase  was  15.6  per  cent  in  1902  over  1890,  it  fell  to  10.7  in  1907, 
3.8  per  cent  in  1912,  and  1.4  per  cent  in  1917. 

In  the  case  of  the  number  of  passenger  cars,  the  rate  of  increase 
fell  from  7.1  per  cent  in  1902  to  3.2  per  cent  in  1907,  1.8  per  cent  in 
1912,  and  1  per  cent  in  1917. 

Mr.  WARREN.  Now,  I  notice  that  on  the  chart  you  show  certain  in- 
formation for  the  year  1918.  Beginning  with  those  years  at  the 
bottom  of  the  chart — are  they  census  years  or  special  street-railway 
census  reports? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  For  1912,  1917,  etc.  How  did  you  arrive  at  your 
figures  for  1918  so  far  as  you  were  able  to  give  them  there? 

Mr.  WELSH.  The  1918  figures  in  all  of  these  charts  which  we  will 
present  hereafter  were  obtained  from  a  questionnaire  which  was 
sent  out  to  all  electric-railway  companies,  covering  various  items  for 
both  the  years  1917  and  1918.  In  that  way  a  comparison  was  ob- 
tained between  the  1917  values  for  this  group  of  companies  and  the 
census  value  for  1917  and  a  proportion  in  that  way  was  determined 
which  was  applied  to  the  1918  figures  of  the  same  group  of  companies 
to  determine  a  corresponding  estimated  1918  census  figure.  This 
group  of  companies,  I  may  say,  covered  345  in  number  and  repre- 
sented over  80  per  cent  of  the  operating  revenues  of  the  country.  We 
believe  it  to  be  a  typical  group  of  companies  because  of  the  close 
checking  up  of  various  items  as  will  appear  hereafter. 

Mr.  WARREN.  Is  there  anything  that  the  commission  would  like  to 
ask  about  either  that  chart  or  the  table  ? 

Commissioner  BEALL.  Are  you  sure  of  that  number  of  employees? 
It  seems  to  me  that  is  too  low.  You  have  down  here  294.  I  think 
there  is  an  error.  It  is  around  340  or  350, 1  think. 

Mr.  WELSH.  That  is  in  thousands.  The  chart  is  represented  in 
thousands  of  employees. 

Commissioner  BEALL.  But  you  have  here  294,000  on  your  statistics 
accompanying  the  map.  Is  not  that  pretty  low?  Are  there  not 
more  than  that  to-day? 

Mr.  WELSH.  That  is  the  figure  reported  by  the  1917  census. 

Mr.  WARREN.  Do  you  know  from  the  census  reports,  Mr.  Welsh, 
whether  that  is  the  total  number  of  employees  including  trackmen, 
linemen,  car-house  men,  or  only  trainmen,  so-called? 

Mr.  WELSH.  I  understand  it  represents  the  total  number  of  em- 
ployees. 

Commissioner  SWEET.  The  principal  value  of  this,  I  take  it,  Mr. 
Welsh,  is  a  comparison  at  the  different  periods. 

Mr.  WELSH.  Yes. 

Commissioner  SWEET.  And  if  it  were  taken  on  the  same  tmsis — it 
is  not  so  essential  that  the  absolute  number  should  be  correct,  if  it  is 
taken  on  the  same  basis  at  different  times. 

Mr.  WELSH.  That  is  true. 

Commissioner  SWEET.  That  is  your  main  purpose  in  presenting  it, 
is  it  not? 

Mr.  WELSH.  That  is  true;  yes. 


72       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Have  you  any  reason  or  explanation  of  the  rapid 
increase  of  the  number  of  employees  between  1902  and  1912  ? 

Mr.  WELSH.  Of  course,  between  1902  and  1912  the  industry  at 
large  was  in  its  most  rapid  period  of  development.  However,  the 
number  of  employees  has  increased  more  rapidly  than  other  ele- 
ments. It  is  possibly  due  to  various  circumstances.  One  thing  may 
be  the  tendency  toward  shortening  of  the  hours  of  labor  and  requir- 
ing, therefore,  a  greater  number  of  employees. 

Commissioner  GADSDEN.  Does  it  not  appear  on  this  table  that  be- 
tween the  same  dates  the  mileage  increased  100  per  cent? 

Commissioner  BEALL.  The  latter  was  like  the  New  York  subways. 
Did  they  not  put  in  a  lot  of  additional  tracks  ?  I  think  a  good  deal 
of  that  came  in  during  those  years. 

Mr.  WELSH.  Yes;  I  was  merely  comparing  the  rate  of  increase  of 
the  number  of  employees  with  the  rate  of  increase  in  miles  of  track 
and  passenger  cars,  which,  from  the  chart,  is  evidently  greater  owing 
to  the  higher  slope  of  the  line. 

Commissioner  MEEKER.  I  do  not  think  you  can  depend  upon  the 
slope  of  the  line  on  an  arithmetic  chart;  you  would  have  to  draw  it 
on  a  logarithmic  scale.  And  the  figures  of  your  table  do  not  sub- 
stantiate the  statement  that  the  number  of  employees  increased  by 
a  greater  percentage  than  the  mileage  of  line  or  even  the  miles  of 
single  track. 

Mr.  WELSH.  Well,  for  example,  you  can  compare  the  increase  in 
1912  over  1907,  which,  in  the  case  of  the  number  of  employees,  is 
5.5  per  cent,  and  in  the  case  of  the  number  of  passenger  cars  is  only 
1.8  per  cent.  There  is  an  excess  of  about  three  times  in  the  rate  of 
increase  for  the  number  of  employees  over  the  number  of  passenger 
cars. 

Commissioner  MEEKER.  I  understood  the  question  was  rfsked  from 
1902  to  1912  and  not  from  1907  to  1912. 

Mr.  WELSH.  All  right,  in  the  case  of  1907  over  1902  the  rate  of 
increase  in  the  number  of  employees  is  11.4  per  cent,  and  in  the  num- 
ber of  passenger  cars,  3.2  per  cent. 

Commissioner  MEEKER.  The  first  figures  refer  to  the  increase  from 
1890  to  1902. 

Mr.  WELSH.  That  is  true. 

Commissioner  WEHLE.  In  connection  with  the  number  of  em- 
ployees, may  I  ask  you  whether  in  the  case  of  an  electric  railway  and 
power  company  where  some  employees  would  be  allocatable,  so  to 
speak,  to  the  power  activity  and  some  to  the  street-railway  activity, 
whether  such  allocation  has  been  made  in  arriving  at  these  esti- 
mates? 

Mr.  WELSH.  I  believe  the  census  reports  attempt  to  do  that  very 
thing.  So  far  as  I  know,  even  where  there  is  the  combined  electric 
railway  and  power  company,  the  management  of  the  electric-railway 
end  is  distinct,  at  least  so  far  as  departmental  organization  is  con- 
cerned, from  the  power  business. 

Commissioner  WEHLE.  But  you  are  not  certain  that  such  a  separa- 
tion has  been  .made  ? 

Mr.  WELSH.  I  am  reasonably  certain;  yes. 

Commissioner  WEHLE.  Can  you  ascertain  that  and  put  it  in  the 
record  ? 

Mr.  WELSH.  I  will ;  yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       73 


Mr.  WARREN.  Do  you  know  as  to  the  relative  number  of  employees 
in  power  plants  as  compared  with  street  railways,  as  to  whether  it  is 
smaller  or  larger  generally  ? 

Mr.  WELSH.  Very  considerably  smaller. 

Mr.  WARREN.  There  is  no  public  utility,  is  there,  in  which  the 
number  of  employees  is  so  large  in  proportion  to  the  income  as  in 
street  railwaj'S? 

Mr.  WELSH.  Xo ;  I  believe  that  is  true. 

Mr.  WARREN.  Barring  possibly  the  railroads,  but  I  mean  the  power 
industry. 

Mr.  WELSH.  No ;  that  comes  about  from  the  great  number  of  men 
required  to  operate  the  cars. 

Mr.  WARREN.  If  there  are  no  other  questions,  I  will  pass  to  the 
next. 

Commissioner  WEHLE.  May  I  ask  another  question? 

Mr.  WELSH.  Yes. 

Commissioner  WEHLE.  Will  there  be  any  way  of  finding,  with 
reference  to  these  years  that  you  have  listed  here,  the  actual  number 
of  passengers  carried  ? 

Mr.  WELSH.  We  will  show  that  in  a  later  chart. 

Commissioner  WEHLE.  As  of  the  same  years? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  That  is  in  the  next  chart. 

The  figures  in  the  table  accompanying  Chart  C-101  are  as  follows : 

Grotcth  of  electric  ratticays. 
(Chart  C-101 — Based  on  United  States  eensns  reports.) 


Year. 

Miles  of  line. 

Mile?  of 
single  track. 

Number  of 
employees. 

Number  of 
passenger 
cars. 

1890»  

5,  783.  47 

8  123  02 

70  764 

32  505 

19021  

16,&i5.34 

22,576.99 

140  769 

60  290 

1907«   

25,547.19 

34  381.51 

221  429 

70  016 

1912*  

30.437.86 

41.064.82 

-x   •     4,,' 

76*  162 

1917J     

32,547.58 

44  835.37 

•-.4   •>  ••, 

79  914 

1918'  

44,949.50 

>  United  States  Census  Reports,  1912,  Table  4,  p.  184. 

1  Advance  Report,  Table  5. 

» Data  sheet  No.  186  (estimated). 

Average  per  cci\t  increase  per  year  over  previous  census. 


Year. 

Miles  of 
line. 

Miles  of 
single 
track. 

Number  of 
employees. 

Number  of 
passenger 
cars. 

1902...                            

15.6 

14.8 

8.2 

7.1 

1907 

10.7 

10  5 

11  4 

3.2 

1912  

3.8 

3.9 

5.5 

1.8 

1917  

1.4 

1.8 

.9 

1.0 

1918  

.3 

Mr.  WARREN.  Now,  what  does  this  chart  show  ? 
Mr.  WELSH.  This  chart  shows  the  principal  traffic  statistics  of 
electric  railways,  namely,  the  revenue  car-miles  and  the  total  pas- 

1G06430— 20 6 


74       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

sengers  carried.  At  the  same  time  a  comparison  is  made  between  the 
number  of  passengers  carried  and  the  population,  which  is  expressed 
as  the  riding  habit.  The  riding  habit  is  a  useful  measure  of  the 
growth  of  the  electric-railway  business.  It  is  determined  by  divid- 
ing the  annual  revenue  passengers  carried  by  the  total  population 
of  the  country  and  therefore  represents  the  average  number  of  rides 
per  year  for  each  inhabitant.  The  chart  indicates 

Commissioner  WEHLE.  May  I  interrupt? 

Mr.  WELSH.  Yes. 

Commissioner  WEHLE.  You  have  done  that  only  for  the  whole 
country.  You  have  not  done  it  in  particular  localities  ? 

Mr.  WELSH.  We  have  later  a  chart  for  the  cities.  The  chart  indi- 
cates an  increase  in  this  riding  habit  in  every  case,  but  it  is  notice- 
able that  the  rate  of  increase  has  been  falling  off  since  1907,  as  indi- 
cated by  the  decreasing  slope  of  the  line.  That  is  the  line  at  the 
lower  part  of  the  chart.  I  might  explain  that  chart  better  if  I 
pointed  out  the  lines. 

Mr.  WARREN.  I  think  that  would  be  very  much  better. 

Mr.  WELSH  (referring  to  large  chart).  The  riding  habit  is  indi- 
cated by  this  line  here,  coming  along  in  this  way.  The  rate  of  in- 
crease from  1902  to  1907  is  indicated  by  this  slope  of  the  line  and 
represents  an  increase  of  about  25  rides  per  inhabitant.  From  1907 
to  1912  the  increase  is  about  15  rides  per  inhabitant,  and  from  1912 
to  1917  the  increase  is  9  rides  per  inhabitant. 

Mr.  WARREN.  That  appears  also  on  the  table  accompanying  the 
chart. 

Mr.  WELSH.  On  the  accompanying  table  to  the  chart.  We  have 
also  plotted  the  relative  number  of  passengers  per  car-mile,  which 
is  a  measure  to  some  extent  of  the  necessary  traffic  and  to  some  ex- 
tent of  the  number  of  short  riders.  This  value,  however,  has  been 
approximately  constant  throughout  the  entire  period,  ranging  of 
averaging  about  5  per  cent,  although  as  noted  there  has  been  a 
gradual  increase. 

Mr.  WARREN.  Can  you  tell  from  that  line,  the  relative  passengers 
per  car-mile,  anything  about  the  number  of  passengers  in  the  car 
at  any  one  time,  the  average  number? 

Mr.  WELSH.  In  this  way  you  can  estimate  about  what  the  average 
number  in  the  car  at  one  time  is.  The  average  length  of  ride  on  most 
electric-railway  properties  is  about  3  miles  per  passenger,  and  tak- 
ing five  passengers  per  car-mile  as  the  average  it  would  appear  as 
though  15  passengers  on  the  average  is  the  number  in  the  car  at  one 
time.  Compare  that  with  the  average  seating  capacity — it  is  possible 
to  determine  roughly  the  extent  to  which  the  equipment  is  used  on  the 
average.  This  is  really  an  expression  of  the  load  factor. 

Commissioner  MEEKER.  Mr.  Chairman,  I  would  like  to  call  atten- 
tion to  a  rather  technical  point.  I  think  it  may  assist  the  commis- 
sion if  I  do  so.  Take  the  period  1907  to  1912  and  take  your  riding- 
habit  line  and  compare  that  slope  on  that  line  with  the  slope  on  the 
revenue  car-miles  run,  you  can  see  at  a  glance  that  the  slope  is  very 
much  steeper  on  the  revenue  car-miles  line,  yet,  according  to  your 
tabular  statistics,  the  percentage  of  increase  in  revenue  car-miles 
from  1907  to  1912  was  3.7  per  cent,  whereas  the  per  cent  increase  in 
the  riding  habit  from  1907  to  1912  was  17.6  per  cent.  What  I  wish 
to  call  attention  to  is  that  you  can  not  trust  the  slope  of  the  line  as 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      75 

indicating  anything  with  reference  to  percentage  increase  when  it  is 
drawn  on  an  arithmetic  scale.  If  the  chart  had  been  drawn,  as  I 
think  it  should  have  been,  on  the  logarithmic  scale,  the  slope  of  the 
line  would  show  exactly  the  per  cent  of  increase.  Now,  we  need  to 
confine  our  attention,  if  we  want  to  learn  anything  about  the  per- 
centage increase,  to  the  tabular  scale  and  not  to  the  lines  on  the  chart. 
I  think  it  would  be  well,  perhaps,  to  have  the  charts  redrawn  for 
the  purpose  of  showing  the  percentage  increase  to  the  main  line  in  all 
of  these.  I  just  wanted  to  make  that  point,  Mr.  Chairman. 

Mr.  WARREN.  We  will  try  to  have  the  charts  redrawn. 

Mr.  WELSH.  Well,  I  would  just  like  to  say  that  the  charts  are 
drawn  to  a  scale. 

Commissioner  MEEKER.  Oh,  yes. 

Mr.  WELSH.  In  other  words,  the  period  from  1890  to  1902,  repre- 
senting 12  years,  is  on  the  same  scale  as  the  period  from  1902  to  1907. 
In  other  words,  one  is  5  years  and  the  other  is  12  years,  and  the  dis- 
tances are  indicated. 

Commissioner  MEEKER.  But  you  caught  my  point.  The  slope  of  the 
line  there  is  very  much  steeper  on  the  upper  line,  but  the  percentage 
increase  indicated  is  very  much  smaller,  because  you  have  so  much 
larger  base  to  measure  the  prior  line. 

Mr.  WELSH.  In  other  words,  each  percentage  is  figured  on  the  prior 
census,  and  so  a  new  base  occurs  in  every  census  year.  In  other  words, 
the  base  for  the  1917  figures  in  the  table  is  1918 

Commissioner  MEEKER.  No  question  is  raised  as  to  the  statistical 
accuracy  of  the  figures.  The  only  point  is  that  we  can  not  trust  the 
slope  of  the  line  to  represent  percentage  increase.  We  must  get  that 
from  your  statistical  data. 

Mr.  WARREN.  If  the  commission  would  like  to  have  the  charts  re- 
drawn on  the  above  terms,  you  could  do  that  ? 

Mr.  WELSH.  We  could.  It  would  probably  take  some  time  to 
do  so. 

Commissioner  MEEKER.  I  do  not  think  that  is  at  all  necessary,  if 
we  have  the  figures  before  us. 

Mr.  WARREN.  That  is  really  all  you  need? 

Commissioner  MEEKER.  Yes,  sir. 

Mr.  WARREN.  I  suppose  there  is  no  question  but  what  each  lino 
indicates  that  particular  item? 

Commissioner  MEEKER.  What  the  lines  on  the  chart  show,  of 
course,  is  absolute  differentials.  It  shows  that  perfectly;  but  when 
you  come  to  show  percentages,  you  will  have  to  be  very  careful  with 
your  charts. 

Mr.  WARREN.  Yes.  It  does  not  show  the  percentage,  but  it  does 
show  the  growth  and  development. 

Mr-  WELSH.  Yes;  that  is  so. 

Mr.  WARREN.  Is  there  anything  else  you  wish  to  call  attention  to, 
Mr.  Welsh,  on  that  chart  or  the  accompanying  table? 

Mr.  WELSH.  No;  I  think  not.. 

Mr.  WARREN.  Now,  Mr.  Welsh,  I  think  it  would  be  well  if  you 
take  your  papers  over  here,  where  you  will  be  near  the  chart  and 
whore  you  can  use  the  pointer. 

Mr.  WELSH.  Very  well. 


76       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 


The  figures  on  the  table  accompanying  Chart  C-1O2  are  as  follows : 

Electric  railway  traffic. 
(Chart  C-102. — Based  on  United  States  census  reports.) 


1912 

1917 

1918 

Revenue  car-miles    

U.921.  620,  074 

>  2.  139,  801,  530 

2  2,  051,355,560 

Average  per  cent  increase  per  year  over'prior  census.  . 
Ridinghabit  

3.7 
<  100 

2.2 

6109 

"4.1 

Average  per  cent  increase  per  year  over  prior  census  .  . 

17.6 

9.0 

Total  passengers  carried  

i  12,135,341,716 

i  14,506.914,573 

2  14  243  415  830 

Average  per  cent  increase  per  year  over  prior  census.  . 
Revenue  passengers  

5.4 

19,545,554,667 

3.9 
i  11  304  660,  462 

'1.8 
2  11  107  864  347 

Average  per  cent  increase  per  year  over  prior  census.  . 
Revenue  passengers  per  car-mile  

5.6 
15.06 

3.6 
15.41 

*1.7 

Average  per  cent  increase  per  year  over  prior  census.  . 

1.5 

1.4 

i  Advance  Report,  Table  5. 

*  Data  sheet  No.  183  (estimated). 

» Decrease. 

«  United  States  census  reports. 

'  Advance  report,  Table  11. 

«  Estimated  as  78  per  cent  of  total  passengers  as  estimated  by  American  Electric  Railway  Association 
for  1918  census.  Rates  of  revenue  to  total  passengers  (78  per  cent)  found  to  be  practically  constant  for  years 
1917, 1912,  and  1907. 

Electric  railway  traffic. 
(Chart  C-102. — Based  on  United  States  census  reports.) 


1890 

1902 

1907 

Revenue  car-miles  

»383,178,085 

1  1,  144,  430,  466 

8  1,617,731,300 

Average  per  cent  increase  per  year  over  prior  census.  . 

16.5 

8.3 

«32 

'61 

85 

Average  per  cent  increase  per  year  over  prior  census  

90.6 

39.3 

Total  passengers  carried  6  

'2,023,010,202 

*  5,  836,  615,  296 

'9,533,080  760 

Average  per  cent  increase  per  year  over  prior  census...  . 

15.7 

12.7 

Revenue  passengers  '  

'2,023,010,202 

*  4,  774,  211,  904 

»  7,  441,  114  508 

Average  per  cent  increase  per  year  over  prior  census...  . 

11.3 

11.2 

Revenue  passengers  per  car-mile  

•4.26 

»4.70 

Average  per  cent  increase  per  year  over  prior  census  

2.1 

i  United  States  Census  Report,  1907,  p.  33,  text. 
» United  States  Census  Report,  1912,  Table  156,  p.  293. 
»  Advance  Report,  Table  5. 
«  United  States  census  reports. 

•  Advance  Report,  Table  11. 

•  Transfer  and  free  passengers  not  noted. 

'  United  States  Census  Report,  1902,  Table  1,  p.  6. 

•  United  States  Census  Report,  1912,  Table  156,  p.  292. 

Mr.  WARREN.  This  chart,  which  is  marked  "C  107,"  indicates 
what? 

Mr.  WELSH.  This  chart  supplements  the  preceding  chart,  and 
shows  the  number  of  revenue  passengers  carried,  as  distinguished 
from  the  total  number  of  passengers  carried  on  the  previous  chart. 
We  have  again  plotted  the  number  of  revenue  passengers  per  inhab- 
itant, but  in  this  chart  have  included  the  year  1918,  as  well  as  the 
census  year. 

Mr.  WARREN.  And  you  have  confined  this  to  the  revenue  passen- 
gers ? 

Mr.  WELSH.  Yes ;  this  chart  is  based  on  revenue  passengers. 

Mr.  WARREN.  Well,  the  revenue  passenger  is  the  one  who  really 
pa}7s  a  fare,  is  he  not? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  As  distinguished  from  the  transfer  passenger  ? 

Mr.  WELSH.  Free  passengers  and  those  who  pay  lor  transfers. 

Mr.  WARREN.  That  is  an  account  of  these  passengers,  indicating 
whatever  the  Be  venue  will  be  at  the  rate  per  passenger  ? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       77 


Mr.  WELSH.  Yes. 

Mr.  WARREN.  And  the  total  number  of  passengers  does  not  indicate 
that,  but  where  you  show  on  this  chart  the  revenue  passengers  per 
inhabitant,  a  more  simple  way  of  stating  it,  I  suppose,  would  be  the 
number  of  rides  per  inhabitant — the  average  number  of  rides  ? 

Mr.  WELSH.  That  would  be  a  little  better  expression. 

The  1918  figures  were  rather  interesting  as  indicating  an  actual 
falling  off,  both  in  the  total  number  of  revenue  passengers  carried 
and  also  in  the  number  of  revenue  passengers  per  inhabitant. 

The  1918  figures  have  been  based  on  the  same  345  companies  as  re- 
ferred to  before.  This  falling  off  in  riding  habit  is  probably  due  to  a 
number  of  causes — the  abnormal  winter  in  the  early  part  of  the  year 
1918 ;  the  operation  of  the  draft  law,  taking  away  a  number  of  million 
men  and,  at  the  same  time,  undoubtedly  reducing  the  pleasure  riding 
during  the  summer  months  by  people  generally;  and  the  influenza 
epidemic  in  the  fall,  on  account  of  which  in  many  cities  all  community 
life  was  more  or  less  interfered  with  and  in  many  cases  stores  were 
shut  up  and  theaters  closed. 

Mr.  WARREN.  And  the  public  was  advised  to  avoid  street-cars, 
like  all  other  places  of  congregating,  so  far  as  possible — is  not  that 
so — in  many  places? 

Mr.  WELSH.  Yes,  sir. 

We  have  also  plotted  the  percentage  increase  in  revenue  passengers 
per  inhabitant  over  the  chart  for  the  previous  year,  and  that  per- 
centage indicates  a  falling  off  from  one  year  to  the  next.  That  per- 
centage is  a  comparison  of  each  census  period  to  the  preceding. 

Commissioner  MEEKER.  In  1918,  the  percentage  decreased? 

Mr.  WELSH.  Yes;  that  is  due  to  the  actual  decrease  in  the  number 
of  passengers  per  inhabitant. 

Mr.  WARREN.  I  would  ask,  Mr.  Chairman,  that  the  figures  in 
these  tables  go  into  the  record,  without  taking  the  time  of  the 
commission  to  read  them,  and  I  am  handing  to  the  reporter  the 
figures  for  that  purpose,  if  that  is  satisfactory  to  the  commission. 

The  CHAIRMAN.  Very  well. 

Mr.  WARREN.  I  think  we  will  save  considerable  time  by  doing 
that. 

The  figures  contained  on  the  chart  referred  to  (C-107),  are  as 
follows : 

Riding  habit. 

(Chart  C-107. — Based  on  United  States  census  reports.) 


Increase  in 

Revenue 
passengers 
per  inhab- 
itant 

Number  of 
revenue 
passengers  carried. 

revenue 
passengers 
per  inhab- 
itant over 

Source. 

prior 

census. 

Per  cent. 

1890 

32 

2,023,010,202 

Advance  report,  Table  11. 

1902                   

61 

4,774,211,904 

28 

Do. 

1907     

85 

7,441,114,508 

25 

Do. 

1912        

100 

9,545,554,«>7 

15 

Do. 

1917            

109 

11,304,600,4<>2 

9 

Do. 

1918  i  

106 

«  11,  107,  864,  347 

»3 

>  Estimated  population  of  United  States  July  1, 1918. 

«  Data  sheet  No.  1*6  (estimated). 

*  Revenue  passengers  per  inhabitant  1917  less  1918  (above);  decrease. 


78       PBOCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  GADSDEN.  Do  you  propose  to  put  in  evidence  the 
names  of  the  388  companies  used  in  making  these  estimates,  Mr. 
Welsh? 

Mr.  WELSH.  We  have  not  prepared  that  list.  We  can  readily 
do  so. 

Commissioner  GADSDEN.  I  suggest  that  you  do  that,  together  with 
their  mileage.  You  said  that  they  did  represent  80  per  cent  of  the 
operating  revenues. 

Mr.  WELSH.  They  represent  80  per  cent  of  the  operating  revenues. 

Commissioner  BEALL.  Mr,  Welsh,  do  these  figures  include  the 
properties  in  all  of  the  large  cities,  or  any  of  the  big  cities  right 
now? 

Mr.  WELSH.  They  include  a  great  many  of  the  large  cities. 

Commissioner  BEALL.  Well,  for  instance,  do  they  include  all  of 
the  larger  cities,  like  Washington,  New  York,  and  Boston? 

Mr.  WELSH.  Tliey  do. 

Commissioner  BEALL.  Chicago  and  San  Francisco? 

Mr.  WELSH.  I  believe  New  York  City  is  not  in.  We  have  Brook- 
lyn, but  New  York  is  not  in.  We  have  Philadelphia  and  Boston. 

Commissioner  BEALL.  If  that  is  the  case,  you  have  left  out  one  of 
the  largest  and  most  important  of  the  properties.  Are  not  those 
figures  available? 

Mr.  WELSH.  I  will  have  to  check  that  up  as  to  whether  the  New 
York  City  lines  were  included.  I  am  not  quite  sure  about  that.  I 
know  practically  all  of  the  large  cities  are  included.  Of  course, 
some  of  the  smaller  cities  were  also  not  included.  So  we  believe  it 
represents  a  true  picture. 

Commissioner  GADSDEN.  That  is  what  I  had  in  mind  in  requesting 
that  you  give  us  the  names  of  the  companies. 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  But  these  no  doubt  represent  80  per  cent  of  the 
operating  revenues  ? 

Mr.  WELSH.  There  is  no  doubt  of  that. 

Mr.  WARREN.  Whatever  companies  they  are. 

Commissioner  BEALL.  I  think  you  have  left  out  some  companies, 
if  jTou  will  permit  me  to  say  so,  that  will  strengthen  your  case. 
•  Mr.  WARREN.  How  is  that  ? 

Commissioner  BEALL.  I  think  you  have  left  out  some  of  the  com- 
[panies  that  will  strengthen  your  case  more  than  any  others. 

Mr.  WARREN.  I  think  so,  too.  As  far  as  we  have  gone,  we  have 
not  exaggerated  the  situation. 

Is  there  anything  else  from  that  chart,  Mr.  Welsh,  that  you  want 
to  call  the  attention  of  the  commission  to  ? 

Mr.  WELSH.  I  think  not. 

Mr.  WARREN.  Regarding  the  companies  that  we  have  used  in  these 
computations,  the  345  companies,  Mr.  Pardee  calls  my  attention  to 
the  fact  that  we  used  all  the  companies  from  which  we  can  get  re- 
ports. Some  companies,  for  some  reason  or  other,  do  not  respond 
to  the  inquiries  for  the  association.  The  345  companies  report 
regularly,  as  I  understand  it,  to  the  association,  their  earnings  and 
operating  expenses  and  other  items  of  interest;  so  that  the  asso- 
ciation is  able,  from  those  reports,  to  make  up  combined  exhibits 
for  the  companies.  Some  of  the  companies  do  not  report,  represent- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       79 

ing  about  one-fifth  of  the  operating  revenue,  and  we  will  furnish 
the  commission  a  list  of  the  345  companies  here. 

The  CHAIRMAN.  Can  we  have  in  the  record  a  statement  showing 
how  you  proceed  to  get  the  average  riding  habit  for  a  year? 

Mr.  WELSH.  Those  figures  are  taken  directly  from  the  census 
tables.  The  reference  in  table  accompanying  Chart  No.  3,  I  be- 
lieve, gives  the  reference  to  the  census  report  in  which  is  quoted  the 
number  of  rides  per  total  inhabitants.  It  is  obtained,  I  might  say, 
by  dividing  the  annual  number  of  annual  passengers  carried  by 
the  total  population  of  the  country  in  each  year. 

The  CHAIRMAN.  That  is  what  I  wanted  to  get  into  the  record. 

Commissioner  WEIILE.  The  passengers  carried  in  the  345  cities? 

Mr.  WELSH.  No;  I  am  referring  to  the  census  report,  reporting 
on  all  the  companies  in  the  country.  The  345  companies  refer  to 
1918  only,  the  estimate  for  1918. 

Mr.  WARREN.  You  have  used  in  every  case  the  census  figures 
through  1917,  have  you  not? 

Mr.  WELSH.  Exactly. 

Mr.  WARREN.  And  for  1918,  not  having  the  census  figures,  Mr. 
Welsh  has  made  an  estimate  for  all  the  companies  based  on  the  show- 
ing of  the  345  companies,  from  which  he  gets  monthly  returns. 

Commissioner  WEIILE.  Taking  the  census  as  applied  to  the  figures 
prior  to  1918,  is  that  a  census  of  the  entire  population  of  the  coun- 
try, rural  and  urban? 

^Ir.  WELSH.  The  figures  used  for  determining  the  average  rides 
per  total  inhabitants  are  those  figures,  but  the  census,  if  I  understand 

e)ur  question  correctly,  is  the  special  census  report  gotten  out  by  the 
epartment  of  Commerce  covering  electric  railways. 

Commissioner  WEHLE.  Did  you  use  the  figures  that  cover  the  elec- 
tric railways  as  they  were  obtained  by  the  Department  of  Commerce 
specially,  where  there  are  electric  railways? 

Mr.  WELSH.  All  electric  railways  in  the  United  States  are  included. 

Commissioner  WEHLE.  Then  you  used  the  population  figure,  which 
you  got  from  the  United  States  Census  reports  in  places  where  there 
are  and  where  there  are  not  electric  railways,  both  f 

Mr.  WELSH.  In  the  United  States. 

Commissioner  WEHLE.  Now,  is  there  anywhere  a  compilation  or 
comparison  such  as  you  worked  out  here  in  principle  using  the 
figures  of  population  in  those  places  where  there  are  electric  rail- 
ways ? 

Mr.  WELSH.  To  this  extent:  We  have  taken  the  population  of  the 
urban  districts,  which  is  shown  separately  in  the  census  reports,  and 
we  will  later  introduce  such  a  chart. 

Commissioner  WEHLE.  Will  those  charts  cover  the  same  ground 
as  the  chart  you  have  just  been  showing  us? 

Mr.  WELSH.  So  far  as  riding  and  traffic  statistics  are  concerned; 
yes,  sir. 

Mr.  WARRKN.  Mr.  Welsh,  this  computation  of  of  the  number  of 
rides  per  inhabitant  is  contained  in  the  census  report  itself,  is  it  not? 

Mr.  WELSH.  It  is. 

Mr.  WARREX.  You  did  not  figure  that? 

Mr.  WELSH.  No,  sir. 

Mr.  WARREN.  You  simply  took  the  census  figures? 

Mr.  WELSH.  Yes,  sir. 


80       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 


Mr.  WARREN.  As  to  this  next  chart,  you  have  not  a  large  chart 
for  that,  I  believe,  have  you  ? 

Mr.  WELSH.  It  seems  to  be  missing.    We  slipped  up  on  that. 
Mr.  WARREN.  This  is  marked  C-145. 

The  figures  accompanying  the  chart  referred  to,  C-145,  are  as 
follows  : 

Power  generated  and  capacity  of  generating  and  subsidiary  equipment. 

(Chart  C-145— Based  on  U.  S.  Census  Report  of  1912,  Table  17,  p.  196.) 


1902 

1907 

1912 

1917 

Kilowatt  capacity  
Subsidiary  equipment 

.kilowatts.  . 
.kilowatts.. 

898,382 
160,053 

1,723,416 
942,  232 

2,508,066 
1,637  260 

2,924,779 
2  339  333 

.kilowatts.. 

2,231,484,397 

4,759,130,100 

6,052,699,008 

7,290  502,789 

Mr.  WELSH.  This  chart  is  another  indication  of  the  growth  of 
electric  railways  based  upon  the  power  situation.  We  have  plotted 
here  the  plant  capacity  in  the  middle  curve,  which  is  designated 
kilowatts  or  generators,  and  also  the  capacity  of  the  subsidiary 
equipment  on  the  bottom  curve. 

Mr.  WARREN.  What  do  you  mean  by  "  subsidiary  equipment,"  Mr. 
Welsh? 

Mr.  WELSH.  The  subsidiary  equipment  covers  largely  the  sub- 
station apparatus ;  that  is,  the  converting  machinery,  in  which  alter- 
nating current  is  transformed  into  direct  current  for  use  on  the 
trolley  wires;  and  it  therefore  represents  very  largely  the  purchase 
power,  since  that  is  the  way,  in  almost  every  case,  that  power  is 
purchased  from  the  power  companies,  for  the  reason  that  power 
companies  generate  alternating  current,  whereas  the  electric  rail- 
ways, in  their  own  power  stations,  generate  largely  direct  current. 

Mr.  WARREN.  And  the  third  line  from  the  bottom,  "  power  gener- 
ated, kilowatt-hours,"  represents  the — 

Mr.  WELSH.  The  annual  output  or  the  power  used  by  electric 
railways. 

Mr.  WARREN.  Now,  turning  to  the  table  accompanying  this  chart, 
will  you  read  some  of  those  figures,  those  which  you  consider  most 
informing? 

Mr.  WELSH.  In  the  first  place,  I  would  like  to  make  a  correction 
under  the  column  "  1912."  In  the  line  marked  "  Power  generated," 
2,000,000,000  should  be  6,000,000,000.  It  is  a  typographical  error. 

The  significant  thing  in  this  table 

Mr.  WARREN.  Just  a  moment,  Mr.  Welsh.  In  this  same  line  should 
not  the  "  Power  generated  (KW)"  be  "  KWH  "? 

Mr.  WELSH.  That  correction  should  also  be  made. 

Mr.  WARREN.  Kilowatt  hours  on  the  last  line  of  the  page. 

Now,  if  you  will  just  read  those  figures  right  across  the  page 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  Showing  the  increases. 

Mr.  WELSH.  The  increase  in  kilowatt  capacity  of  generating  equip- 
ment is  indicated. 

In  1902  it  was  898,362;  in  1917,  1,723,416;  in  1912,  2,508,066;  and 
in  1917,  2,924,779. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       81  '• 

Commissioner  MEEKER.  That  is  kilowatts,  not  kilowatt  hours? 

Mr.  WELSH.  That  is  kilowatt  capacity,  and  represents  the  station 
and  plant  equipment,  and  on  the  next  line,  marked  "  Subsidiary 
equipment,"  it  likewise  represents  the  substation  capacity  or  equip- 
ment devoted  to  the  purchase  of  power.  It  has  increased  from 
160,053  in  1902  to  942,232  in  1907,  1,637,260  in  1912,  and  2.339,333 
in  1917. 

It  is  notable  here  that  there  has  been  a  falling  off  in  the  rate  of 
increase  in  the  first  line;  that  is,  kilowatt  capacity  of  generated 
power  in  1917  as  compared  with  1912,  as  compared  with  a  similar 
increase  in  subsidiary  equipment.  This  is  clue  to  the  increasing 
tendency  of  electric  railways  to  purchase  their  power  rather  than 
to  generate  it  themselves. 

Mr.  WARREX.  And  that  is  partly  due,  perhaps,  to  the  increasing 
difficulty  of  the  electric  railways  to  receive  the  capital  necessary  to 
enlarge  their  power  plants? 

Mr.  WELSH.  Undoubtedly. 

Mr.  WARREX.  Now,  power  generated  in  kilowatt  hours. 

Mr.  WELSH.  Power  generated,  kilowatt  hours,  has  increased  from 
two  and  a  quarter  billion,  in  round  numbers,  in  1902  to  four  and 
three-quarter  billions  in  1907,  over  six  billion  in  1912,  and  seven  and 
a  quarter  billion  in  1917,  in  round  numbers. 

Mr.  WARREX.  You  have  finished  that  line,  have  vou  ? 

Mr.  WELSH.  That  is  all. 

Mr.  WARREX.  What  does  this  indicate  as  to  the  load  factor  of  the 
street  railways? 

Mr.  WELSH.  It  indicates  that  the  load  factor  has  been  decreasing. 
In  other  words,  it  indicates  that  the  railways  have  had  to  overload 
their  equipment  more  in  1917  than  they  had  in  previous  years,  owing 
to  the  fact  that  they  have  had  to  put  a  greater  output  into  the  same 
capacity. 

Mr.  WARREX.  What  do  you  mean  by  "  load  factor  "  ?  Very  likely 
the  commission  knows,  but  I  do  not  know  exactly  what  that  is. 

Mr.  WELSH.  The  load  factor  is  the  ratio  of  the  average  output  to 
the  maximum  output. 

Mr.  WARREX.  And  what  does  this  indicate  about  the  peaks? 

Mr.  WELSH.  It  indicates  that  the  peaks  have  been  increasing  in 
extent;  in  other  words,  that  the  electric  railways  have  had  to  carry 
more  people  during  the  rush  hours  than  they  have  had  in  the  past, 
and  that  the  increase  in  business  has  been  largely  during  the  rush 
hours. 

Mr.  WARREX.  Well,  what  bearing  has  that  on  the  expense  of  op- 
eration of  a  street  railway,  suppose  the  peak  load  does  increase? 

Mr.  WELSH.  The  peak  load  is,  from  all  standpoints,  the  most  ex- 
pensive to  carry.  It  involves  the  use  of  equipment,  in  power-plant 
capacity,  in  the  number  of  passenger  cars,  in  the  number  of  men 
required  to  operate  the  system,  and  in  all  matters  of  plant  and 
facility  for  comparatively  few  hours  in  the  day,  and  that  equip- 
ment can  not  be  used  at  any  other  time.  For  that  reason,  the  rush- 
hour  business  is  the  most  expensive  and  is  more  costly  than  the 
average. 

Mr.  WAKREX.  And  that  applies,  in  referring  to  this  particular 
table,  to  this  very  power  situation  here,  does  it? 


82       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WELSH:.  Yes,  sir. 

Mr.  WARREN.  And  do  these  figures  fairly  show  that  the  peak  has 
increased,  notwithstanding  what  the  previous  figures  show,  that  the 
traffic  was  increasing  at  a  very  much  less  rate  and  an  actual  falling 
off  in  1918? 

Mr.  WELSH.  They  do;  yes,  sir. 

Mr.  WARREN.  They  do? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Is  there  anything  else  on  that  table? 

Mr.  WELSH.  I  think  not. 

•  Mr.  WARREN.  Is  there  anything  that  the  commission  wishes  to 
ask  on  this? 

Commissioner  MEEKER.  Nothing  is  shown  on  this  chart  or  in  that 
table  about  1918.  That  was  shown  on  the  previous  chart. 

Mr.  WARREN.  I  spoke  of  1918  with  reference  to  the  traffic  falling 
off,  Mr.  Commissioner  Meeker,  and  I  asked  Mr.  Welsh  whether  the 
figures  regarding  power  shown  here  indicated  an  increase  of  the  peak 
load,  not  for  1918  but  for  all  recent  years. 

As  a  matter  of  fact,  Mr.  Welsh,  if  I  may  put  this  in  at  this  point, 
apart  from  the  chart  altogether,  apart  from  what  the  power  construc- 
tion shows,  do  you  happen  to  know  whether  it  is  a  fact  that  the  peak 
load  has  been  increasing  in  recent  years? 

Mr.  WELSH.  It  has. 

Mr.  WARREN.  And  among  other  causes  is  one  that  is  particularly 
contributory  to  that  as  regards  the  hours  of  labor  generally? 

Mr.  WELSH.  Yes;  the  coming  together  or  the  coincidence  of  the 
peaks  in  the  matter  of  employment  has  had  a  great  deal  to  do  with 
that. 

That  same  thing  has  been  illustrated  in  the  reverse  way  here  in 
Washington  by  the  plan  which  was  in  operation  here  during  the  war 
of  staggering  hours  of  employment  for  the  very  purpose  of  spreading 
the  peak  and  avoiding  the  necessity  of  the  transportation  companies 
carrying  all  of  the  people  at  one  time  or  during  one  hour  in  the 
morning;  and  one  hour  in  the  evening. 

Mr.  WARREN.  In  other  words,  the  more  general  adoption  of  the 
eight-hour  day  for  labor  has  brought  their  day  much  nearer  to  the 
dav  of  other  occupations  dependent  upon  street -car  service? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  So  that  the  peaks  have  become  coincident? 

Mr.  WELSH.  Yes,  sir. 

Commissioner  WEHLE.  I  would  like  to  ask  you  a  question  similar 
to  the  one  I  asked  you  with  reference  to  the  employees  in  the  chart 
you  presented  earlier. 

This  table  which  refers  to  power  generated,  does  it  take  into  con- 
sideration the  power  generated  by  the  companies  which  are  both 
power  companies  and  electric  companies,  or  is  there  a  separation 
there  where  the  two  are  reported  in  the  same  report  ? 

Mr.  WELSH.  There  is  that  separation,  in  this  way :  There  are  some 
electric-railway  companies  who  sell  a  small  amount  of  power.  Those 
companies  are  not  separated  here,  and  there  is  a  separation  between 
combined  properties  where  power  is  sold  for  general  lighting  and 
power  business  as  between  electric-power  companies  and  electric-rail- 
way companies. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       83 

Commissioner  WEHLE.  In  getting  up  this  chart,  then,  there  has 
been  a  separation  as  to  such  power  as  is  used  for  power  purposes,  as 
distinguished  from  electric-railway  service,  where  the  proportion 
used  for  power  is  large? 

Mr.  WELSH.  Well,  that  is  entirely  in  the  hands  of  the  Census  De- 
partment. We  have  used  their  figures  in  both  cases — both  in  the  case 
of  the  power  and  in  the  case  of  the  number  of  employees  that  you 
spoke  of  before — and  I  am  confident  that  only  electric-railway  prop- 
erties as  such  have  been  included  in  each  case.  We  have  completed 
separately  the  power  and  lighting  departments  of  any  combined  com- 
panies, both  in  the  power  generated  and  in  the  number  of  em- 
ployees. 

Commissioner  WEHLE.  Would  you  suggest  that  we  call  in  here  for 
the  record  those  of  the  officers  who  are  responsible  for  the  compiling 
of  these  figures  in  the  United  States  Census  and  have  that  point 
clarified  ? 

Mr.  WELSH.  It  might  be  very  helpful  to  do  so,  if  there  is  any 
question  about  that. 

Mr.  WARREN.  Well,  what  do  you  understand  to  be  the  fact  about 
that  power  generated? 

Mr.  WELSH.  It  represents  largely  the  power  output  of  the  direct- 
current  stations  of  the  electric-railway  companies,  since  the  electric- 
railway  generating  stations  are  largely  of  that  type. 

Mr.  WARREN.  And  to  that  would  be  added  such  power  as  was 
actually  purchased  for  street-railway  purposes  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  And  you  understand  that  it  would  not  include  power 
that  was  sold  by  a  combined  electric-light  and  railway  company  for 
commercial  and  general  purposes? 

Mr.  WELSH.  It  would  not. 

Mr.  WARREN.  Is  there  anything  else  in  the  census  report  which 
shows  clearly  how  they  arrived  at  that? 

Mr.  WELSH.  It  may  be  that  we  could  take  care  of  that  in  that  way 
;  by  just  reading  the  extract  from  the  census  report,  which  I  believe 
will  make  that  clear. 

Mr.  WARREN.  I  seem  to  remember  that  in  previous  census  reports 
i  there  was  some  statement  about  that. 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  Now,  Mr.  Welsh,  this  chart  shows  what? 

Mr.  WELSH.  This  chart  shows  the  mileage  of  electric-railway  com- 
panies going  into  receivership  from  the  year  1009  to  1019.  The 
|  curve  as  plotted  is  a  cumulative  curve,  and  each  year  includes  the 
'  mileage  of  the  previous  year. 

Mr.  WARREN.  So  that  it  shows  the  total  mileage  of  all  street  rail- 
ways that  have  gone  into  receivership,  whether  still  in  receivership 
or  not  since 

Mr.  WELSH.  Since  1000. 

Mr.  WARREN  (continuing).  Nineteen  hundred  and  nine? 

Mr.  WELSH.  Yes,  sir. 


84        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  figures  on  the  statement  accompanying  this  chart  (Chart  143) 
are  as  follows: 

Groivth  in  the  extent  of  receiverships. 
(Chart  143-As  repartei  in  the  Electric  Railway  Journal  for  Jan.  4, 1919.] 


Year. 

Miles 
of  single 
track. 

Year. 

Miles 
of  single 
track. 

1909... 

558 

1914  .. 

352 

1910  

697 

1915  

1,152 

1911  

519 

1916  

359 

1912  

374 

1917  

1,177 

1913  

343 

1918  

2,108 

Values  for  miles  of  track  are  cumulative  each  year,  including  amounts  for  previous 
years. 

Mr.  WELSH.  The  interesting  thing  in  connection  with  this  chart 
is  the  rapid  increase  from  the  year  1918  to  1919  of  over  2,000  miles, 
which,  from  the  table,  will  be  seen  to  be  about  two  to  three  times 
the  average  mileage  during  the  entire  period. 

Mr.  WARREN.  And  the  table  shows  what? 

Mr.  WELSH.  The  table  shows  2,108  miles  going  into  receivership 
in  the  year  1918. 

Mr.  WARREN.  And  similarly,  the  number  that  have  gone  in  each 
year  ? 

Mr.  WELSH.  Yes,  sir. 

Commissioner  MEEKER.  The  table  is  not  cumulative? 

Mr.  WELSH.  The  table  is  not  cumulative. 

Mr.  WARREN.  No;  that  statement,  I  think,  is  wrong  on  the  table, 
is  it  not?  "Values  for  miles  of  track  are  cumulative,  each  year 
including  amounts  for  previous  years." 

Mr.  WELSH.  That  is  an  error.  That  statement  was  put  on  the 
chart,  but  should  not  apply  to  the  table. 

Commissioner  MEEKER.  It  should  be  stricken  off? 

Mr.  WELSH.  It  should  be  stricken  off. 

Mr.  WARREN.  It  should  be  stricken  off  the  table. 

Commissioner  GADSDEN.  Mr.  Welsh,  what  is  the  total  mileage  as 
of  this  date  in  the  hands  of  receivers  ? 

Mr.  WELSH.  We  will  show  that  in  the  next  chart,  Mr.  Gadsden. 

Commissioner  GADSDEN.  All  right. 

Mr.  WARREN.  Is  that  all  on  that  chart,  Mr.  Welsh  ? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Now,  Mr.  Welsh,  what  does  this  chart  show  ? 

Mr.  WELSH.  This  chart  shows  the  number  of  miles  of  track  of 
companies  in  receivership;  of  companies  wrhose  lines  have  been  dis- 
mantled and  junked;  and  of  companies  that  have  abandoned  portions 
of  their  trackage. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       85 

The  figures  accompanying  this  chart  (Chart  C-146)   are  as  fol- 
lows: 

Number  of  receiverships,  abandonments,  and  lines  junked,  in  effect  as  of  May 

31, 1919. 

(Chart  C-146 — Based  on  electric-railway  journals.) 


Number  of 
companies. 

Miles  of  sin- 
gle track. 

Receiverships  .        

62 

5.912 

Lines  dismantled  and  junked  

61 

791 

Abandonments  

38 

257 

Mr.  WELSH.  This  chart  is  based  on  the  situation  as  of  May  31, 
1919,  and  shows  that  at  that  time  there  were  62  companies  having  a 
mileage  of  5,912  in  receivership,  61  companies  having  791  miles  of 
line  dismantled  and  junked,  and  38  companies  having  257  miles 
abandoned. 

Mr.  WARREN.  Now,  those  last  two  items  do  not  mean  that  61  com- 
panies have  had  all  of  their  lines  dismantled  and  junked,  does  it  ? 

Mr.  WELSH.  No. 

Mr.  WARREJST.  But  that  61  companies  have,  together,  dismantled 
and  junked  791  miles? 

Mr.  WELSH.  Exactly. 

Mr.  WARREN.  And  so  with  the  abandoned  ? 

Mr.  WELSH.  Yes,  sir. 

Commissioner  BEALL.  Do  you  propose  to  file  the  names  of  those 
companies  with  us? 

Mr.  WELSH.  Yes,  sir. 

Commissioner  BEALL.  And  will  the  person  who  has  made  this  ex- 
hibit furnish  the  names  of  the  companies  referred  to  on  this  chart? 

Mr.  WARREN.  They  will  be  here  this  afternoon. 

Mr.  WELSH.  I  have  them  here  this  morning,  some  place. 

Commissioner  MEEKER.  I  would  like  to  ask  a  question  about  the 
lines  dismantled  and  junked  and  the  lines  abandoned. 

Are  they,  in  any  instance  or  in  large  part,  lines  that  were  built  to 
accommodate  war  plants,  munition  plants,  shipyards,  etc.,  that  have 
ceased  to  make  munitions  or  to  build  ships  ? 

Mr.  WELSH.  No ;  I  believe  that  I  can  say  that  in  no  case  was  there 
any  of  those  included. 

Mr.  WARREN.  I  can  answer  that  for  Massachusetts.  I  am  sure  that 
there  is  nothing  of  that  kind  in  Massachusetts. 

Mr.  WELSH.  The  list  will  indicate  that,  I  believe,  too. 

Commissioner  MEEKER.  The  list  will  indicate  that? 

Mr.  WARREN.  Yes. 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  We  will  get  out  that  list  and  give  it  to  you  as  soon  as 
possible. 

Commissioner  WEHLE.  Would  the  figures  which  represent  the  dis- 
mantled and  junked  lines  represent  in  any  degree  lines  which  have 
been  substituted? 

Mr.  WELSH.  I  do  not  believe  I  know  what  you  mean  by  "sub- 
stituted." 


86       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Dismantling  10  miles  of  track  in  order  to  build  a 
shorter  line  5  miles,  or  another  line  of  10  miles  by  a  different  routo, 
which  better  served  the  public. 

Mr.  WELSH.  I  think  not,  as  a  general  rule.  They  represent  largely 
some  unprofitable  extensions,  outer  ends  of  lines,  and  some  inter- 
urban  lines.  There  has  been  a  great  deal  of  mileage  in  the  Massachu- 
setts district  that  has  been  abandoned  and  dismantled  of  that  char- 
acter. 

Commissioner  MEEKER.  Does  your  statement  show  anything  with 
reference  to  the  causes  for  the  abandonment  or  dismantling? 

Mr.  WELSH.  The  one  we  have  prepared  merely  shows  the  names  of 
the  companies  and  the  mileage  that  has  been  dismantled. 

Commissioner  WEHLE.  Could  there  be  a  separation  made  there  in 
order  to  make  the  chart  more  serviceable? 

Mr.  WELSH.  J  think  it  would  be  possible  for  us  to  secure  the  cause 
in  each  case. 

Commissioner  WEHLE.  Well,  would  it  be  practicable? 

Mr.  WELSH.  I  would  say  that  we  could  get  that  in  the  majority 
of  cases.  We  might  not  in  every  case. 

Commissioner  GADSDEX.  One  of  the  noted  cases  of  that  kind  is  the 
Bay  State. 

Mr.  WELSH.  Yes ;  I  had  that  in  mind. 

Commissioner  GADSDEX.  If  the  receiver  of  the  Bay  State  were 
brought  before  the  commission,  he  might  be  able  to  give  the  reason 
for  the  abandonment  of  the  25  or  30  miles,  would  he  not? 

Mr.  WELSH.  I  should  say  so. 

Mr.  WARREX.  I  was  to  have  later  the  chairman  of  the  trustees  of 
the  Bay  State  here  on  this  very  subject  of  abandonment.  The  Bay 
State  has  abandoned  a  very  small  proportion  of  what  it  believes  it 
shall  be  obliged  to  abandon  unless  some  relief  is  obtained.  I  think 
the  receiver  proposes  to  abandon  something  like  200  miles,  but  that 
actually  abandoned,  as  shown  in  this  table,  as  I  recall  it,  is  only 
about  30  miles.  In  some  cases  the  companies  have  simply  abandoned 
the  whole  proposition.  On  the  theory  that  one  can  not  get  blood 
out  of  a  stone,  I  do  not  suppose  a  bankrupted  company  could  be 
forced  to  operate  a  losing  venture  indefinitely. 

The  CHAIRMAX.  If  that  is  convenient  for  you,  you  will  have  a 
witness  who  will  present  testimony  or  else  file  exhibits  on  that? 

Mr.  WARREX.  On  these  abandonments? 

The  CHAIRMAX.  Giving  the  reasons  for  those  abandonments. 

Mr.  WARREX.  Yes;  we  will  be  very  glad  to  do  that,  as  far  as 
possible. 

Have  you  anything  else  on  that  exhibit  ? 

Mr.  WELSH,  fro,  sir ;  except  that  I  might  state  that  the  total  mile- 
age represented  by  these  companies,  being  just  under  7,000,  is  ap- 
proximately 16  per  cent  of  the  total  mileage  of  the  electric  railways 
in  the  country,  or,  in  other  words,  about  one-sixth  of  the  mileage  of 
the  country  is  in  serious  difficulty  or  has  been  abandoned. 

Mr.  WARREX.  The  next  exhibit  that  we  should  like  to  put  in,  but 
we  shall  not  have  it  ready  until  this  afternoon,  is  a  combined  balance 
sheet  of  the  street-railway  companies  of  the  country,  which  is  con- 
tained in  the  census  report,  is  it  not,  Mr.  Welsh  ? 

Mr.  WELSH.  Yes,  sir. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       87 

Mr.  WARREN.  We  can  obtain  the  advance  census  sheets'  showing, 
and  we  propose  to  file  that. 

We  have  now  a  list  of  the  companies  in  receivership  and  those 
which  have  dismantled  and  which  have  abandoned  track,  and  we 
will  file  those  with  you  now. 

The  list  of  railways  thus  referred  to  is  as  follows : 

Electric  railways  that  have  been  dismantled  and  sold  as  junk,  June  7,  1919. 

IQI  K  Miles  of  track 

ly±0-  dismantled. 

Mountain  Railway,  West  Orange,  N.  J 2.0 

1916. 

Lima  &  Honeoye  Light  &  Railroad  Co 4.  50 

Elkins  Electric  Railway,  Elkins,  W.  Va 9.  00 

Lake  Erie,  Bowling  Green  &  Napoleon  Railway,  Bowling  Green,  Ohio 12.  50 

Lancaster  &  Southern  Street  Railway,  Millersville,  Pa 7.  30 

1917. 

Alton,  Jacksonville  Railway,  Alton,  111 21.30 

Arkansas  Northwestern  Railroad 2.13 

€atskill  Traction  Co.,  Catskill,  N.  Y 5.  50 

City  Railway,  Mount  Vernon,  111 3.  25 

Clehurne  Traction  Co 8.00 

Goshen,  South  Bend  &  Chicago  Railway,  Goshen,  N.  Y 20.  00 

Mexico  Investment  &  Construction  Co 10.  00 

Mount  Vernon  Railway,  Mount  Vernon,  Ohio 9.  00 

Norfolk  City  &  Suburban  Railway,  Norfolk,  Va 14.50 

St.  Lawrence  International  Electric  Railroad  &  Ltmd  Co.,  Alexandria 

Bay,  N.  Y 7.  79 

Norfolk  &  Ocean  View  Railway,  Norfolk,  Va 10.  00 

Sacramento  Valley  Electric  Railroad,  Dixon,  Calif       1.30 

Waycross  Street  &  Suburban  Railway,  Waycross,  Ga 7.  20 

1918. 

Adirondack  Lakes  Traction  Co.,  Gloversville,  N.  Y 5.  00 

Billings  Traction  Co.,  Billings,  Mont G.  00 

Bluffton,  Geneva  &  Celina  Traction  Co.,  Bluff  ton,  Ind 19.  00 

Bristol  Traction  Co.,  Bristol,  Tenn 15.  30 

Clarksville  Railroad,  Clarksville,  Ga 1.  25 

Central  of  Florida  Railway,  Daytona,  Fla 5.  00 

Consolidated  Street  Railway,  Strong  City,  Kans 2.  00 

Covington  &  Oxford  Street  Railway,  Oxford,  Ga 6.  00 

Dayton,  Springfield  &  Xenia  Southern  Railway,  Dayton,  Ohio 12.  00 

Deiiton  Traction  Co.,  Denton,  Tex 4.  50 

Gettysbxirg  Railway,  Gettysburg,  Pa 0.  50 

Interurban  Railway  &  Terminal  Co.,  Cincinnati,  Ohio 23.00 

London  &  Lake  Erie  Railway  &  Transportation  Co.,  London,  Ontario, 

Canada 28.00 

Marthas  Vineyard  Street  Railway,  Marthas  Vineyard,  Mass 1. 10 

Memphis  &  Rugby  Railway,  Rugby,  Tenn 2.  50 

Middletown  Street  Railway,  Middletown,  Ohio 1.00 

Montecito  Railroad,  Los  Angeles,  Calif 1.  46 

New  Jersey  Rapid  Transit  Co.,  Sea  Isle  City,  N.  J 8.  00 

Northwestern  Traction  Co.,  Brazil,  N.  Dak 5.00 

Norwood,  Canton  &  Sharon  Street  Railway,  Foxboro,  Mass.  (Norwood 

division)1 2.  50 

Oak  Bluffs  Street  Railway,  Oak  Bluffs,  Mass 0.  47 

Oklahoma  Union  Railway,  Sapulpa,  Okla 1.50 


1  Part  of  road. 


.88       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Miles  of  track 
dismantled. 

Richmond  &  Rnppahannock  River  Railway,  Richmond,  Va__^ 16.  30 

Rockland,  Thomaston  &  St.  George  Railway,  Rockland,  Me 5.  71 

Rutland  Railway,  Light  &  Power  Co.,  Rutland,  Vt  * 2.50 

St.  Joseph  Valley  Traction  Co.,  Elkhart,  lud.1 7.50 

St.  Louis,  Lakewood  &  Grant  Park  Railway 4.  00 

St.  Simon  Railroad,  Brunswick,  Ga 1.70 

San  Point  &  Interurban  Railway  (Ltd.),  San  Point,  Idaho 6.00 

Sioux  City,  Crystal  Lake  &  Homer  Electric  Railway,  Dakota  City,  Nebr__  4.  00 

San  Jose  Traction  Co.,  Jacksonville,  Fla 3.  00 

Taunton  &  Pawtucket  Street  Railway,  Taunton,  Mass 14.  00 

Topeka  Railway,  Topeka,  Kans 1 1.  50 

Yazoo  Municipal  Railway,  Yazoo,  Miss 4.  00 

Woodstock-Sycamore  Traction  Co.,  Sycamore,  111 25.  00 

Worcester  &  Warren  Street  Railway,  Brookfield,  Mass 20. 10 

Twin  Falls  Railroad,  Twin  Falls,  Idaho- 12.  00 

Uvalde  &  Leona  Valley  Interurban  Railway,  Leona  Valley,  Tex 8.  00 

WTare  &  Brookfield  Street  Railway,  Ware,  Mass 11.  71 

Lincoln  Traction  Co.,  Lincoln,  Nebr 1.00 

Cincinnati,  Bluffton  &  Chicago  Railroad,  Huntlngton,  Ind 58.  00 

1919. 

Lake  James  Railroad,  Angola,  Ind 3.  75 


Total  number  of  miles  of  track  dismantled  and  sold  as  junk 534. 12 

Total  number  of  miles  of  track  on  which  service  was  abandoned2—          _  256.  58 


Grand    total 796.  70 

Electric  railways  that  have  abandoned  service,  June  7,  1919. 

1915.  Miles  of  track 

abandoned. 

Binghamton  Railway  Co.,  Binghamton,  N.  Y feet__        600 

1916. 
Forest  Grove  Transportation  Co.,  Oregon -     2.  70 

1917. 

Amarilla   Street   Railway,   Amarillo,   Tex 8.20 

Fort  Smith,  Okla.,  Light  &  Traction  Co.,  Fort  Smith,  Ark 1.21 

Richmond  &  Chesapeake  Bay  Railway,  Richmond,  Va 14.  80 

1918. 

Greenville  Railway  &  Light  Co.,   Greenville,   Tex 7.00 

Texas  City  Street  Railway  Co.,  Texas  City,  Tex 4.  00 

Bay  State  Street  Railway  Co.,  Boston,  Mass *  30.  40 

Berkshire    Street    Railway 1 5.  05 

Bristol  &  Norfolk  Street  Railway,  Randolph,  Mass 6.44 

Columbus,  Magnetic   Springs  &  Northern   Railway,   Richwood,   Ohio 18.  50 

Conway  Electric  Street  Railway,  Conway,  Mass 6.  60 

Fernandina  Municipal  Railway,  Fernandina,  Fla .  2.  00 

Fort  Scott  Gas  &  Electric  Co.,  Fort  Scott,  Kans 7.  00 

Fryeburg  Horse  Railroad,  Fryeburg,  Me • 3.  00 

Hamilton  Radical  Electric  Railway,  Hamilton,  Ontario,  Canada 29. 10 

Laconia  Street  Railway,  Laconia,  N.  H *  1.  30 

Lebanon  &  Franklin  Traction  Co.,  Dayton,  Ohio 10.  80 

Madison  Light  &  Railway  Co.,  Madison,  Ind 3.  50 

Mount  Vernon  Railway,  Mount  Vernon,  Ohio 9.  00 

Norwood,  Canton  &  Sharon  Street  Railway,  Foxboro,  Mass 4.  00 

1  Part  of  road. 

2  Exclusive  of  companies  where  mileage  figures  were  not  available 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       89 

Miles  of  track 
abandoned. 

Ocean  City  Electric  Railroad,  Ocean  City,  N.  J 10.  00 

Oxford    Electric   Co.,   Norway,    Me , 2. 13 

Parkersburg  &  Ohio  Electric  Railway,   Parkersburg,  W.  Va 5. 00 

Plymouth  &  Sandwich  Street  Railway,  Plymouth,  Mass 17.43 

Fresno  Interurban  Railway,  Fresno,  Calif.     (*  Lines  in  Fresno.) 

Norfolk  &  Bristol  Street  Railway,  Foxboro,  Mass 

Kansas  City  Railways,  Kansas  City,  Mo.     (Argentine,  Minn.,  line.) 

Indiana  Utilities  Co.,  Angola  to  Lake  James,  Ind 3.  75 

Babylon  Railroad,  Babylon,  N.  Y 8.00 

1919. 

Los  Angeles  &  San  Diego  Railway,  San  Diego.  Calif 21.  54 

Buffalo  &  Lackawanna  Traction  Co.,  Buffalo,  N.  Y 8.  80 

lola  Electric  Railroad,  lola,  Kans 

Tiffin,  Fostoria  &  Eastern  Traction  Co 

Yonkers  Railroad  Co.,  Yonkers,  N.  Y.  (Hastings) 3.30 

Pacific  Electric  Railway,  Los  Angeles,  Calif.     (Brockton  Avenue  Line 

in   Riverside) - 

Yakinia    Valley    Transportation    Co.,    North    Yakirna,    Wash.     (North 

Fourth  Street  Line) 

Bartlesville   Interurbau   Railway   Co.,   Bartlesville,   Okla.     (City   Loop 

Line) 2.  03 


Total  number  of  miles  of  track  on  which  service  was  abandoned 
exclusive  of  companies  where  mileage  figures  were  not  avail- 
able  L 25G.  58 

Electric  railways  in  the  hands  of  receivers,  June  7,  1919. 

9  Miles  of  single 

track  operated. 

Kansas  City,  Lawrence  &  Topeka  Railroad,  Kansas  City,  Mo 12.  00 

Birmingham  Railway,  Light  &  Power  Co.,  Birmingham,  Ala , 153.  65 

Buffalo  Southern  Railway,  Buffalo,  N.  Y 25.35 

Interurban  Railway  &  Terminal  Co.,  Cincinnati.  Ohio 65.  60 

Atlantic  City  &  Shore  Railroad  Co.,  Atlantic  City,  N.  J 30. 05 

Atlantic  Shore  Railway,  Sanford,  Me 50.00 

Buffalo  &  Lake  Erie  Traction  Co.,  Buffalo,  N.  Y 168.  00 

North  Branch  Transit  Co.,  Bloomsburg,  Pa 30.  00 

Winona  Interurban  Railway,  Warsaw,  Ind 70.  00 

Bay  State  Street  Railway  Co.,  Boston,  Mass 955.  07 

Beech  Grove  Traction  Co.,  Beech  Grove,  Ind 6.  30 

Grafton  Light  &  Power  Co.,  Grafton,  W.  Va 7.  00 

Hornell  Traction  Co.,  Hornell,  N.  Y 10.  90 

Manhattan  &  Queens  Traction  Corporation,  New  York  City 22.  00 

Pennsylvania  &  Ohio  Railway,  Ashtabula,  Ohio 26.  00 

Plymouth  &  Shelby  Traction  Co.,  Norwalk,  Ohio 6.  97 

Southern  &  Cambria  Railway,  Johnstown,   Pa 30.  00 

Trans-St.  Marys  Traction  Co.,  Sault  Ste.  Marie,  Mich 7.  52 

Southern  Traction  Co.,  of  Illinois,  East  St.  Louis,  111 15.  00 

Binghamton  Railway,  Binghamton,  N.  Y 40.74 

Brooklyn  Rapid  Transit  Co.,  Brooklyn,  N.  Y 690!  89 

Buffalo  &  Depew  Railway,  Buffalo,  N.  Y 14.00 

Buffalo  &  Lackawanna  Traction  Co.,  Erie,  Pa 8.  80 

Cumberland  Railway,  Carlisle,  Pa 

Denver  &  Interurbau  Railroad,  Denver,  Colo 51.  93 

Des  Moines  City  Railway,  Des  Moines,  Iowa 85.  00 

Evansville  Railways,  Evansvllle,   Ind 72.  4.'i 

Fort  Scott  Gas  &  Electric  Co.,  Fort  Scott,  Kans 7.  00 

Hartford  &  Springfield  Street  Railway,  Warehouse  Point,  Conn 48.00 

lola  Electric  Railroad  Co.,  lola,  Kans 10.  no 

Lewiston,  Augusta  &  Waterville  Street  Railway,  Lcwiston,  Me 165.65 

'Part  of  ror.d  only.  'City  lines  only. 

160643°— 20 T 


90       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Miles  of  single 
track  operated. 

Paducah  Traction  Co.,  Paducah,  Ky 19.  34 

Penn  Yan  &  Lake  Shore  Railway  Co.,  Perm  Yan,  N.  Y 10.  00 

Pittsburgh  Railways  Co.,  Pittsburgh,  Pa 605.  25 

Plymouth  &  Sandwich  Street  Railway,  Plymouth,  Mass 17.  45 

St.  Paul  Southern  Electric  Co.,  St.  Paul,  Minn 17.  54 

St.  Petersburg  &  Gulf  Railway,  St.  Petersburg,  Fla 26. 11 

Scranton  &  Binghamton  Railroad  Co.,  Scranton,  Pa - 50.  00 

Southern  Oregon  Traction  Co.,  Medford,  Oreg 8. 19 

Southern  Traction  Co.,  Bowling  Green,  Ky 4.  50 

Springfield  Electric  Railway  Co.,  Springfield,  Vt 9.  00 

Sandusky,  Norwalk  &  Mansfield  Electric  Railway,  Cincinnati,  Ohio 29.  50 

Cincinnati,  Lawrenceburg  &  Aurora  Electric  Street  Railway,  Cincin- 
nati, Ohio _• 32.  20 

Cincinnati  &  Columbus  Traction  Co.,  Cincinnati,  Ohio 53.  00 

Sunbury  &  Susquehanna  Railway,  Sunbury,  Pa 9.  00 

Memphis  Street  Railway  Co.,  Memphis,  Tenn 124.  00 

New  Orleans  Railway  &  Light  Co.,  New  Orleans,  La 218. 15 

Montgomery  Light  &  Traction  Co.,  Montgomery,  Ala : 38.  00 

Spokane  &  Inland  Empire  Railroad,  Spokane,  Wash 290.  47 

Rhode  Island  Co.,  Providence,  R.  I 400.  04 

Jackson  Light  &  Traction  Co.,  Jackson,  Miss 13.  50 

Fort  Wayne  &  Northern  Indiana  Traction  Co.,  Fort  Wayne,  Ind 220.  00 

Tucson  Rapid  Transit  Co.,  Tucson,  Ariz 5. 00 

Ohio  River  Electric  Railway  &  Power  Co.,  Pomeroy,  Ohio 12.  70 

Philadelphia  Railways  Co.,  Philadelphia,  Pa 13.  29 

New  York  Railways  Co.,  New  York  City _ 153.  60 

Pascagoula  Street  Railway  &  Power  Co.,  Pascagoula,  Miss_l 8.  36 

United  Railways  Co.  of  St.  Louis,  St.  Louis,  Mo 458.  22 

Chattanooga  Railway  &  Light  Co.,  Chattanooga,  Tenn 69.  31 

Blue  Hill  Street  Railway,  Canton,  Mass 19.  70 

Colorado  Springs  &  Cripple  Creek  District  Railway,  Colorado  Springs, 

Colo.   18.  50 

Portsmouth,  Dover  &  York  Street  Railway,  Portsmouth,  N.  H 42.  00 


Total 5,  912. 25 

Mr.  WARREN.  If,  then,  I  may  pass  over  for  the  moment  the  balance 
sheet,  I  propose  to  take  up  the  income  accounts,  Mr.  Welsh,  which 
come  next  in  your  preparation. 

Mr.  WELSH.  Yes. 

Commissioner  BEALL.  Mr.  Welsh,  I  notice  that  you  have  a  Cana- 
dian company  in  here.  I  take  it  that  all  of  these  figures  that  you 
have  given  us  are  for  electric  railways  in  the  United  States,  and  not 
those  in  Canada? 

Mr.  WELSH.  That  is  true,  with  the  exception  of  that  list  of  re- 
ceiverships. That  is,  our  figures  with  reference  to  these  income  ac- 
counts have  been  related  exclusively  to  the  United  States. 

Mr.  WARREN.  And  your  figures  with  regard  to  passengers  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  And  all  those  things? 

Mr.  WELSH.  Oh,  yes. 

Commissioner  BEALL.  How  much  of  Canadian  figures  are  included 
here?  Is  there  anything  more  like  that  one  of  the  London  &  Lake 
Erie  Railway  &  Transportation  Co.  of  London,  Ontario,  Canada? 

Mr.  WELSH.  So  far  as  I  know,  that  is  the  only  one. 

Commissioner  BEALL.  I  can  not  understand  why  you  put  that  in, 
because  it  might  raise  some  question. 

Mr.  WELSH.  Which  company  is  that? 

Commissioner  BEALL.  Why  not  take  that  out?  Because  you  will 
only  confuse  the  issues. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       91 

Mr.  WELSH.  Which  company  is  that,  Mr.  Beall? 

Commissioner  BEALL.  It  is  the  third  item  on  your  second  page, 
the  London  &  Lake  Erie  Railway  &  Transportation  Co.,  of  London, 
Ontario,  Canada. 

Commissioner  GADSDEN.  That  company  has  been  dismantled  and 
sold. 

Commissioner  BEALL.  That  is  in  that  last  statement  you  handed  up. 
Why  don't  you  just  take  that  out  ? 

Mr.  WARREN.  Yes. 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  That  is  the  only  one,  is  it  ? 

Mr.  WELSH.  That  is  the  only  one. 

Mr.  WARREN.  We  will  have  that  taken  out  and  have  the  figures 
corrected. 

Mr.  WELSH.  Yes. 

Commissioner  WEHLE.  Mr.  Warren,  after  a  conference  with  the 
chairman,  I  should  like  to  ask  you  a  question  which  should  come  in 
in  connection  with  the  presentation  of  Chart  145. 

Mr.  WARREN.  That  is  the  chart  relative  to  power. 

Commissioner  WEHLE.  Railway  and  power? 

Mr.  WARREN.  Yes,  sir. 

Commissioner  WEHLE.  Mr.  Welsh,  referring  to  the  line  on  Chart 
145,  which  is  entitled  "  subsidiary  equipment,"  is  the  railway  associa- 
tion prepared  to  show  how  that  line  has  been  made  up,  particularly 
with  reference  to  the  question  as  to  whether  or  not  there  have  been  an 
appreciable  number  of  instances  where  the  power-producing  function 
has  been  abandoned  by  the  street  railways  and  has  been  transferred 
to  an  independent  company,  which,  from  that  time  on,  furnishes 
power  back  to  the  street-railway  company,  and  also  performs  the 
function  of  furnishing  power  to  other  activities  in  the  community? 

Mr.  WELSH.  Well,  I  should  say  we  can  do  it;  yes,  sir.  We  could 
give  you  a  number  of  typical  examples  of  that.  Of  course,  you  un- 
derstand, these  figures  have  been  taken  from  the  census  report,  and 
so  far  as  they  are  concerned,  we  do  not  know  how  they  have  been 
compiled  as  to  the  elements  and  details,  but  we  can  refer  to  the 
definite  census  tables  for  that. 

Commissioner  WEHLE.  Well,  it  was  suggested  by  counsel  a  few 
moments  ago,  you  will  remember,  that  the  reason  for  the  increase  in 
the  amount  of  purchasing  power  that  is  done  by  the  street-railway 
companies  is  the  growing  difficulties  which  have  been  confronting  the 
street-railway  interests.  That  ,  undoubtedly,  is  one  of  the  contribut- 
ing reasons,  but  it  occurred  to  us  that  possibly  the  whole  situation 
could  be  opened  up  and  clarified,  in  order  to  show  all  the  reasons,  or 
as  many  of  them  as  are  really  relevant  in  any  large  way. 

Mr.  WELSH.  I  had  in  mind  adding,  at  that  time,  that  the  one 
reason  given  is  undoubtedly  the  fact  that  the  power  companies  are  in  a 
position  to  make  power  and  sell  it,  and  at  an  economical  rate,  and 
undoubtedly  can,  on  account  of  the  introduction  of  the  steam  turbine, 
which  is  far  more  efficient  than  the  old  reciprocating  type  of  engine, 
generate  power  more  economically  and  sell  it  at  a  rate  which  is  ad- 
vantageous to  the  electric  railway  properties.  That,  undobutedly,  is 
an  element  that  should  be  taken  into  consideration. 

Commissioner  WEHLE.  Could  the  association  amplify  that  point 
by  charts  or  by  testimony,  you  think  2 


92       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WELSH.  We  could,  as  I  say,  for  some  typical  companies — as 
many  companies  as  we  might  be  able  to  get  a  report  for. 

Commissioner  WEHLE.  Would  it  be  practicable  or  possible,  Mr. 
Chairman,  to  ask  the  gentlemen  to  show  all  instances  which  they  can 
easily  produce  where  the  electric-railway  company  has  turned  over 
the  function  of  producing  the  power  to  other  companies? 

The  CHAIRMAN.  Yes. 

Commissioner  BEALL.  There  are  some  instances  where,  on  account 
of  water  power,  they  can  buy  it  cheaper  than  they  can  generate  it, 
on  account  of  the  cost  of  the  fuel.  They  might,  in  some  of  those 
instances  where  power  plants  are  built  at  the  mines,  where  enormous 
energies  are  generated  and  they  furnish  power  to  a  lot  of  other  com- 
panies in  a  large  area  throughout  the  country.  Is  that  what  you 
would  like? 

Commissioner  WEHLE.  That  is  one  of  the  elements  of  the  situation. 

Commissioner  BEALL.  That  is  the  reason  why  a  lot  of  electric  rail- 
ways buy  their  power — because  certain  companies  can  generate  it 
cheaper.  They  generate  ia  larger  amount  than  their  competitors 
generate,  through  water  power  or  otherwise. 

The  CHAIRMAN.  We  wish  you  would  consider  that  and  advise  us 
as  to  the  results. 

Mr.  WARREN.  We  certainly  will  make  every  effort  to  get  as  much 
information  along  that  line  as  we  can  and  file  it  at  a  later  date  with 
the  commission.  I  know  of  some  instances  where  it  can  be  furnished 
very  readily.  I  think  we  can  get  it  in  a  number  of  instances. 

The  CHAIRMAN.  You  may  proceed  with  your  examination  of  Mr. 
Welsh. 

Mr.  WARREN.  Mr.  Welsh,  this  chart,  which  is  marked  "  C-100," 
indicates  exactly  what? 

Mr.  WELSH.  This  is  a  comparison  of  the  years  1917  and  1918  of 
the  income  accounts  of  345  companies  referred  to  before.  It 
shows 

Mr.  WARREN.  This  is  not  the  census  companies  ? 

Mr.  WELSH.  These  are  not  the  census  companies.  These  are  tho 
entire  group  of  companies  that  have  responded  to  the  association's 
questionnaire  for  this  information. 

Mr.  WARREN.  But  it  is  the  same  for  both  years  ? 

Mr.  WELSH.  The  same  for  both  years. 

Mr.  WARREN.  1917  and  1918? 

Mr.  WELSH.  It  shows  the  increase  in  operating  expense  in  1917, 
when  it  was  $361.000,000,  in  round  numbers,  to  $426,000,000  in  1918. 
It  shows  the  increase  in  taxes.  It  shows  the  increase  in  deductions 
from  income. 

Mr.  WARREN.  Won't  you  give  the  figures  as  you  go  along? 

Mr.  WELSH.  The  taxes  in  1917  were  $35,750,567,  and  in  1918, 
$38,669,011.  The  gross  income  in  1917  was  $142,373,728,  and  in 
1918,  $146,652,347. 

Mr.  WARREN.  That  is  deduction  from  gross  income? 

Mr.  WELSH.  That  is  deduction  from  gross  income. 

The  most  striking  feature  of  this  chart  is  the  comparison  of  the 
net  income. 

In  1917,  this  amounted  to  $41,800,394.  In  1918,  the  net  income 
•was  $10,712,726,  or  about  25.7  per  cent  of  its  former  value. 

Commissioner  GADSDEN.  Mr.  Welsh,  have  you  the  1916  figures  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       93 

Mr.  WELSH.  No ;  we  have  not. 

Commissioner  GADSDEN.  Do  you  happen  to  know  what  they  were? 

Mr.  WELSH.  Do  3^011  mean  for  the  same  group  of  companies? 

Commissioner  GADSDEN.  For  all  of  the  companies. 

Mr.  WELSH.  Well,  we  do  have  the  figures  for  1916,  which  we  will 
produce  in  subsequent  charts. 

•Mr.  WARREN.  Do  you  happen  to  remember  whether  they  show  a 
larger  net  income? 

Mr.  WELSH.  They  show  less. 

Mr.  WARREN.  Less? 

Mr.  WELSH.  They  show  larger;  yes,  sir;  I  believe  they  do. 

Mr.  WARREN.  They  show  larger? 

Mr.  WELSH.  Yes,  sir ;  based  on  a  per  car-mile  basis. 

Mr.  WARREN.  Does  the  table,  then,  accompanying  this  chart, 
C-100,  show  that  while  the  operating  revenues  increased,  the  oper- 
ating expenses  increased  so  much  more  that  the  net  income  almost 
disappeared  for  the  345  companies? 

Mr.  WELSH.  That  is  true.  It  shows  that  whereas  it  was  increased 
to  about  6£  per  cent  in  operating  revenue,  operating  expenses,  on 
the  other  hand,  increased  18  per  cent,  and  taxes  increased  about  8 
per  cent. 

Commissioner  GADSDEN.  What  proportion  is  the  revenue  of  these 
345  companies  there  of  the  total  revenue  ? 

Mr.  WELSH.  Over  80  per  cent  of  all  the  companies  in  the  country. 

Another  point  that  I  would  like  to  call  your  attention  to  is  the 
comparison  of  the  operating  ratio  in  the  two  years.  This  increased 
from  a  value  of  65.14  per  cent  in  1917  to  72.13  per  cent  in  1918.  The 
operating  ratio  is  to  a  large  extent  a  measure  of  the  prosperity  or 
the  expenses  of  operation  of  a  company.  It  is  determined  by  taking 
the  ratio  of  the  operating  expense  to  the  operating  revenues,  and, 
therefore,  the  higher  its  value,  the  less  amount  is  left  for  return  on 
investment. 

Commissioner  GADSDEN.  Well,  the  net  income  shown  there  being  80 
per  cent  of  the  total,  that  would  indicate  that  the  net  income  of  the 
total  industry  for  1918  was  $12,500,000. 

Mr.  WARREN.  For  the  entire  industry? 

Commissioner  GADSDEN.  Yes;  if  that  is  80  per  cent  of  it. 

Mr.  WARREN.  Yes. 

Mr.  WELSH.  Well,  I  do  not  believe  you  can  draw  that  conclusion, 
Mr.  Gadsden.  We  have  worked  out  these  values  for  1918,  on  a 
subsequent  chart. 

Commissioner  GADSDEN.  All  right. 

Mr.  WELSH.  And  show  the  method  in  that  case. 

Commissioner  MEEKER.  What  is  included  in  railway  operating 
expenses  ? 

Mr.  WELSH.  All  expenses  in  connection  with  the  operation  of  a 
railway  system ;  that  is  to  say,  all  cost  of  labor,  all  cost  of  material — 
anything  that  has  to  do  with  the  operation  and  maintenance  of  the 
electric-railway  property. 

Commissioner  MEEKER.  Does  that  include  any  expense  for  renew- 
ing equipment  or  extensions  or  improvements? 

Mr.  WELSH.  Only  to  this  extent:  It  is  based  upon  the  Interstate 
Commerce  Commission  classification  of  accounts,  and  in  that  classi- 
fication there  is  an  item  for  depreciation  and  renewals,  but,  as  a 


94       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 


matter  of  fact,  that  item  is  relatively  small  as  actually  expended  by 
railway  properties,  and  is  a  rather  insignificant  proportion  of  the 
operating  expenses. 

Commissioner  MEEKER.  Would  it  not  be  well,  Mr.  Chairman,  to 
have  a  statement  submitted  giving  the  items  included  under  railway 
operating  expenses?  It  is  a  significant  item,  and  I  think  it  would 
be  well  to  have  that  presented. 

Commissioner  BEALL.  Mr.  Welsh,  referring  to  the  term  "  operating 
expenses,"  where  you  replace  one  car  that  is  worn  out  with  another 
car  because  of  its  greater  carrying  capacity,  that  is  an  improvement, 
and  is  not  charged  in  that  expense  of  operation.  Is  not  that  the 
basis  that  you  do  it  on? 

Mr.  WELSH.  Yes,  sir. 

Commissioner  BEALL.  I  wanted  to  make  it  clear  to  Dr.  Meeker. 

Mr.  WELSH.  That  can  be  made  very  clear  if  we  introduce  a  copy  of 
the  Interstate  Commerce  Commission  classification  of  accounts, 
which  explains  that  very  clearly. 

Mr.  WARREN.  Are  there  any  more  questions  on  that  chart,  No.  1 00  ? 

Do  you  want  to  say  anything  more  on  that,  Mr.  Welsh  ? 

Mr.  WELSH.  I  would  like  to  call  your  attention  to  one  thing. 

The  operating  ratio  of  this  group  of  companies  is  almost  exactly 
the  same  as  the  operating  ratio  for  the  entire  industry,  as  shown  by 
the  census  reports.  The  operating  ratio  is  65.14  per  cent  for  this 
group. 

Mr.  WARREN.  That  is  for  1917? 

Mr.  WELSH.  That  is  for  this  group  of  companies. 

Mr.  WARREN.  For  1917? 

Mr.  WELSH.  For  1917,  for  the  same  year,  while  for  the  entire  cen- 
sus it  is  64.8  per  cent. 

The  CHAIRMAN.  Have  you  got  the  operating  ratio  for  the  last  10 
years  ? 

Mr.  WELSH.  I  believe  we  have  that  in  another  chart  back  in  1902 — 
the  census  reports. 

The  figures  on  the  statement  accompanying  this  chart  (C-100)  are 
as  follows: 

Statement  of  income  accounts  and  operating  expenses  of  S£5  companies;  income 
account  for  12  months  ending  Dec.  SI,  1918,  compared  with  the  12  months 
ending  Dec.  31,  1917. 


Items  follow  standard  classification. 

12  months  ended  — 

Increase  or  decrease,  1918 
over  1917. 

Dec.  31,  1918. 

Dec.  31,  1917  . 

Amount. 

Per  cent. 

Railway  operating  revenues  (201)  . 

$590,710,837 
426,082,146 
164,628,691 

16,917,673 
38,669,011 
142,877,353 
14,487,720 
157,365,073 
146,652,347 
10,712,726 
1,654,319,023 
11,969,256,764 
32,570.21 
72.13 

$554,674,718 
361,315,721 
193,358,997 

15,563,861 
35,750,567 
173,172,291 
11,001,832 
184,174,123 
142,373,728 
41,800,395 
1,722,369,093 
12,187,434,043 
32,476.64 
65.14 

$36,036,119 
64,766,425 
128,730,306 

1,353,812 
2,918,444 
130,294,938 
3,485,888 
126,809,050 
4,278,619 
»31,087,669 
168,050,070 
1218,177,279 
93.57 

6.50 
17.93 
14.86 

8.70 
8.16 
17.49 
31.68 
14.56 
3.01 
74.37 
3.95 
1.79 
.29 

Railway  operating  expenses  (213)  

Net  operating  revenue  

Net  revenue  from  auxiliary  operations  (202 

minus  214).    . 

Taxes  railway  operations  (215)  

Operating  income  .  . 

Nonoperating  income  (203  to  212)  

Gross  income  or  loss  

Deductions  from  gross  income  (216  to  225)  
Net  income  or  loss  

Total  car  mileage  operated  

Total  passengers  carried  

Total  miles  of  single  track  

Operating  ratio    "                             per  cent 

i  Decrease. 


PROCEEDINGS  OP  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      95 

Mr.  WARREN.  The  next  table,  Mr.  Welsh,  I  think  you  have  no  chart 
for,  although  the  table  is  referred  to  as  being  identified  as  a  chart, 
C-110,  operating  revenues  and  expenses.  Have  you  that  before  you? 

Mr.  WELSH.  We  have  a  large  chart  for  that. 

Mr.  WARREN.  All  right.    Will  you  put  up  the  large  chart,  then  ? 

Mr.  WELSH.  This  chart  shows  the  railway  operating  revenue,  the 
railway  operating  expenses,  and  by  subtraction,  the  net  operating 
revenue,'  also  the  taxes  and  the  operating  ratio,  this  question  just 
referred  to. 

Mr.  WARREN.  The  table  shows  the  same  thing  in  the  figures,  does 
it  not? 

Mr.  WELSH.  The  table  shows  the  same  information. 

Probably  the  most  interesting  feature  of  this  chart  is  the  net  op- 
erating income.  It  has  increased  up  until  1912,  and  from  ID  12  to 
1917  the  rate  of  increase  fell  off  very  markedly,  and  in  1918  took  an 
actual  decrease.  This  is  seen  in  the  table  to  be  due  to  the  increase  in 
the  operating  expenses,  as  compared  with  the  operating  revenues. 

Mr.  WARREN.  The  net  operating  revenues  means  the  amount  of 
money  that  is  left  of  all  the  money  that  you  take  in  after  you  have 
paid  the  expense  of  just  running  the  railway — operating  it? 

Mr.  WELSH.  That  is  it  exactly. 

Mr.  WARREN.  That  has  nothing  to  do  with  the  return  on  investment 
or  anything  else,  has  it  ? 

Mr.  WELSH.  No ;  it  has  not.  In  fact,  taxes  are  deducted  from  the 
net  operating  income. 

Mr.  WARREN.  And  the  figures  show,  if  I  understand  them,  that  in 
1912  this  net  operating  revenue  was  two  hundred  and  seventeen  mil- 
lion-odd dollars,  and  that  five  years  later  it  had  increased  to  only 
$228,898,000;  is  not  that  so? 

Mr.  WELSH.  That  is  true. 

Mr.  WARREN.  And  for  the  next. year  the  net  operating  revenue'was 
actually  considerably  kss,  being  only  $192,000,000  in  1918? 

Mr.  WELSH.  That  is  true. 

Mr.  WARREN.  Now,  the  1912  and  1917  and  other  earlier  figures  on 
this  table  are  the  census  figures,  are  they  not? 

Mr.  WELSH.  They  are. 

Mr.  WARREN.  And  you  got  the  1918  figures  how  ? 

Mr.  WELSH.  They  are  estimated  from  the  group  of  the  345  com- 
panies shown  on  the  previous  chart. 

Mr.  WARREN.  Which  represented  a  certain  per  cent  of  the  total  ? 

Mr.  WELSH.  Which  represented  over  80  per  cent  of  the  operating 
revenue. 

The  operating  ratio  is  shown  on  this  chart,  and  is  of  special  in- 
terest in  comparison  with  former  years.  It  is  seen  that  it  had  got- 
ten up  to  about  the  60  per  cent  line  up  to  1912.  At  that  time  it  in- 
creased to  about  65  per  cent,  and  in  1918  it  was  increased  to  72  per 
cent. 

Mr.  WARREN.  Is  there  any  figure  that  you  would  have  called  a 
normal  operating  ratio  before  the  European  war  began? 

Mr.  WELSH.  I  think  the  average  figure  as  shown  by  the  census  of 
60  per  cent  would  represent  for  all  companies  a  normal  figure. 

Mr.  WARREN.  A  normal  average? 


96       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WELSH.  A  normal  average. 

Mr.  WARREN.  The  operating  expense  does  not  include  taxes,  does 
it,  Mr.  >Velsh? 

Mr.  WELSH.  It  does  not. 

Mr.  WARREN.  Is  there  anything  else  you  want  to  say  on  that  table  ? 

Mr.  WELSH.  No;  I  think  not. 

Mr.  WARREN.  As  a  matter  of  fact,  the  taxes  show  an  increase, 
although  the  results  of  operating  the  railroad  show  a  very  large  de- 
crease ;  is  not  that  so  ? 

Mr.  WELSH.  That  is  true. 

Mr.  WARREN.  Have  you  in  mind  what  the  total  taxes  of  the  street 
railways  would  amout  to  per  passenger;  have  you  any  figure  that 
would  give  you  that,  or  have  you  roughly  estimated  it  ? 

Mr.'  WELSH.  The  direct  taxes  paid  to  the  governmental- 
Mr.  WARREN.  Yes;  all  taxes,  direct  and  indirect. 

Mr.  WELSH.  Well,  they  amount  to  something  under  one-half  a 
cent.  Is  that  what  you  mean? 

Mr.  WARREN.  Yes. 

Mr.  WELSH.  On  the  basis  of  a  fare. 

Mr.  WARREN.  Yes. 

Mr.  WELSH.  They  amount  to  something  under  one-half  a  cent. 

Mr.  WARREN.  Well,  it  is  pretty  close  to  half  a  cent. 

Mr.  WELSH.  It  is  pretty  close  to  half  a  cent. 

Mr.  WARREN.  In  other  words,  if  it  were  possible  to  relieve1  the  street 
railways  on  the  theory  that  the  other  public  utilities,  like  waterworks, 
are,  of  all  taxation,  it  would  represent  pretty  close  to  half  a  cent  per 
passenger,  would  it  not? 

Mr.  WELSH.  That  is  true. 

Mr.  WARREN.  Are  there  any  further  questions  that  the  commission 
want  to  ask  on  that  table  ? 

Commissioner  GADSDEN.  I  would  like  to  ask  Mr.  Welsh  in  refer- 
ence to  the  net  operating  income :  Do  I  understand  that  the  net  op- 
erating income  is  the  amount  after  the  payment  of  operating  ex- 
penses and  before  anv  interest  charges  are  paid  ? 

Mr.  WELSH.  Yes,  sir. 

Commissioner  GADSDEN.  Now  capitalize  that  at  7  per  cent,  and 
what  would  that  indicate  as  the  value  of  the  industry  ? 

Mr.  WELSH.  It  would  be  about  fourteen  times  that,  would  it  not? 
It  would  represent  something  under  $3,000,000,000. 

Commissioner  GADSDEN.  About  $2,700,000.000. 

Mr.  WELSH.  Yes;  $2,700,000,000 

Commissioner  GADSDEN.  What  is  considered  a  fair  estimate  of  the 
total  investment,  or  what  was  the  association's  estimate  is  the  total 
investment  ? 

Mr.  WELSH.  Something  in  excess  of  $5,000,000,000. 

Commissioner  GADSDEN.  So  that  this  net  return  in  1917  was  7  per 
cent  on  less  than  half  of  that? 

Mr.  WELSH.  That  is  true. 

Commissioner  GADSDEN.  Seven  per  cent  on  less  than  half  of  the 
investment. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       97 


The  figures  on  the  statement  accompanying  the  Chart  C-110  are 
as  follows: 

Operating  revenues  and  expenses. 
[Chart  C-110— based  on  U.  S.  census  reports.] 


1890 

1902 

1907 

1912 

1917 

191S 

Taxes  ;  

?3  30*  190 

$13,078  899 

$19  755  602 

$35  027  965 

$45  756  695 

$49  496  334 

Source      

(i) 

(t) 

(3) 

(3) 

(3) 

'(*) 

Railway  operating  revenue 
Source        

90,617,211 

(5) 

247,553,999 
(*) 

400,896,034 

(3) 

535,998,122 
(») 

650,  149,  806 

(S) 

691.131,682 

(4) 

Railway  operating  expense 
Source      

62,011,185 
(') 

140,123,844 
(») 

245,140,379 
(«) 

318,  700,  534 
(*) 

421,250,838 
(') 

498,516,115 

(4) 

Net  operating  revenue  
Source        

28.606,026 

(1,5) 

107,430,115 
*  (Base). 

155,  755,  655 
J'«  (Base). 

217,295,588 
8>6  (Base). 

228,898,968 
3'8  (Base). 

192,615,567 

(4) 

Operating  ratio  

68.4 

56.6 

61.1 

59.5 

64.9 

72.13 

Source        

(7) 

«.«  (Base). 

*»•  (Base). 

*»«  (Base) 

'•(Base). 

(4) 

1  United  States  census  1902,  p.  11,  Table  6. 

*  United  States  census  1912,  p.  186,  Table  5. 
1  Advance  report,  Table  5. 

* — -  191S  census  for  345  companies,  data  sheet  186. 

5  United  States  census  1902,  p.  20,  text,  receipts,  and  expenditures. 

•  Advance  report,  Table  162. 

*  United  States  census  1912,  p.  6,  Table  1. 

•  United  States  census  1912,  p.  311,  Table  162. 

Mr.  WARREN.  Now,  Mr.  Welsh,  we  will  pass  to  the  next  chart, 
No.  111. 

Mr.  WELSH.  We  have  no  big  chart  for  that — just  the  table. 

Mr.  WARREN.  You  have  no  chart  for  this  next  table,  have  you  ? 

Mr.  WELSH.  No,  sir;  this  next  table  is  made  up  of  the  same  figures 
used  in  the  former  table,  but  upon  a  per  car-mile  basis. 

Mr.  WARREN.  This  table  is  marked  "  Chart  C-lll,"  to  identify  it. 

All  right,  go  ahead,  Mr.  Welsh. 

Mr.  WELSH.  It  shows  the  same  information  exactly,  except  that 
it  is  put  upon  a  per  car-mile  basis.  The  purpose  of  this  is  to  take 
account  of  any  increase  in  growth  and  extent  of  operations 
of  the  companies  throughout  the  census  periods.  However,  it  is 
notable  that  the  same  trend  and  relationship  are  found  between  the 
various  census  periods  and  1918,  on  a  per  car-mile  basis,  as  were 
shown  previously  on  a  gross  basis  of  dollars.  For  example,  the 
net  operating  revenue  was  highest  in  1912  at  11.3  cents  per  car- 
mile,  and  it  fell  to  10.7  cents  in  1917,  and  to  9.39  cents  in  1918. 

Mr.  WARREN.  Mr.  Welsh,  that  means  that  for  each  mile  that  a 
car  was  run,  after  paying  the  expenses,  there  was  9^  cents,  roughly, 
in  1918,  earned  above  the  mere  running  expenses,  does  it  not? 

Mr.  WELSH.  That  is  true. 

Mr.  WARREN.  And  from  that  you  had  to  pay  the  taxes,  and  what- 
ever else  came  afterwards? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  You  may  go  right  on  with  your  tax  item. 

Mr.  WELSH.  It  also  snows  that  the  taxes  per  car-mile  have  in- 
creased up  to  1912. 

Mr.  WARREN*.  The  taxes  went  right  on  increasing.  That  is  the 
difference:  is  it  not? 

Mr.  WELSH.  The  taxes  increased  right  straight  through,  and 
reached  their  maximum  point  in  1918. 

Mr.  WARREN.  So  that  m  1918  the  taxes  took  twice  as  much  out  of 
each  car-mile  receipts  as  they  did  in  1902;  is  that  right? 


98       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 


Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Instead  of  taking  1£  cents  as  in  1902,  they  took  2f 
cents  in  1918. 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Is  there  anything  else  on  that? 

Commissioner  MEEKER.  I  would  like  to  ask  whether  the  tax  for 
street  railways  increased  at  a  greater  ratio  than  for  other  industries  ? 

Mr.  WARREN.  They  are  not  tied  down  to  quite  such  a  definite  in- 
come as  in  the  street-railway  business. 

Have  you  anything  alse  on  that,  Mr.  Welsh? 

Mr.  WELSH.  No;  that  is  all. 

The  figures  on  the  table  accompanying  the  Chart  C-lll  are  as 
follows : 

Revenues  and  expenses  of  electric  railways. 

(Based  on  United  States  census  reports.) 


Cents  per  car  mile. 

1902 

1907 

1912 

1917 

1918 

Railway  operating  revenue  

21.63 
(') 
12.25 

(V) 
9.38 
(l,a) 
1.20 

M) 

24.78 

M 

15.15 

(',») 
9.63 

(W> 
1.22 

(V) 

27.89 
(V) 
16.51 

(M) 

11.30 

(W) 

1.82 
(l,s) 

30.39 

(V) 
19.69 
(V) 
10.70 

(V,5) 

2.14 
(V) 

33.69 

<4) 
24.28 

(<)9.39 

(4U 

0) 

1  United  States  census  1912,  p."  186,  Table  5. 

3  Advance  report,  Table  5. 

» United  States  census  1912,  p.  311,  Table  162. 

4  Estimate  of  1918  census  for  345  companies,  data  sheet  186. 
6  Advance  report,  Table  162. 

United  States  census  typed  advance  summary  released  Apr.  21, 1919. 

Mr.  WARREN.  Have  you  a  large  chart  on  this  next  one,  Chart  No. 
120? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  We  will  pass,  then,  please,  to  Chart  No.  120. 

The  CHAIRMAN.  Have  you  available  the  per  cent  which  the  taxes 
bore  to  the  total  operating  cost  of  the  railroads? 

Mr.  WELSH.  We  will  introduce  that  later ;  yes,  sir. 

Mr.  WARREN.  This  chart,  Mr.  Welsh,  indicates  what? 

Mr.  WELSH'.  Chart  No.  120  is  based  upon  the  reports  of  the  num- 
ber of  companies  who  sent  in  their  financial  statistics  to  the  Ameri- 
can Electric  Railway  Association,  and  it  has  been  prepared  for  four 
years,  from  1916  to  1919,  inclusive.  It  is  on  a  car-mile  basis,  and 
covers  the  principal  items  of  income  accounts,  such  as  operating 
revenue,  operating  expenses,  net  operating  revenue,  and  operating 
ratio.  It  is  interesting  because  it  shows  the  trend  of  all  these  items 
for  this  recent  period,  and  we  have  been  able  to  prepare  these  figures 
for  1919  by  estimating  the  amounts  on  the  basis  of  the  first  four 
months  of  the  year.  For  example,  it  shows  that  the  net  operating 
revenue  has  declined  consistently  from  1916,  when  it  amounted  to 
11.77  cents  per  car-mile,  to  1919,  when  it  was  8.87  cents  per  car-mile. 
I  believe  this  covers  Mr.  Gadsden's  question.  The  operating  ratio,  on 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       99 


the  other  hand,  is  increased  from  a  value  of  60  in  1916  to  a  value  of 
76.43  in  1919,  showing  that  the  same  situation  for  the  year  1918  is 
extending  into  1919. 

Mr.  WARREN.  That  operating  ratio,  Mr.  Welsh,  stated  in  dollars, 
would  amount  to  this,  would  it  ?  That  where,  out  of  every  hundred 
dollars  in  1916  which  you  took  in,  $60  was  used  to  pay  merely  run- 
ning expenses  of  the  road ;  in  1919,  you  estimate  practically  $76  would 
be  used? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  In  that  way? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WABREN.  Out  of  every  $100? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  So  that  out  of  every  $100  there  would  be  $16  less 
available  for  other  purposes,  like  taxes,  interest,  etc.  ? 

Mr.  WELSH.  Yes,  sir. 

Commissioner  WEHLE.  What  standards  of  accounting  have  been 
used  in  reaching  the  figures  which  you  have  been  giving  us  here  in 
the  last  two  charts,  Mr.  Welsh? 

Mr.  WELSH.  The  Interstate  Commerce  Commission  classification 
of  accounts,  which  was  adopted  by  the  American  Electric  Railway 
Association  in  October,  1914,  and  has  been  in  use  since  that  time. 

Commissioner  WEHLE.  Has  there  been  a  special  regulation  with 
reference  to  this  method  of  accounting  issued  by  the  Interstate  Com- 
merce Commission  for  electric  railways? 

Mr.  WELSH.  There  has  been;  yes,  sir. 

Commissioner  WEHLE.  Will  you  file  that  with  the  record  ? 

Mr.  WELSH.  We  will  do  so;  yes,  sir. 

Mr.  WARREN.  As  a  matter  of  fact,  Mr.  Welsh,  do  you  happen  to 
know  whether  most  of  the  supervisory  commissions  of  the  various 
States  have  also  adopted  that  system? 

Mr.  WELSH.  I  think  they  have  to  a  large  extent. 

Mr.  WARREN.  I  know  that  they  have  in  Massachusetts. 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  And  I  suppose  others. 

Mr.  WELSH.  They  have.    Some  of  the  States  do  not,  however. 

Mr.  WARREN.  Yes.    Is  there  anything  else  on  that  chart? 

Mr.  WELSH.  No,  sir ;  I  think  not.    I  think  that  is  all. 

The  figures  on  the  statement  accompanying  Chart  C-120,  are  as 
follows : 

Income  accounts  per  car-mile  of  electric  railtrays. 
(Chart  C-120 — Based  on  average  of  monthly  reports  to  American  Electric  Railway  Association.) 


1916 

1917 

1918 

I  1919.  Jan- 
!  uarv  to 
i    April. 

29.43 

30.  87 

34.00 

37.63 

17.66 

20.06 

24.  ">0 

2S  76 

11.77 

10.  Ml 

9.50 

8.87 

2  45 

2  49 

Operating  income    

7.  (15 

«.  38 

60.01 

64.98 

72.08 

76.43 

1919  estimated  on  basis  of  four  months. 


100     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREX.  The  next  exhibit  that  we  want  to  put  in  is  the  March 
number  of  a  magazine  called  Aera,  which  is  published  by  the  Ameri- 
can Electric  Railway  Association,  and  gets  its  name  from  the  four 
initials  of  the  four  words  in  the  name.  We  will  put  that  in  for  the 
figures  which  appear  on  pages  808  and  809. 

The  figures  referred  to  are  as  follows  : 

TABLE  I.  —  Comparison  of  revenues  and  expenses  of  electric  railivays  for  12 
months,  January  to  December,  1918  and 


(Compiled  from  monthly  returns  of  electric  railways  to  the  American  Electric  Railway  Association.) 


Account. 

United  States. 

Eastern  district. 

Amount, 
January- 
December, 
1918. 

Per  mile  of  line. 

Amount, 
January- 
December, 
1918. 

Per  mile  of  line. 

1918 

1917 

In- 
crease 
over 
1917. 

1918 

1917 

In- 
crease 
over 
1917. 

O  perating  revenues  .... 

$111.688,563 
81,192,846 
30,  495,  317 

$21,870 
15,889 
5,981 

$20,  545 
13,  728 
6,817 

Per  ct. 
6.45 
15.74 
1  12.26 

$54,  554,  582 
39,  793,  194 
14,581,388 

$19,  222 
14,084 
5,138 

$17,  955 
12,  155 
5,800 

Per  ct. 
7.00 
15.87 
1  11.41 

Operating  expenses  

Net  earnings  

Operating  ratio,  per  cent: 
1918                   

72.65 
66.82 

5,107 
5,107 

73-27 
67.70 

2,838 
2,838 

1917      

Average  number  of  miles  of 
line  represented: 
1918       

1917  

COMPANIES  REPORTING 
TAXES. 

Operating  revenues  .  . 

$100,014,301 
73,  074,  000 
26,  940.  301 
6,761,245 
20,  179,  056 

$26,  325 
19,  234 
7,091 
1,780 
5,311 

$24,  741 
16,  827 
7,914 
1,765 
6,134 

6.40 
14.31 
1  10.  40 
.85 
1  13.  42 

$49,  059,  914 
36,  128,  085 
12,931,829 
3,  169,  712 
9,  762,  117 

$24,  033 
17,  698 
6,335 
1,553 
4,782 

$22,  460 
15,  611 
6,849 
1,596 
5,253 

7.00 
13.37 
17.50 
12.69 
18.97 

Operating  expenses  

Net  earnings  

Taxes            

Operating  ratio,  per  cent: 
1918 

73.06 
68.01 

3,799 
3,800 

73.64 
69.50 

2,041 
2,042 

1917 

Average  number  of  miles  of 
line  represented: 
1918  

1917  

i  Indicates  decrease. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     101 


TABLE  I. — Comparison  of  revenues  and  expenses  of  electric  railways  for  12 
months,  January  to  December,  1918  and  1917 — Continued. 


Account. 

Southern  district. 

Western  district. 

Amount, 
January- 
December, 
1918. 

Per  mile  of  line. 

Amount, 
January- 
December, 
1918. 

Per  mile  of  line. 

1918 

1917 

In- 
crease 
over 
1917. 

1918 

1917 

In- 
crease 
over 
1917. 

Operating  revenues  

$11,407,529 
7,  665,  957 
3,  741,  572 

$15,  343 
10,311 
5,032 

$14,  136 
8,473 
5,663 

Per  ct. 
8.54 
21.69 
U1.14 

$45,  726,  462 
33,  553,  695 
12,  172,  767 

$29,977 
21,997 
7,980 

$28,486 
19,  215 
9,271 

Perct. 
5.23 
14.48 
113.92 

Operating  expenses  

Net  earnings  

Operating  ratio,  per  cent' 
1918  

67.20 
59.94 

743 

743 

73.38 
67.45 

1,525 
1,525 

1917  

Average  number  of  miles  of 
line  represented: 
1918  

1917  

COMPANIES  REPORTING 
TAXES. 

Operating  revenues  

$5,346  149 
3,  536,  456 
1,  809,  693 
414.567 
1,395,126 

$20,354 
13,464 
6,890 
1,578 
5,312 

$18,  401 
10,  917 
7,484 
1,470 
6,014 

10.61 
23.33 
17.94 
7.34 
1  11.67 

$45,608,248 
33,  409,  459 
12,  198,  789 
3,  177,  566 
9,021,223 

$30,505 
22,  346 
8,159 
2,125 
6,034 

$28,970 
19,  525 
9,445 
2,048 
7,397 

5.30 
14.44 
U3.61 
3.76 
•18.43 

Operating  expenses  

Net  earnings  

Taxes  

Operating  income  . 

Operating  ratio,  per  cent: 
1918  

66.15 
59.33 

263 
263 

73.25 
67-39 

1,495 
1,495 

1917  

Average  number  of  miles  of 
line  represented: 
1918  

1917  

« Indicates  decrease. 


102     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 


TABLE  II. — Comparison  of  revenues  and  expenses  o1  electric  railways,  December, 

1918  and  1917. 

(Compiled  from  monthly  returns  of  electric  railways  to  the  American  Electric  Railway  Association.) 


Account. 

United  States. 

Eastern  district. 

Amount, 
December, 
1918. 

Per  mile  of  line. 

Amount, 
December, 
1918. 

Per  mile  of  line. 

1918 

1917 

In- 
crease 
over 
1917. 

1918 

1917 

In- 
crease 
over. 
1917. 

O  perating  revenues  

$8,  903,  746 
7,  362,  468 
1,541,278 

SI,  825 
1,509 
316 

SI,  695 
1,231 
464 

Per  ct. 
7.67 
22.58 
131.90 

$4,805,173 
3,  797,  060 
1,  008,  113 

$1,693 
1,338 
355 

$1,538 
1,235 
303 

Per  ct. 
10.08 
8.34 
17.16 

Operating  expenses  

Net  earnings  

Operating  ratio,  per  cent: 
1918  

82.68 
72.63 

4,878 

4,878 

79.03 
80.30 

2,839 
2,839 

1917  

Average  number  of  miles  of 
line  represented: 
1918                

1917.           

COMPANIES  REPORTING 
TAXES. 

Operating  revenues  

$7,  707,  574 
6,  472,  219 
1,235,355 
486,  798 
748,  557 

$2,159 
1,813 
346 
136 
210 

$2,007 
1,487 
520 
202 
318 

7.57 
21.92 
1  33.  46 

»  32.  67 
i  33.  96 

$4,330,134 
3,  437,  317 

892,  817 
295,  443 
597,  374 

$2,  121 
1,684 
437 
145 
292 

$1,  922 
1,576 
346 
179 
167 

10.35 
6.85 
26.30 
>18.99 
74.85 

Operating  expenses  

Net  earnings  

Taxes.           .  

Operating  income  

Operating  ratio,  per  cent: 
1918  

83.97 
74.08 

3,569 
3,570 

79.40 
82.00 

2,041 
2,042 

1917 

Average  number  of  miles  of 
line  represented: 
1918  

1917  

*  Indicates  decrease. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     108 

TABLE  II. — Comparison  of  revenues  and  expenses  of  electric  railways?  December, 
1918  and  1917 — Continued. 


Account. 

Southern  district. 

Western  district. 

Amount, 
December, 
181& 

Per  mile  of  line. 

Amount, 
December. 
1918. 

Per  mile  of  line. 

1918 

1917 

In- 
rease 
over 
1917. 

1918 

1917 

In- 
crease 
over 
1917. 

Operating  revenues  

$1,229,030 
881,531 
347,498 

$1,653 
1,186 
467 

$1.470 
886 
584 

Perot. 
12.45 
33.86 
120.03 

$2,  869,  543 
2.  683,  877 
185,666 

$2,215 
2,071 
144 

$2,167 
1.419 

748 

Perot. 
2-22 
45.95 
180.75 

Net  earnings  

Operating  ratio,  per  cent: 
1918  

71-75 
60.27 

743 
743 

93-50 

65.48 

1,296 
1,296 

1917                            .    . 

Average  number  of  miles  of 
line  represented: 
1918  

1917  

COMPANIES  REPORTING 
TAXES. 

Operating  revenues  

$517,803 
363,409 
154,  394 
26,  527 
127,  867 

$1,971 
1,384 

587 
101 

1-6 

$1,688 
992 
696 
122 
574 

16.77 
39.52 
1  15.66 
1  17.21 
'15.33 

$2,  859,  637 
2,671,493 
188,  144 
164,828 
23,  316 

$2,260 
2,111 
149 
130 
19 

$2,211 
1,445 
766 
256 
510 

2.22 
46.09 
»  80.55 
M9.22 
1  62.  75 

Operating  expenses  

Net  earnings  

Taxes  

Operating  income  

Operating  ratio,  per  cent: 
1918  

70.22 
58.77 

263 
263 

93.41 
65.36 

1,265 
1,265 

1917  

Average  number  of  miles  of 
line  represented: 
1918  

1917  

1  Indicates  decrease. 

Mr.  WARREX.  What  do  those  figures  show,  Mr.  Welsh?  I  do  not 
mean  the  results,  but,  first,  where  do  they  come  from  and  where  do 
you  want  those  put  in? 

Mr.  WELSH.  The  table  shown  in  Aera  is  published  each  month  cov- 
ering all  the  electric-railway  properties  who  report  to  the  association, 
and  this  exhibit  is  introduced  to  show  the  character  of  these  reports 
or  a  summary  of  these  reports  that  are  prepared  each  month  from  the 
various  electric  railways  of  the  country.  This  table  is  for  the  years 
1918  and  1917  only. 

Mr.  WARREN.  For  those  companies  that  report  to  the  association? 

Mr.  WELSH.  For  those  companies  that  report  to  the  association; 
yes,  sir. 

Mr.  WARREN.  And  they  show  the  actual  figures,  do  they? 

Mr.  WELSH,  Yes,  sir. 

Mr.  WARREN.  They  are  not  on  a  per  car-mile  basis,  but  are  the 
total? 

Mr.  WELSH.  That  is  true. 

Mr.  WARREN.  Is  there  anything  else  that  you  want  to  say  about 
that? 

Mr.  WELSH.  T  think  that  is  all. 

Mr.  WARREN.  It  comes  along  following  the  last  chart  that  you  put 
in,  120,  which  was  the  per  car-mile  basis,  was  it  not? 


104      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  I  want  to  say,  Mr.  Chairman,  at  some  time,  and 
perhaps  I  might  s&y  at  this  point  on  behalf  of  the  association  that 
as  soon  as  your  commission  was  appointed  the  association  began  ac- 
tively to  put  its  whole  force  to  work  to  get  together  as  much  data  as 
possible  to  submit  to  the  commission.  It  has  been  working  almost 
exclusively  on  that  undertaking  since  your  appointment.  But  the 
commission  will  realize  that  in  corresponding  with  the  345  street- 
railway  companies  a  great  deal  of  time  is  lost  because  of  the  tardy 
responses  of  some  of  the  companies,  and  I  can  testify  from  personal 
observation  that  I  have  had  since  a  few  days  ago  in  this  matter  that 
the  organization  has  been  working  night  and  day  and  was  working 
last  night  until  12  o'clock  in  an  endeavor  to  present  information 
which  might  be  of  use  and  value  to  the  commission  in  its  work.  That 
is  the  reason  we  are  compelled  to  put  this  copy  of  Aera  in  instead  of 
abstracting  the  figures.  It  is  due  to  a  lack  of  clerical  assistance  nec- 
essary to  transcribe  it. 

The  CHAIRMAN.  Have  you  reached  a  good  stopping  point  here? 

Mr.  WARREN.  Yes,  sir. 

The  CHAIRMAN.  Then  we  will  adjourn  until  2  o'clock. 

(Whereupon,  at  12.50  o'clock  p.  m.,  a  recess  was  taken  to  2  o'clock 
p.  m.) 

AFTER  RECESS. 

JAMES  W.  WELSH — Resumed. 

»Mr.  WARREN.  Mr.  Chairman,  we  have  not  copies  of  this  chart  on  a 
small  scale,  but  we  have  the  statements  which  accompany  the 
chart — 

Mr.  WELSH.  I  have  a  few  copies  here. 

Mr.  WARREN.  Now,  Mr.  Welsh,  what  does  this  chart  illustrate  ? 

Mr.  WELSH.  The  purpose  of  this  chart  is  to  show  the  composition 
of  operating  expenses;  the  total  operating  expenses  foy  each  of  the 
census  years  and  for  1918  has  been  plotted,  and  in  addition  to  that 
we  have  shown  the  segregation  between  the  various  operating  de- 
partments. 

The  most  notable  element  in  the  operating  expense  is  the  item  of 
conducting  transportation.  It  is  not  only  the  largest  item  but  the 
one  in  which  there  has  been  a  proportionate  increase  during  the  cen- 
sus years  and  also  in  the  year  1918.  The  principal  element  in  that 
is  trainmen's  wages.  The  next  most  important  element  is  the  cost 
of  power,  and  that-  also  has  had  a  proportionate  increase. 

Mr.  WARREN.  That  payment  in  wages  is  what  you  call  conducting 
transportation  ? 

Mr.  WELSH.  The  principal  item  in  conducting  transportation  is 
trainmen's  wages. 

Mr.  WARREN.  And  the  total  item  of  conducting  transportation, 
according  to  your  table,  is  $204,989.000,  and  power  is  $86,000,000? 

Mr.  WELSH.  Yes,  sir.  The  increase  in  the  cost  of  power  is  largely 
due  to  the  increase  in  the  cost  of  coal  as  well  as  increased  cost  of 
materials  and  labor. 

Mr.  WARREN.  The  way  and  structures.    What  does  that  mean  ? 

Mr.  WELSH.  That  includes  cost  of  maintenance  of  the  roadway,  the 
cost  of  the  track  and  overhead  line  constructions. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     105 

•Mr.  WARREN.  Keeping  it  in  proper  condition  to  run  your  cars? 

Mr.  WELSH.  Exactly. 

Mr.  WARREN.  And  that  is  all  it  means,  is  it  not  ? 

Mr.  WELSH.  Yes,  sir.  The  item  for  equipment  covers  the  rolling 
stock,  the  cars  as  well  as  the  shop  expense  in  maintaining  the  equip- 
ment. 

Mr.  WARREN.  That  is  keeping  the  cars  in  condition  to  run? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  It  does  not  include  new  cars,  does  it? 

Mr.  WELSH.  It  does  not. 

Mr.  WARREN.  And  traffic  and  miscellaneous. 

Mr.  WELSH.  Under  that  are  included  general  expenses  such  as 
office  expense  and  the  expense  of  injuries  and  damages  and  other 
items  of  a  general  nature. 

Mr.  WARREN.  And  the  total  of  that  operating. expense  as  shown 
here  for  1918  is  how  much? 

Mr.  WELSH.  $498,000,000,  in  round  numbers. 

Mr.  WARREN.  And  the  year  before,  it  was  how  much? 

Mr.  WELSH.  $421,000,000. 

Mr.  WARREN.  Now,  were  the  companies  operating  substantially 
more  mileage  or  more  tracks  in  1918  than  in  1917  ? 

Mr.  WELSH.  As  a  matter  of  fact,  they  were  operating  a  less  car- 
mileage  in  1918  than  in  1917. 

Mr.  WARREN.  By  car-mileage  you  mean  they  ran  the  passenger 
cars  a  smaller  number  of  miles  in  1918  than  in  1917? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  And  notwithstanding  that,  it  cost  them  something 
like  $77.000,000  more  to  operate  their  roads  in  1918 — is  that  right? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Now,  the  sum  of  those  operating  expenses,  as  you 
have  called  them,  has  to  come  out  of  the  total  receipts  first,  does 
it  not? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  And  you  stated  before  the  recess  that  the  ratio,  as 
you  call  it — the  operating  ratio — was  about  76  per  cent  for  this 
current  year? 

Mr.  WELSH.  Yes,  sir;  76  per  cent  for  the  year  1919,  based  upon 
the  first  four  months. 

Mr.  WARREN.  That  means  that  $76  out  of  every  $100  goes  to  this 
operating  expense  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  Does  that  operating  expense  include  the  taxes? 

Mr.  WELSH.  It  does  not. 

Mr.  WARREN.  About  how  much  is  that? 

Mr.  WELSH.  The  direct  taxes,  exclusive  of  indirect  taxes,  amount 
to  about  7  per  cent  of  the  operating  revenues. 

Mr.  WARREN.  That  would  have  to  be  added  to  the  76  per  cent  of 
operating  expenses,  would  it  not  ? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  That  would  make  al>out  83  per  cent? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  Or  $83  out  of  every  $100  for  operating  expense  mid 
taxes? 

100043°— 20 8 


106     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WELSH.  Yes,  sir, 

Mr.  WARREN.  Now,  about  depreciation,  Mr.  Welsh:  Does  this  op- 
erating expense  which  takes  $76  out  of  every  $100  include  a  deprecia- 
tion reserve  to  maintain  the  property  at  near  its  original  value  ? 

Mr.  WELSH.  As  a  matter  of  practice  it  does  not. 

Mr.  WARREN.  And  if  such  a  reserve  were  set  up,  would  it  have  to 
be  added  to  the  76  per  cent  of  operation  and  the  7  per  cent  more  taxes, 
or  the  total  of  83  per  cent,  and.  be  added  to  the  83  per  cent  ? 

Mr.  WELSH.  Yes;  it  should. 

Mr.  WARREN.  While,  of  course,  we  all  realize  that  there  is  no  agree- 
ment on  what  it  ought  to  be,  what  should  you  say  the  best  judgment 
was  as  to  the  two  limits,  the  smaller  and  higher  limit  for  deprecia- 
tion? 

Mr.  WELSH.  In  percentage  of  operating  revenues  ? 

Mr.  WARREN.  In  percentage  of  operating  revenues. 

Mr.  WELSH.  Well,  in  the  neighborhood  of  from  3  per  cent  to  7  or  8 
per  cent  possibly. 

Mr.  WARREN.  And  why  has  not  that  been  set  up  as  a  reserve  by 
these  properties? 

Mr.  WELSH.  I  suppose  they  have  not  had  the  money  to  do  it. 

Mr.  WARREN.  If  it  were  set  up  it  would  raise  these  prior  require- 
ments on  the  income  from  83  per  cent  up  to  86  per  cent,  or  if  you  took 
the  maximum  of  7  per  cent  depreciation,  it  would  carry  it  up  to  91 
per  cent,  would  it  not? 

Mr.  WELSH.  Ninety  per  cent. 

Mr.  WARREN.  Ninety  per  cent? 

Mr.  WELSH.  Yes.  sir. 

Mr.  WARREX.  So  that  before  there  is  anything  available  to  pay 
interest  on  funded  debt  on  the  bonds  or  any  dividends  on  the  stock, 
if  the  company  is  properly  operated  and  pays  its  taxes  and  takes  care 
of  its  depreciation,  approximately  90  per  cent,  somewhere  from  $86 
to  $90  out  of  every  $100  will  be  expended  or  laid  aside  ? 

Mr.  WELSH.  That  is  true  on  the  basis  of  this  year's  figures. 

Commissioner  MEEKER.  You  spoke  some  time  ago  of  the  street- 
railway  accounts  being  in  accordance  with  the  accounting  system 
recommended  by  the  Interstate  Commerce  Commission.  In  the  ac- 
counts which  hare  been  recommended  by  the  Interstate  Commerce 
Commission  a  percentage  is  set  aside  for  depreciation. 

Mr.  WELSH.  That  is  true,  but  not  what  is  known  as  a  depreciation 
reserve. 

Mr.  WARREN.  No  percentage,  I  think.  There  is  a  provision  for 
setting  it  aside,  but  unless  very  recently — and  I  do  not  think  it  has 
happened — the  Interstate  Commerce  Commission  has  not  indicated 
to  the  companies  what  that  percentage  should  be. 

Mr.  WELSH,  I  misunderstood  your  question. 

Commissioner  MEEKER,  They  simply  said  it  should  be  set  aside  ? 

Mr.  WARREN.  Yes. 

Commissioner  "MEEKER.  As  a  matter  of  practice:  the  street-railway 
companies  have  not  set  aside  anything  for  depreciation  ? 

Mr.  WELSH.  That  is  right. 

Mr.  WARREN.  Or  if  they  have,  as  regards  equipment,  many  of  them 
make  a  nominal  reserve,  do  they  not,  Mr.  Welsh  ? 

Mr.  WELSH.  In  some  cases,  yes. 

Mr.  WARREX.  On  equipment? 


PROCEEDINGS  OF  FEDERAL  ELECTEJC  BAIL, WAYS  COMMISSION.     107 


Mr.  WELSH.  Yes. 

Mr,  WARREN.  We  do  in  Massachusetts  I  know,  but  it  is  utterly  in- 
adequate. I  know  some  companies  that  set  up  a  reserve  of  1  per  cent 
of  the  cost  of  the  equipment  per  annum,  which  would  assume  an 
equipment  life  of  100  years.  I  wish  that  they  did  last  100  years, 
but  they  do  not. 

Xow,  is  there  anything  else  on  that  chart  that  I  have  overlooked  ? 

Mr.  WELSH.  I  think  not. 

The  figures  in  the  tables  accompanying  Chart  C-155  are  as  follows : 

Estimate  of  railway  operating  expenses  by  departments. 
(To  accompany  Chart  C-155.) 


Expense  accounts. 

Year  ending 
Dec.  31,  1918 
(115  com- 
panies). 

Per  cent 
of  total. 

Estimate  of 
census  for 
year  1918. 

Way  and  structures  

$19,911,322 

12.80 

$63  810  06° 

F  quipment          

21,576,262 

13.87 

69'  144'  1S6 

26,  842,  149 

17.26 

86  043  SSI 

63  947  529 

41  12 

204  98l)  S28 

Traffic,         .-.»-  --••  -  

629,080 

0.40 

l'994'otH 

General  and  miscellaneous  

22,  607,  326 

14.  54 

72  534  094 

155,513,668 

99.99 

498'516'll5 

Operating  expenses  by  accounts  for  United  States  street  and  electric  railways. 
(Chart  C-155 — Financial  and  traffic  data  from  U.  S.  census  reports.) 


Census  of— 

1918 
(estimated). 

1902 

1907 

1912 

1917 

Conducting  transportation  

$60,  972,  739 
23,062,328 
13,  «00,  236 
16,676,532 
25,812,009 

$97,122,681 
43,970,669 
28,520,925 
31,485,810 
44,038,294 

$129,204,515 
53,598,922 
44,270,582 
38,717,202 
52,909,313 

$174,972,645 
76,958,461 
55,470,419 
48,981,554 
64,867,759 

$204,989,828 
86,043,881 
63,810,0(52 
69,  144,  186 
74,528,158 

Power    .    

Wav  and  structures  

Equipment    

Traffic  and  miscellaneous  

Total  

140,  123,  844 

245,140,379 

318,700,534 

421,250,838 

498,516,115 

Items  1  to  5,  inclusive  

140,123,844 
79,  151,  105 
56,088,777 
42,488,541 
25,812,009 

245,140,379 
148,017,698 
104,045,029 
75,524,104 
44,038,294 

318,700,534 
189,496,019 
135,897,097 
91,626,515 
52,909,313 

421,  250,  838 
246,278,193 
169,319,732 
113,849,313 
64,867,759 

498,516,115 
293,526,2X7 
207,482,406 
143,672,344 
74,528,158 

Items  1  to  4,  inclusive  

Items  1  to  3,  inclusive  

Items  1  to  2,  inclusive.  ... 

Item  1         

Cumulative  figures  (from  above  data)  for  plotting  corves. 

NOTE. — Figures  taken  from  1917  advance  copies  U.  S.  Government  census  by  accounts  for  years  1917, 
1912,  and  1907  and  1912  census.  Table  162,  p.  311,  for  year  1902.  Figures  Tor  1918  estimated  by  American 
Electric  Railway  Association  from  reports  from  115  companies. 

Mr.  WARREN.  You  have  spoken  of  the  element  of  increased  wages 
in  conducting  transportation,  have  you  not,  as  largely  accounting 
for  the  increase  in  that  item? 

Mr.  WKLSH.  Yes,  sir. 

Mr.  WARREN.  Would  that  also  be  true  of  the  major  item  of  ways 
and  structures? 

Mr.  WELSH.  Wages  enter  into  all  of  the  accounts  and  it  would  be 
true  in  practically  every  case. 

Mr.  WARREN.  In  conducting  transportation,  it  would  be  princi- 
pally the  conductors  and  motormen,  the  men  who  operate  the  cars, 
would  it  not? 


108     PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  In  ways  and  structures,  it  would  be  the  laboring 
men  who  work  on  the  track  and  overhead  wire  men,  the  electricians  ? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  And  in  the  equipment,  it  would  be  the  mechanical 
men  in  the  repair  shops  ? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Where  do  the  men  who  clean  the  cars  and  do  the 
car-barn  work  appear,  under  what  head  ? 

Mr.  WELSH.  Under  the  item  of  conducting  transportation. 

Mr.  WARREN.  And  in  power,  again,  wages  enter  there;  do  they 
not? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Do  you  happen  to  know  whether,  as  a  general  thing, 
when  there  is  a  wage  adjustment  made  with  the  men  or  with  the 
union  representing  the  men  on  unionized  roads,  the  settlement 
usually  applies  to  all  classes  of  labor? 

Mr.  WELSH.  In  most  cases  it  follows  as  a  consequence  of  the  de- 
cision. While  the  agreement  may  apply  especially  to  the  trainmen, 
in  almost  every  case  it  applies  to  the  rest  of  the  employees  eventu- 
ally, if  not  immediately. 

Mr.  WARREN.  In  cases  where  the  settlement  is  made  with  the 
Amalgamated  Association,  does  not  the  Amalgamated  Association 
include  in  its  membership  all  the  different  classes  of  labor  on  street 
railways? 

Mr.  WELSH.  It  does,  but  all  the  various  classes  are  not  members  in 
every  case.  I  think  they  have  the  opportunity  for  membership 
but • 

Mr.  WARREN.  Are  you  familiar  with  the  action  of  the  War  Labor 
Board  in  raising  wages  ? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  They  usually  applied  it  to  all  classes,  did  they  not? 
They  raised  all  classes? 

Mr.  WELSH.  They  did;  yes,  sir. 

Mr.  WARREN.  Not  simply  the  trainmen. 

Mr.  WELSH.  Yes,  sir. 

Commissioner  MEEKER.  Would  it  be  possible  to  submit  a  detailed 
account  separating  labor  costs  from  other  costs  in  conducting  trans- 
portation, maintenance  of  way  and  structures? 

Mr.  WARREN.  I  think  we  have  that.    It  is  the  very  next  chart. 

Mr.  WELSH.  It  is  the  very  next  chart. 

Mr.  WARREN.  If  there  are  no  questions  on  this  chart  we  will  pass 
to  the  next  one. 

Commissioner  WEHLE.  May  I  ask  if  you  have  a  separate  statement 
showing  to  what  extent  the  cost  of  actual  power  purchased  from 
other  companies  enters  into  the  item  of  power  as  shown  on  this 
chart  ? 

Mr.  WELSH.  It  does  not  enter  at  all  into  that  item. 

Mr.  WARREN.  Yes;  it  does. 

Mr.  WELSH.  I  beg  pardon :  it  does  enter  into  it.    We  can  shoAv  that. 

Commissioner  WEHLE.  Would  some  chart  show  that? 

Mr.  WELSH.  We  do  not  have  that  chart ;  no ;  but  we  can  easily  get 
that. 

Mr.  WARREN.  We  can  prepare  a  statement  if  you  would  like  it. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     109 

Commissioner  WEHLE.  Would  it  be  interesting  and  useful,  Mr. 
Warren  ? 

Mr.  WARREN.  Yes;  I  think  it  would.  There  is  something  to  be 
said  about  that,  and  it  is  something  which  is  to  be  said  about  every 
one  of  these  items,  and  which  I  think  the  commission  should  have  in 
mind.  You  take  in  the  case  of  purchased  power — a  company  may 
have  made  a  contract  for  three  years  for  power  at  a  certain  rate.  It 
may  still  this  year  be  getting  power  at  that  rate.  Next  year  the  con- 
tract may  expire,  and  there  will  be  an  immediate  large  increase  in  the 
cost  of  power,  and  the  same  increase  for  labor.  Now,  for  example, 
in  the  labor  situation,  the  maximum  wage  up  to  a  few  weeks  ago  was 
that  fixed  by  the  War  Labor  Board  of  48  cents,  was  it  not?  That  is 
the  highest  I  remember ;  48  cents  for  cities  of  the  first  class.  Within 
two  or  three  weeks,  as  the  result  of  the  strike  in  Detroit,  the  Detroit 
scale  has  gone  to  60  cents  an  hour.  Following  that,  Cleveland  has 
gone  to  60  cents  an  hour,  and  in  Chicago,  I  learned  at  lunch  to-day, 
that  the  employees  had  gone  on  a  strike  for — 80  cents,  I  think,  was 
their  demand — 85  cents  an  hour. 

In  Boston,  where  I  happen  to  come  from,  their  case  is  now  pend- 
ing before  the  War  Labor  Board,  and  they  have  asked — I  have  for- 
gotten, but  it  is  something  well  over  60  cents,  and  also  for  an  8-hour 
day,  8  hours  platform  work  instead  of  9,  as  they  have  hitherto  per- 
formed ;  and  they  are  threatening  to  strike.  I  understand,  because  the 
decision  is  not  forthcoming  from  the  War  Labor  Board  as  promptly 
as  they  want  it. 

Now,  all  these  figures  which  we  are  putting  in  are  figures  based  on 
past  experience  and  past  operations,  are  they  not,  Mr.  Welsh? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  And  the  result  of  these  various  changes  which  are 
imminent,  of  course,  is  going  to  make  the  showing  infinitely  more 
serious  than  it  is  to-day. 

You  spoke  of  the  power.  I  have  in  mind  one  company  in  Massa- 
chusetts which  had  a  five-year  power  contract  which  ran  tuitil  the 
1st  of  July  a  year  ago.  Now,  during  the  first  years  of  the  European 
war  and  the  first  year  of  the  increased  cost  of  coal,  in  so  far  as  that 
company  was  buying  its  power — and  it  bought  two-thirds  of  it — its 
power  cost  did  not  reflect  the  changed  conditions  at  all.  The  minute 
the  1st  of  July  came,  however,  the  price  of  its  power  was  increased 
by  that  power  company  to  a  point  where  the  cost  of  its  power  was 
$150,000  more  per  year  from  the  1st  of  July  than  it  had  been  for  the 
year  before,  and,  of  course,  that  is  happening  all  along  the  line  with 
power  companies. 

Now,  Mr.  Welsh,  will  you  pass  to  the  next  chart?  That  chart  was 
C-155.  The  next  chart  is  marked  for  identification,  "  C-134."  Now, 
Mr.  Welsh,  this  chart  shows  the  cost  of  labor. 

Mr.  WELSH.  The  purpose  of  this  chart  is  to  show  the  relationship 
between  the  cost  of  labor  as  represented  by  wages  and  salaries  to  the 
railway  operating  expense.  The  increase  in  both  the  total  expense 
and  in  the  cost  of  labor  for  each  of  the  census  years  is  indicated  and 
the  sharp  increase  in  1918  is  very  noticeable.  The  approximately 
level  line  representing  the  percentage  of  the  cost  of  labor  to  the  total 
railway  operating  expense  is  the  evidence  showing  how  the  total  op- 
erating expense  has  been  the  result  of  the  cost  of  labor.  In  other 


110     PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

words,  the  total  expense  has  increased  at  a  uniform  rate  with  the 
cost  of  labor. 

Mr.  WARREN,  Now,  the  accompanying  statement  to  the  chart  shows, 
does  it  not,  the  salaries  and  wages  for  1912,  as  well  as  other  census 
years  and  for  1917.  Will  you  state  what  they  were  in  1912  and  what 
they  were  in  1917  ? 

Mr.  WELSH.  The  cost  of  labor  amounted  to  $200,000,000  in  round 
numbers  in  1912  out  of  a  total  of  $318,000,000  railway  operating  ex- 
pense, or  63  per  cent  of  the  total.  In  1917  the  cost  of  labor  was 
$267,000,000  out  of  $421,000,000  total,  or  63.4  per  cent, 

Mr.  WARREN.  That  means,  does  it,  that  of  all  the  operating  ex- 
penses almost  two-thirds  was  to  pay  salaries  and  wages? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Now,  your  table  also  shows  the  year  1918,  does  it 
not? 

Mr.  WELSH.  It  does, 

Mr.  WARREN,  And  that  was  made  up  from  your  returns  from 
the— 

Mr.  WELSH.  From  the  member  companies. 

Mr.  WARREN.  From  the  345  companies,  and  then  estimated  for  the 
remainder? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  That  shows  a  slightly  smaller  proportion  of  the  total 
operating  expense  going  for  wages  and  salaries,  although  as  a  matter 
of  fact  a  good  deal  more  money  went  to  wages  and  salaries.  How 
do  you  account  for  that  ? 

Mr.  WELSH.  There  is  a  falling  off  of  about  half  a  per  cent  in  the 
cost  of  labor  as  compared  with  the  total  cost  of  operation.  However, 
it  must  be  borne  in  mind  that  the  service  performed  as  represented 
by  the  car-mile  operated  in  1918  fell  off  somewhat  as  compared  with 
1917,  and  this  w^ould  be  reflected  primarily  in  the  item  of  labor, 

Mr.  WARREN.  And  how  would  the  cost  of  materials  affect  it? 

Mr.  WELSH.  There  has  probably  been  a  slightly  greater  increase  in 
the  cost  of  materials  than  in  the  cost  of  labor.  In  fact  there  has  been 
a  larger  increase  in  the  cost  of  materials  than  in  the  cost  of  labor. 

Mr.  WARREN,  So  that  would  change  the  relationship  ? 

Mr,  WELSH.  That  would  change  the  relationship. 

Mr.  WARREN.  Another  thing  about  the  cost  of  wages  last  year, 
while  there  were  very  great  increases  in  wages  last  year,  did  they 
apply  to  the  whole  year  ? 

Mr.  WELSH,  No.  That  should  be  borne  in  mind,  because  the  de- 
cisions of  the  War  Labor  Board  occurred  at  various  intervals 
throughout  the  year,  and  therefore  the  total  figures  for  the  year  do 
not  represent  the  amounts  that  would  have  been  expended  had  the 
rates  been  in  effect  for  the  entire  year. 

Mr.  WARREN.  Roughly,  they  represent  less  than  half  the  year,  do 
they  not? 

Mr.  WELSH.  About  half,  or  less  than  half, 

Mr.  WARREN.  And,  as  far  as  you  know,  was  the  highest  rate  per 
hour  in  wages  entering  into  these  figures,  the  48  cents  which  I  men- 
tioned as  the  War  Labor  Board's  award  ? 

Mr.  WELSH.  That  is  true,  except,  I  believe,  in  one  western  company 
that  pays  50  cents. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     Ill 


Mr.  WARREN.  Two  cents  an  hour  more  ? 

Mr.  WELSH.  I  think  an  interurban  western  company ;  yes,  sir. 

Commissioner  MEEKER.  Would  it  not  be  possible  to  give  us  some  fig- 
ures as  applying  to  1919,  showing  the  labor  costs  and  the  percentage 
of  total  operating  expenses?  That  would  bring  it  down  more  to 
date.  It  would  bring  before  us  more  accurately  the  problem  that 
we  are  now  facing. 

Mr.  WELSH.  Our  next  chart  will  do  that. 

Mr.  WARREN.  The  next  chart  will  do  that  ? 

Mr.  WELSH.  That  is,  in  rates  per  hour. 

Mr,  WARREN.  Is  there  anything  further  on  this  chart  that  you 
want  to  call  to  the  attention  of  the  commission  ? 

Mr.  WELSH.  I  think  not ;  no,  sir. 

Cost  of  labor — Ratio  of  salaries  and  wages  to  railway  operating  expense. 
(Chart  No.  134. — Based  on  United  States  census  reports.) 


Per  cent 

salaries 

Railway 
operating 
expense. 

Salaries  and 
wages. 

and 
wages  is 
of  railway 

operating 

expense. 

1918. 

$498,516,115 

$313,748.577 

62.9 

1917.      . 

421,:50,  S3S 

267,  240,  362 

63.4 

1912. 

318,700,534 

200,890,930 

63.0 

1907  

245,  140,  379 

150,991,099 

61.6 

1902.      .                        ......               .. 

140,123,844 

88,210,165 

63  0 

Source  of  information:  Tables  5  and  162  of  the  1917  advance  reports  and  the  1912  book  of  the  Census 
Bureau. 

Mr.  WARREN.  Now,  Mr.  Welsh,  this  chart,  which  is  marked 
"  C-133,"  indicates  what  as  regards  wages  ? 

Mr.  WELSH.  This  chart  is  based  upon  the  average  rate  per  hour 
paid  by  companies,  somewhat  over  60  companies  having  over  100 
miles  of  single  track  each.  It  is  on  a  percentage  basis  and  1900  is 
taken  as  100  per  cent  and  the  percentage  increase  over  1906  is  shown 
for  each  year  up  to  the  present  time. 

Mr.  WARREN.  Is  that  also  shown  in  the  table  accompanying  the 
chart? 

Mr.  WELSH.  The  table  accompanying  the  chart  shows  in  addition 
to  the  percentage  the  average  rates  per  hour  in  cents.  The  100  per 
cent  shown  for  the  year  1906  in  the  table  is  taken  arbitrarily  as  the 
basis.  This  chart  shows  that,  comparing  1919  with  1906,  there  has 
been  an  increase  in  wage  rates  of  about  93  per  cent,  the  most  rapid 
increase  having  occurred  from  1918  to  1919. 

Mr.  WARREN.  Then  follows  a  summary  of  the  awards  of  the  Na- 
tional War  Labor  Board. 

Mr.  WELSH.  That  is,  a  part  of  this  exhibit  and  summary  as  well 
as  the  individual  have  been  prepared.  This  summary  shows  the  num- 
ber of  awards  for  each  of  the  maximum  rates. 

Mr.  WARREX-  It  shows  the  date  of  the  award,  the  scale  granted, 
the  previous  scale,  and  the  per  cent  of  increase ;  does  it  not  ? 

Mr.  WELSH.  In  the  detailed  statement;  yes,  sir. 

Mr.  WAHUEN.  For  each  company  ? 


112     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  I  think  the  commission  will  find  that  fully  bears  out 
Mr.  Welsh's  statement  that  the  increased  wages  are  reflected  in  last 
year's  statements  for  only  a  relatively  small  part  of  the  year. 

Have  you  anything  else  on  that,  Mr.  Welsh  ? 

Mr.  WELSH.  No,  sir. 

The  figures  in  the  tables  accompanying  Chart  C-133  are  as  fol- 
lows : 

Summary  of  awards  affecting  trainmen  granted  by  War  Labor  Board. 


Maximum  rate  per  hour  (cents). 

Number  of 
increases  in 
wage  rates 
awarded. 

Maximum  rate  per  hour  (cents). 

Number  of 
increases  in 
wage  rates 
awarded. 

40                                              

7 

46... 

3 

42                      

18 

46J  

1 

42i 

47... 

3 

43                              

4 

48  

13 

44                                              

i 

50.... 

5 

44  1                                         

1 

54  

1 

45 

26 

65  

1 

Tctal  number  of  awards,  66. 

NOTE.— In  some  of  the  above  cases  several  rates  were  made  in  one  award. 

Maximum  increase,  71.4  per  cent;  minimum  increase,  7.5  per  cent. 

Trainmen's  w-ages. 

(Chart  C-133— Based  on  wages  paid  by  approximately  60  companies  having  over  100  mfes  of  track  each. 
Values  given  show  per  cent  increase  in  wages  for  each  year  over  wages  paid  in  1903,  as  reported  by  com- 
panies to  American  Electric  Railway  Association.) 


Year. 

Rate  per 
hour. 

Per  cent 
increase. 

Year. 

Rate  per 
hour. 

Per  cent 
increase. 

1906 

Cents. 
23.03 

100.00 

1913  

Cents. 
27.74 

120.45 

1907                                      

24.11 

104.69 

1914  

28.14 

122.23 

1908 

24.75 

107.  47 

1915  

28.62 

124.27 

1909                                      ..  . 

24.57 

106.69 

1916  

29.25 

127.01 

1910 

25.  85 

112.24 

1917   

31.57 

137.  08 

1911. 

26.10 

133.  33 

1918... 

33.92 

147.  29 

1912       .                          

26.89 

116.76 

1919  

44.43 

192.92 

NOTE.— The  rate  per  hour  is  the  average  rate  of  all  companies  reporting,  based  on  that  paid  to  men  oldest 
in  the  service. 

Summary  of  awards  of  National  War  Labor  Board. 


Name  of  company. 

rate  of 
award. 

Scale 
granted. 

Previous 
scale. 

Per  cert 
increase. 

Atlanta  Northern  Rv.  Co.,  Atlanta,  Ga  

Dec.     5,  1918 

Cents. 
40 

Cents. 

Auburn  &  Syracuse  Electric  R.  R.  Co.,  Auburn,  N.  Y 

Nov.  21,1918 

C'itv  lines            

42 

31 

35  5 

44 

33 

33  3 

47 

35J 

Bav  State  Street  Ry  Co    Boston  Mass 

Dec.     4,  1918 

45 

40i 

11  1 

Boston  Elevated  Rv  Co    Boston  Mass  

Oct.      2,  1918 

Surface  lines  motormen  and  conductors  

48 

37J 

28.0 

Rapid  Transit  lines  — 

50 

39i 

26  6 

44} 

34 

30.9 

Brakemen            

42i 

30} 

40.5 

Boston  &  Worcester  Street  Ry.  Co.,  Boston,  Mass  

Jan.    15,1919 

47 

39§ 

18.5 

Buffalo  &  Lake  Erie  Traction  Co.  ,  Buffalo,  N.  Y     

Dec.     5,  1918 

45 

33 

36.4 

Butte  Electric  Rv.  Co.,  Butte,  Mont      

Nov.  21,1918 

65 

53} 

22.4 

Charleston  Consolidated  Railwav&  Lighting  Co.,  Charles- 
ton. S.  C... 

Nov.  20,1918 

40 

28 

42.9 

PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     113 
Summary  of  awards  of  National  War  La&or  Board- -Continued. 


Name  of  company. 

Tate  of 
award. 

Scale 
granted. 

Previous 
scale. 

Percent 
increase. 

Chicago  elevated  railways,  Chicago,  111            

July  31,1918 

Cents. 

Cents. 

Motormcn,  regular  

50 

41 

22  0 

Motormen,  extra    

46 

39 

Conductors,  regular  

43 

34 

26.5 

Conductors,  extra  

40 

34 

Guards,  regular  

40 

31 

29.0 

Guards,  extra                        ..            

39 

31 

East  St.  Louis,  Columbia  &  Waterloo  Ry.  Co.,  East  St. 
Louis,  III                                                                       

Nov.  21,1918 

48 

East  St.  Louis  lines  (East  St.  Louis  &  Suburban  Rv., 
Alton,  Granite  &  St.  Louis  Traction  Co.,  and  East  St. 
Louis  Rv.),  East  St.  Louis  and  Alton,  111    

July  31,1918 

City  lines  '  

45 

31 

45.2 

Interurban  lines 

47 

33 

42.4 

Empire  State  Railroad  Corporation  Syracuse,  N.  Y  

Nov.  21,1918 

"City  lines                      r                 "         .  '.  

42 

31J 

33.3 

Interurban  lines  

45 

33i 

34.3 

Evanston  Ry  Co.  Evanston  111                       .           

July  31  1918 

45 

39 

15.4 

Galesburg  Railway,  Light  &  Power  Co.,  Galesburg,  111  
Georgia  Railway  &  Power  Co.,  Atlanta,  Ga  
City  lines           

do  
Dec.     5,1918 

42 
}.. 

23 
/  32" 

61.5 
"~"25."6 

40 

I          34 

17  6 

International  Rv  Co.  Buffalo,  N.  Y  

July  31,1918 

48 

34 

41.2 

Freight  service  — 
Engineers  

50 

33 

Conductors  

49 

35 

Brakemen  

46 

32 

Joplin  &  Pittsburg  Rv.  Co.,  Pittsburg  Kans         .      .  .  . 

July  31  1918 

42 

35 

20.0 

Kansas  City  Rvs.  Co.,  Kansas  City,  Mo  

Oct.   24,1918 

Kansas  division  

) 

/          33 

45.5 

Missouri  division-  

/ 

I          38 

25.3 

Knoxville  Railway  &  Light  Co.,  Knoxville,  Term  

Jan.    15,  1919 

40 

29 

37.9 

Lewiston,  Augusta  &  Waterville  Street  Ry.  Co.,  Lewis- 
ton  Me                           

Nov.  20  1918 

43 

31 

38.7 

Louisville  &  Interurtan  R.  R.  Co.,  Louisville,  Ky  

Feb.    4,  1919 

49 

Louisville  Rv  Co.  Louisville  Ky  

do 

City  lines  

}.. 

f          38 

18.4 

4o 

\          39 

15.4 

Memphis  Street  Rv.  Co.,  Memphis,  Tenn  

Oct.   24,1918 

40 

28 

42.9 

Chicago  surface  lines,  Chicago,  111  

July  31,1918 

48 

39 

23.1 

Chicago  &  West  Towns  Rv.  Co.,  Chicago,  111  

.  ..do  

48 

39 

23.1 

Cincinnati  &  Columbus  Traction  Co.,  Cincinnati,  Ohio  
Cincinnati,  Lawrenceburg  &  Aurora  Electric  Street  R.  R. 
Co.,  Cincinnati,  Ohio  

Nov.  22,1918 
do  

45 
45 

37 
37 

21.6 
21.6 

Cincinnati,  Milford  &  Loveland  Traction  Co.,  Cincinnati, 
Ohio  

do  

42 

32 

31.3 

City  Ry  Co.  Dayton  Ohio  

Oct     24  1918 

45 

33 

32.4 

Cleveland  &  Eastern  Traction  Co.,  Cleveland,  Ohio  

July  31,1918 

42 

35 

20.0 

Cleveland  &  Erie  Ry.  Co.  Girard,  Pa  

Feb.     4  1919 

43 

33 

30.3 

Cleveland,  Painesville  &  Eastern  R.  R.  Co.  and  Cleve- 
land, Painesville  &  Ashtabula  R.  R.  Co.,  Willoughby, 
Ohio    

July   31,1918 

42 

35 

20.0 

Cleveland  Ry.  Co.,  Cleveland,  Ohio  

do  

48 

35 

37.1 

Cleveland,  Southwestern  &  Columbus  Ry.  Co.,  Cleve- 
land. Ohio  

...do... 

42 

32 

31.3 

Columbus  Railway,  Power  &  Light  Co.,  Columbus,  Ohio.. 
Cumberland  County  Power  &  Light  Co.,  Portland,  Me  — 
Dayton  Street  Ry.  Co.,  Davton,  Ohio  

do  
Nov.  20,1918 
Oct     24  1918 

45 

45 

31 
33 

45.2 
36.4 

Day  men  

}.. 

/          34 

32.4 

Night  men  

4.5 

\          33 

Denver  &  Inter-Mountain  R.  R.  Co.,  Denver,  Colo  

Nov.  20,1918 

48 

34 

41.2 

Denver  Tramway  Co.,  Denver,  Colo  

do  

48 

40 

20.0 

Detroit  United  Ry.  Co.,  Detroit,  Mich  

July   31,1918 

48 

40 

20.0 

New  Orleans  Railway  &  Light  Co.,  New  Orleans,  La  
New  York  State  Railways,  Rochester,  N.  Y  

do  
do  

42 

24J 

71.2 

City  lines  

45 

37J 

20.0 

47 

25.4 

Oakwood  Street  Ry.  Co.,  Dayton,  Ohio  
Day  men  

Oct.    24,1918 

1         "AH 

/  34" 

"*32."4 

}            45 

\          33 

Ohio  Electric  Ry.  Co.  Lima  Ohio    .. 

Jan.    15,  1919 

Lima  city  lines.  .  .'.  '.  

42 

33 

27.3 

Jan.    15,1919 

45 

40 

12.5 

do  

City  lines         

42 

33 

27.3 

Inter  urban  lines... 

45 

40 

12.5 

114     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 
Summary  of  awards  of  Natiotuil  War  Labor  Board — Continued. 


Name  of  company. 

rate  of 
award. 

Scale 
granted. 

Previous 
scale. 

Per  cent 
increase. 

Ohio  Electric  Railway  Co.,  Springfield  interurban  lines, 
Springfield,  Ohio 

Jan.    15,  1919 
...do... 

Cents. 
45 

42 
45 
42 
46 
42 

42 
45 
45 

50 

Cents. 
40 

33 
40 
31 
34 

12.5 

27.3 
12.5 
35.  5 
35.3 

Ohio  Electric  Railway  Co.,  Zanesville  lines,  Zanesville, 
Ohio  

Omaha  &  Council  Bluffs  Street  Ry.  Co.,  Omaha,  Nebr  
Ottumwa  Railway  &  Light  Co  

July   31,1918 
Dec.     5,  1918 
Apr.   10,1919 
July   31,1918 

...do... 

Pacific  Gas  &  Electric  Co.,  Sacramento,  Calif       

Pennsylvania-New  Jersey  Ry.  Co.,  Trenton,  N.  J  

Peoples  Ry.  Co.,  Pennsylvania-New  Jersey  Ry.  Co.,  Tren- 
ton. N.  J         

Peoples  Ry  Co  ,  Dayton,  Ohio               

Oct.  124,1918 
do  

32 
37 

45 

40.6 
21.6 

11.1 

Philadelphia  Railways  Co.,  Philadelphia,  Pa  

Portland  Railway,  Light  &  Power  Co.,  Portland,  Oreg.: 
City  lines  .-  

...do 

Interurban  I  ines  

Nov.  21,1918 

Passenger  trainmen  ,  

54 

56 
60 
47 
59 
60 
45 
50 
43 
48 
42 
45 

48} 

11.3 

Freight  trainmen  — 
Express,  local  freight,  and  day  yard  crews  

Night  yard  crews  

Passenger  and  freight  brakemen  

Day  yard  crews  .       .             

Night  yard  crews  

Public  Service  Ry.  Co.,  Newark,  N.  J  

July   31,1918 
June  25,1919 
Feb.     4,  1919 
Oct.     2,1918 
Feb.     4,  1919 
Apr.  10,1919 
do  

40 
45 
40 
37 
32 
38 

12.5 
11.1 
7.5 
39.7 
31.3 
18.4 

One-man  car  operators  .  .        ...              .  . 

Reading  Transit  &  Light  Co.,  Reading,  Pa  

Rhode  Island  Co..  Providence,  R.  I  

St.  Joseph  Ry  Light  &  Power  Co.,  St.  Joseph,  Mo.  . 

San  Diego  Electric  Ry.  Co  ,  San  Diego,  Calif:  .  . 

San  Francisco-  Oakland  Terminal  Rys.,  Oakland,  Calif.  .  . 

City  lines  

48 
'50 

48 
42 

42 
45 

14.3 
11.1 

Interurban  lines  

Brakemen  

Savannah  Electric  Co.,  Savannah,  Ga  

Dec.   17,1918 
July   31,1918 

30 

40.0 

Schenectady  Ry.  Co.,  Schenectady,  N.  Y  

City  lines.  

45 

46J 
45 
45 
42 

37J 
39 
32 

20.0 
19.2 
40.6 

Interurban  lines  

Scranton  Railway  Co.,  Scranton,  Pa  

July   31,1918 
Nov.  21,  1918 
....do  

Syracuse  &  Northern  Electric  Ry.,  Syracuse,  N.  Y  

Syracuse  &  Suburban  R  .  R  .  Co.  ,  Syracuse  N.  Y  

32} 

29.2 

Toledo,  Bowling  Green  &  Southern  Traction  Co.,  Findlay, 
Ohio.                

Dec.     5,  1918 

City  lines  

42 
43 

46 
40 

48 

32 
33 

38 
36} 
34 

31.2 
30.2 
21.1 
9.6 
23.1 

Interurban  lines  . 

Toledo  Railways  &  Light  Co.  Toledo,  Ohio 

May   27,1919 
July   31,1918 
Mar.  25,1919 

United  Traction  Co  ,  Albany,  N.  Y  

Washington  Ry.  &  Electric  Co.,  Washington,  D.  C  

Mr.  WARREN.  If  the  commission  does  not  wish  to  ask  anything,  I 
will  pass  to  the  next  chart,  which  is  marked  for  identification, 
"  C-136,  cost  of  material." 

Commissioner  WEHLE.  Would  it  not  be  useful  in  connection  with 
this  statement  to  have  a  list  of  the  60  companies  ? 

Mr.  WARREN.  I  think  we  could  furnish  that. 

Mr.  WELSH.  Yes;  I  could  furnish  that. 

Commissioner  WEHLE.  You  might  make  a  note  of  it. 

Mr.  WARREN.  Now,  Mr.  Welsh,  this  chart  which  is  marked  "  cost 
of  materials,"  indicates  what,  with  its  accompanying  table? 

Mr.  WELSH.  This  chart  shows  the  cost  of  materials  for  each  of 
the  census  years.  That  is  not  shown  as  a  direct  item  in  the  census 
reports,  but  has  been  estimated  on  the  following  basis :  We  have  de- 
ducted the  annual  expenses  from  the  total  operating  expense  cover- 
ing the  cost  of  labor,  the  purchase  of  power,  insurance,  and  other  mis- 
cellaneous items  which  are  found  by  analysis  not  to  contain  cost  of 
materials.  In  this  way  the  estimated  amounts  have  been  determined 
and  plotted. 

Commissioner  MEEKER.  Will  you  restate  that,  please? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     115 

Mr.  WELSH.  I  will  state  this:  That  on  the  second  table  the  exact 
method  of  determining  this  estimated  amount  for  material  is  shown. 
It  consists  in  deducting  from  the  total  operating  expense  the  cost 
of  labor  as  shown  by  salaries  and  wages,  purchased  power,  injuries, 
and  damages,  and  certain  other  miscellaneous  items  as  indicated, 
leaving  what  is  believed  to  be  a  net  result  containing  as  nearly  as 
possible  the  cost  of  material, 

Mr.  WARREN.  In  other  words,  you  have  endeavored  to  take  out  of 
your  operating  expense  everything  of  any  other  nature  than  ma- 
terials and  supplies? 

Mr.  WELSH.  Exactly. 

Mr.  WARREN.  And  assuming  that  you  have  done  that  correctly, 
what  is  the  result  shown  ? 

Mr,  WELSH,  One  interesting  feature  is  the  falling  off  in  the  per- 
centage between  1907  and  1912  in  the  <x>st  of  materials,  as  compared 
with  the  total  cost.  This  is  probably  due  to  the  increased  purchase 
of  power  during  that  same  period  as  the  result  of  which  the  cost  of 
coal,  wliich  previously  had  been  included  as  a  material  expense,  is  no 
longer  present.  This  chart  shows  that  at  the  present  time  about  23 
per  cent  of  the  operating  expense  is  material. 

Mr.  WARREN.  Where  does  the  cost  of  power  purchased  enter  in 
the  operating  expense,  Mr.  Welsh  ? 

Mr.  WELSH.  It  is  a  part  o2  the  total  item  of  cost  of  power. 

Mr,  WARREN.  But  it  is  itemized  so  it  can  be  segregated? 

Mr.  WELSH.  Oh,  yes ;  it  is  segregated  in  the  census  report. 

Mr.  WARREN.  You  have  not  the  cost  of  material  for  1918,  hare  you  ? 

Mr.  WELSH.  No,  sir;  we  did  not  have  sufficient  data  to  make  an 
estimate. 

Mr,  WARREN.  It  might  interest  the  commission,  if  I  may  refer,  not 
as  a  witness,  but  to  something  within  my  own  experience  in  a  recent 
rate  case  in  Massachusetts  on  this  cost  of  material.  I  asked  the 
company  which  I  represented  to  take  their  material  and  supply 
quantities  for  last  year,  1918,  the  actual  quantities  of  various  sup- 
plies which  they  used,  with  the  cost  of  them,  and  to  apply  to  those 
quantities  the  prices  prevailing  in  1914  and  then  to  take  the  per  cent 
of  the  increase.  They  gave  me  a  schedule  which  was  introduced  in 
the  case  and  which  was  not,  as  I  recall  it,  controverted  by  anybody, 
and  if  it  was  correct  it  indicated  an  increased  cost  of  the  materials 
actually  used  by  that  company  in  1918  over  what  they  would  have 
cost  in  1914  of  105  per  cent.  And  as  far  as  I  was  able  to  ascertain, 
it  was  accurate ;  at  any  rate,  it  indicated  a  very  large  increase.  And 
I  think,  as  I  recall  it,  the  commission  in  its  decision  adopted  that 
figure  and  referred  to  it. 

Is  there  anything  else  on  that  chart? 

Mr.  WELSH.  I  think  not. 


116     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  statement  accompanying  Chart  136  is  as  follows : 

Cost  of  materials. 
(Chart  136. — Based  on  U.  S.  census  reports.) 


Cost  of  material  and 
supplies. 

Ratio  of  cost  of 
material   and 
supplies       to 
operating  ex- 
pense. 

Per  cent  increase 
In  cost  of  ma- 
terials and  sup- 
plies over  prior 
census. 

1917                  

$101,613,415 

Per  cent. 
23.12 

38  9 

1912           

75,271,556 

22.61 

13.3 

1907                         

67,025,418 

26.67 

72  7 

1S02                            

38  811  232 

27.28 

NOTE.— Above  information  collected  from  census  figures  as  follows: 

1.  Operating  expense  figures  from  Table  2, 1917,  and  Table  5, 1912. 

2.  Cost  of  materials  and  supplies  considered  as  that  portion  of  the  operating  expense  remaining  after 
deduction  of  following  items: 

(a)  Salaries  and  wages:  Table  2, 1917,  and  Table  5, 1912. 

(ft)  Purchased  power:  Table  104,  1912,  and  advance  sheet  for  1917  corresponding  to  Table  163  for  1912. 
Figure  used  for  1917  is  difference  between  "Power  purchased  and  exchanged"  and  credit  entry  for  same 
item.  This  apparently  taken  into  account  for  other  years  in  Table  104  in  1912  book. 

(c)  Insurance:  Same  source  as  item  6. 

(d)  Injuries  and  damages:  Same  source  as  item  6 — used  three-quarters  of  amounts  given  as  representing 
other  items  than  materials  and  supplies. 

(e)  Total  rents:  Same  source  as  item  b  except  year  1902  where  for  "rent  of  equipment"  (which  was  not 
reported  separately)  0.288  per  cent  of  total  operating  expense  was  used  which  was  percentage  for  1907  given 
in  1912  book.     (1907  book  figures  differ.) 

(/)  Stationery  and  printing:  Table  104;  1912,  except  for  year  1917  where  this  item  was  probably  included 
In  general  expenses  under  general  and  miscellaneous.  Therefore  estimated  for  1917  as  2  per  cent"  of  general 
and  miscellaneous  which  was  percentage  for  all  other  years. 

(a)  Depreciation  of  ways  and  structures:  Same  as  item  b  except  no  data  for  1907  or  1902. 

(A)  Depreciation  of  equipment:  Same  as  item  c  except  no  data  for  1907  or  1902. 

Detailed  figures  showing  total  reductions  for  obtaining  cost  of  materials  and 

supplies. 


'        ' 

Railway 
operating 
expense. 

Total 
deductions. 

Cost  of 
materials  and 
supplies. 

Salaries 
and 
wages. 

Purchased 
power. 

Insurance. 

1917  

$452,594,654 
332,896,356 
251,309,252 
142,312,597 

$347,981,239 
257,621,800 
184,283,834 
103,501,364 

$104,613,415 
75,  271,  556 
67,025,418 
38,811,232 

$267,240,362 
200,890.939 
150,99i;099 
88,210,165 

»  $37,  757,  963 
24,696,647 
12,342,258 
3,871,518 

$3,101,407 
3,151,576 
3,137,071 
2,080,875 

1912          

1907     

1902  

Injuries  and 
damages  (three- 
quarters  of  total). 

Total  rents 
(tracks,  facili- 
ties and 
equipment). 

Stationery 
and  printing. 

Depreciation 
of  ways  and 
structures. 

Depreciation 
of  equipment. 

1917                      .... 

$17,  807,  473 
17,530,970 
13,  632,  229 
7,046,659 

$7,152,823 
4,  873,  359 
3,342,615 
i  1,  795,  766 

»  $1,284,  000 
1,105,422 
838,562 
496,381 

$6,800,348 
3,705,511 

$8.836,863 
3,670,376 

1912         

1907  

1902         

1  See  notes  for  each  respective  item  on  sheet  accompanying  this. 

Mr.  WARREN.  The  next  exhibit  which  we  wish  to  introduce,  Mr. 
Chairman,  but  of  which  we  have  not  the  extra  copies  at  the  moment 
to  supply  the  members  of  the  commission,  I  will  read  into  the  record. 
It  is  the  United  States  Department  of  Labor,  Bureau  of  Labor  Sta- 
tistics, Monthly  Labor  Review,  volume  8,  No.  6,  page  97,  which  I 
imagine  is  fairly  familiar  to  one  member  of  your  commission,  be- 
cause I  notice  his  name  on  it  as  the  commissioner  under  whose  direc- 
tion it  was  prepared.  This  table  on  page  97  shows  wholesale  prices 
in  the  United  States  and  certain  foreign  countries,  and  the  Bureau 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     117 


of  Labor  Statistics  treating  294  commodities  showed  for  March, 
1919,  the  figure  200.  That  I  should  like  to  consider  as  in  the  case, 
and  we  will  endeavor  to  get  copies  of  that  publication  for  all  the 
members  of  the  commission. 

Mr.  Pardee  suggests  that  probably  the  commission  will  take  judi- 
cial notice  of  that  publication  anyway,  in  view  of  the  circumstances 
of  its  editorship. 

Now  the  next  chart,  please.  The  next  chart  relates  to  the  taxes  and 
is  marked  for  identification  "  C-122." 

Mr. WELSH.  This  chart  shows  the  total  amount  of  direct  taxes  for 
each  of  the  census  years  and  also  the  percentage  of  operating  ex- 
pense which  I  believe  is  in  answer  to  one  of  the  previous  inquiries. 
The  percentage  of  operating  expense  has  run  in  the  neighborhood  of 
10  per  cent,  fluctuating  somewhat  from  this  figure  with  a  very  slight 
decrease  in  1918  as  compared  with  1917.  This  may  be  accounted 
for  by  the  fact  that  while  the  taxes  in  amount  have  actually  in- 
creased in  1918  over  1917,  the  total  operating  expense  has  increased 
in  so  much  greater  proportion  that  the  percentage  of  taxes  com- 
pared to  the  total  operating  expense  is  somewhat  less  that  year.  We 
also  show  a  segregation  of  the  total  taxes  between  the  tax  on  earn- 
ings and  capital  and  the  tax  on  real  and  personal  property.  This 
is  as  shown  in  the  census  report. 

Mr.  WARREN.  And  as  it  appears  in  the  statement  annexed,  in  five 
years  from  1912  to  1917,  total  direct  taxes  went  up  from  about 
$35,000,000  to  $45,756,000? 

Mr.  WELSH.  Yes. 

Mr.  WARREX.  And  you  have  estimated  them  for  1918  at  $49,- 
496,000  ? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREX.  They  have  gone  up  from  $35,000,000  in  1912  to  $45,- 
750,000  in  1917  and  to  about  $49,500,000  in  1918  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREX.  Does  that  total  take  in  any  of  the  indirect  taxes  or 
burdens  in  the  nature  of  paving,  repairing  bridges,  and  that  sort  of 
thing? 

Mr.  WELSH.  It  does  not.     That  is  shown  on  a  later  table. 

Mr.  WARREX.  These  are  money  payments  paid  directly  as  taxes? 

Mr.  WELSH.  These  are  moneys  paid  to  the  Federal,  State,  and 
municipal  governments. 

Mr.  WARREX.  Was  there  anything  else  on  that  statement  ? 

Mr.  WELSH.  No. 

The  statement  accompanying  Chart  No.  122  is  as  follows : 

Taxes  of  electric  railways. 
(Chart  No.  122— based  on  U  8.  census  reports.) 


Item. 

1902 

1907 

1912 

1917 

1918 

Taxes(total)  

$13,078,899 

$19,775,602 

$35,027,966 

$45  756  695 

$491  496 

On  real  and  personal  property  

5,  835,  542 

9,464,016 

15,65S,239 

21,S04,619 

On  earnings,  capital  and  other  

7,243,357 

10,310,986 

19,389,7% 

23,952,076 

Perceft  t  of  operating  expenses  

9.19 

7.87 

10.55 

10.11 

9.93 

D  3.  census  Table  113,  p.  254, 1912. 


118     PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  WEHLE.  How  much  of  the  increase  in  taxes  is  trace- 
able to  higher  valuations  and  how  much  to  additional  capital  in- 
vestment ? 

Mr.  WELSH.  It  would  appear  from  the  chart  as  half — roughly  they 
are  about  half  and  half. 

Mr.  WARREN.  That  really  would  not  be  so,  would  it,  Mr.  Welsh  ? 
You  have  segregated  it  into  real  and  personal  property  and  there 
the  increase  for  1912  to  1917  is  from  $15,658,000  to  $21,804,000.  Do 
you  think  that  in  those  five  years  the  companies  added  enough  prop- 
erty to  represent  such  an  increase  as  that  ?  I  know  in  Massachusetts 
they  did  not,  because  they  could  not  get  the  money  to  do  it. 

Mr.  WELSH.  That  rate  of  increase  is  apparently  higher  even  than 
in  the  case  of  the  tax  on  earnings,  where  the  increase  was  from 
$19,000,000  to  $24,000,000. 

Mr.  WARREN.  Is  not  this  probably  the  explanation,  that  the  rate 
of  taxes  has  gone  up  in  nearly  all  the  communities? 

Mr.  WELSH.  I  think  that  is  undoubtedly  true. 

Mr.  WARREN.  On  real  and  personal  property  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  It  has  in  Boston.  In  Boston  the  city  has  had  to  go 
to  the  legislature  both  last  year  and  this  year  to  get  the  tax  limit 
which  is  permissible  under  the  statute  raised,  so  that  they  could 
assess  a  higher  percentage  on  property.  The  taxes  have  increased 
very  much  there. 

Commissioner  WEHLE.  Of  course  the  increase  in  rate  of  tax  cer- 
tainly would  account  for  part  of  this  increase  in  the  total  amount  of 
taxes  paid,  but  would  it  not  perhaps  render  this  statement  more  val- 
uable if  we  also  had  accompanying  it  a  statement  of  the  additional 
capital  that  had  been  invested  ? 

Mr.  WARREN.  During  that  period  ? 

Commissioner  WEHLE.  During  that  period,  and  some  estimates  per- 
haps, if  it  could  not  be  had  in  a  better  way  than  an  estimate,  of  the 
increased  valuation  of  the  property  which  is  being  taxed.  It  seems 
to  me  that  the  total  of  the  tax  itself  is  not  of  great  service  to  us  unless 
it  is  analyzed  in  some  such  way. 

Mr.  WARREN.  Yes,  I  think  that  suggestion  is  a  good  one  and  we 
will  try — Mr.  Welsh  thinks  he  can  furnish  it  and  we  will  endeavor 
to  do  so. 

Now  the  tax  on  earnings,  capital  and  other  items,  Mr.  Welsh,  be- 
tween 1912  and  1917.  I  suppose  the  Federal  tax  is  reflected  in  there 
almost  entirely,  is  it  not? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  1  think  that  the  commission  would  find — and  if  we 
can  get  the  information  we  shall  furnish  it — that  the  local  taxes  or 
the  State  taxes  on  capital  and  earnings  have  diminished  in  that  five- 
year  period.  I  happen  to  know  that  is  true  in  Massachusetts,  where 
our  taxation  on  capital  is  largely  a  franchise  tax.  It  is  based  on  the 
market  value  of  the  stock  in  the  aggregate  from  which  is  deducted 
the  aggregate  amount  of  real  and  personal  property  taxed  in  the  dif- 
ferent communities.  The  balance  is  taxed  at  the  State  rate  and  paid 
through  the  State  tax  authorities.  Now  in  those  five  years  the  securi- 
ties or  stock  of  the  street  railways  has  depreciated  to  such  an  extent 
that  in  almost  no  case,  I  think  probably  not  in  any  case  whatever  ex- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     119 

cept  some  leased  roads,  is  there  any  market  value  left  to  the  stock  suffi- 
cient to  produce  any  margin  between  the  aggregate  market  value  of 
the  stock  and  the  property  taxed  locally;  and  various  companies 
which  five  years  ago  paid  a  large  franchise  tax  to-day  are  bearing  no 
franchise  tax  because  it  is  based  on  that  market  value  of  the  stock, 
and  the  market  value  has  dropped  to  such  an  extent  that  stocks  which 
five  years  ago  were  sold  in  the  market  at  $100  or  $125  and  in  some 
cases  $150  to-day  are  selling  at  anywhere  from  $20  to  $72  a  share ;  and 
of  course  that  drop  has  wiped  out  the  franchise  tax ;  but  in  the  mean- 
time the  Federal  tax  has  come  in  at  an  increased  rate. 

If  that  is  all  on  that  chart,  we  will  pass  to  the  one  marked  for 
identification,  "  C-132," 

That  last  chart  was  based  on  the  census,  was  it  not  ? 

Mr.  WELSH,  Yes,  sir, 

Mr.  WARREN.  With  the  exception  of  the  last  year,  1918  ? 

Mr.  WELSH.  Yes, 

Mr.  WARREN.  And  that  was  estimated  as  you  have  explained  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  This  chart  is  not  based  on  the  census,  is  it? 

Mr.  WELSH.  To  some  extent;  it  is  based  partly  on  the  census  and 
partly  in  response  to  an  inquiry  sent  out  to  all  companies  to  obtain 
the  cost  of  their  paving  and  other  imposts,  such  as  free  transportation 
of  employees,  cleaning  and  sprinkling  of  streets,  removal  of  snow 
and  ice  and  various  other  items — 

Mr.  WARREN.  Strengthening  bridges? 

Mr.  WELSH.  Strengthening  bridges. 

.Mr.  WARREN.  And  rebuilding  bridges  and  eliminating  crossings? 

Mr.  WELSH.  And  tolls  over  bridges  that  are  free  to  the  general 
public  and  other  imposts  of  a  general  character  that  are  imposed  upon 
electric  railways. 

Mr.  WARREN.  When  you  say  free  transportation  of  employees  you 
moan  of  public  employees? 

Mr.  WELSH.  Or  municipal  emplo3<ees.  This  questionnaire  covered 
the  period  from  1912  to  1916,  that  period  having  been  chosen  be- 
cause it  was  believed  to  be  more  typical  than  the  present  time  as 
representing  a  more  normal  situation  before  the  war.  The  result  of 
that  is  shown  in  this  curve  next  to  the  bottom  which  represents  the 
total  amount  of  these  various  imposts  in  dollars,  from  which  it  is 
seen  that  during  the  maximum  period  in  1914  they  amounted  to 
about  $22.000,000  or  about  3£  per  cent  of  the  gross  earnings. 

Since  1914  there  has  been  a  falling  off  in  these  expenditures  con- 
tinuously resulting  because  of  decreased  work  of  this  public  charac- 
ter since  the  war  started. 

This  chart  also  shows  the  direct  taxes  plotted  on  the  previous  chart 
and.  in  this  case,  the  percentage  of  direct  taxes  to  the  gross  earnings. 
From  this  chart  it  appears  that  the  total  imposts  and  taxes  amount 
to  about  10  per  cent;  6£  per  cent  for  the  direct  taxes  and  about  3^  per 
cent  for  the  indirect. 

Commissioner  BEALL.  Would  it  not  be  well  to  bring  out  before  the 
commission  the  fact  that  while  that  is  the  average  of  the  companies, 
in  the  bigger  cities  it  is  very  much  more  than  that?  That  is  one  of 
the  principal  troubles  of  the  large  companies — the  paving  and  other 
taxes  which  are  imposed,  which  are  very  much  greater  than  in  the 
smaller  communities.  And  I  want  to  ask  you,  does  it  not  run  up  as 


120     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION, 

high  as  10  and  15  per  cent  of  the  gross  in  some  of  the  larger  com- 
panies in  the  big  cities? 

Mr.  WELSH.  I  think  in  some  of  the  larger  companies  that  will  be 
found  to  be  the  case. 

Commissioner  BEALL.  The  reason  I  want  to  make  that  statement 
is  so  the  commission  will  understand  in  some  of  the  small  companies 
the  paving  is  not  such  a  problem  but  in  the  big  companies  it  is  one 
of  the  principal  things  which  has  contributed  to  their  present  con- 
dition. 

Mr.  WELSH.  That  is  true,  and  of  course  another  thing  which  might 
be  properly  charged  here  is  the  return  on  additional  construction 
which  is  not  contained  here,  this  being  in  every  case  the  actual 
expenditures  of  the  companies.  Of  course,  you  will  understand  these 
items  are  included  in  operating  expense.  This  is  the  only  additional 
item  from  operating  expense. 

.  Commissioner  MEEKER.  Would  it  be  possible  to  submit  tables  show- 
ing the  paving  costs  and  these  other  imposts  in  railway  companies 
operating  in  large  urban  communities? 

Commissioner  BEALL.  I  believe  that  is  very  advisable,  Mr.  Welsh. 
Take  cities  of  say  100,000  and  up. 

Mr.  WELSH.  I  may  say  that  this  is  based  upon  replies  from,  I  be- 
lieve, 214  companies. 

Commissioner  BEALL.  Well,  a  great  many  of  those  companies  are 
interurban,  are  they  not?  They  have  practically  no  paving  at  all 
unless  they  also  have  an  urban  system. 

Mr.  WELSH.  Undoubtedly 

Commissioner  BEALL.  But  a  great  many  of  those  companies  come 
into  big  centers  over  another  company's  lines. 

Mr.  WELSH.  Yes.    We  can  prepare  that,  can  we  not? 

Mr.  WARREN.  I  think  we  can  prepare  that. 

Commissioner  GADSDEN.  Make  a  table  of  certain  typical  companies 
in  certain  cities. 

Mr.  WELSH.  Yes. 

Commissioner  BEALL.  In  making  up  this  chart  on  the  cost  of  pav- 
ing has  there  been  any  attempt  made  to  separate  the  cost  of  comply- 
ing with  the  requirements  of  the  contract  with  the  city  as  to  the  gen- 
eral street  improvement  from  the  cost  of  actually  maintaining  the 
structure  and  right  of  way  in  ways  that  the  railroad  company  would 
have  to  adopt  even  in  the  absence  of  any  such  agreement  ? 

Mr.  WARREN.  I  understand  that  this  inquiry  was  confined  to  the 
paving  cost  which  was  not  incident  to  the  maintenance  of  the  rail- 
way. Is  not  that  so,  Mr.  Welsh  ? 

Mr.  WELSH.  That  is  true,  and  we  should  and  can  submit  the  form 
of  questionnaire  which  will  show  in  detail  just  the  items  included  in 
this  total  cost  of  the  various  imposts. 

Commissioner  WEHLE.  Then  this  curve  on  Chart  132  entitled 
"  Paving  and  other  imposts,"  in  so  far  as  it  relates  to  paving, 
is  based  upon  estimates  in  which  the  cost  of  complying  with  that 
part  of  street  construction  which  has  no  reference  to  the  actual  main- 
tenance of  the  railroad  is  separated  from  such  part  of  the  cost  of 
street  construction  and  repair  as  has  reference  to  it  and  as  would 
necessarily  have  to  be  incurred  by  the  road  in  any  event  as  an  operat- 
ing proposition? 

Mr.  WARREN.  I  think  that  is  true  in  the  questionnaire. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.     121 

Commissioner  WEHLE.  I  wonder  whether — in  connection  with  that 
chart,  C-132 — if  it  is  convenient,  the  form  of  that  questionnaire 
could  be  filed  ? 

Mr.  WARREN-  Yes;  we  can  file  it. 

Commissioner  BEALL.  Why  not  read  it  right  now? 

Mr.  WARREN.  While  Mr.  Welsh  is  looking  for  that  I  might  say 
that  this  item  properly  is  a  good  deal  larger  than  it  is  shown  here,  at 
least  as  indicated  by  one  of  the  commissioner's  questions. 

Commissioner  BEALL.  Yes ;  I  know  one  company  that  spent  $4,000,- 
000  in  one  year. 

Mr.  WARREN.  Yes;  you  see  this  includes  a  large  number  of  roads, 
some  of  them  interurban  lines  and  some  rural  roads  where  the  track 
is  not  laid  on  the  highway  but  out  on  the  side  in  the  grass  and  there 
is  no  paving  cost  whatever,  but  yet  the  paving  cost  averaged  over  all 
those  roads  amounts  to  this  amount. 

In  Massachusetts  we  have  a  tax  which  runs  approximately  2^  per 
cent  of  the  gross  receipts  which  is  called,  or  miscalled,  a  commutation 
tax.  It  is  levied  as  an  intended  substitute  for  this  highway  work 
not  incidental  to  taking  care  of  the  track  but  because  of  the  former 
imposition  or  requirement  of  the  law.  In  addition  to  that,  however, 
many  of  the  companies  have  spent  a  great  many  thousands  of  dol- 
lars a  year  on  this  very  same  kind  of  work,  because  the  local  authori- 
ties have  met  a  request  for  a  new  turn-out  or  for  a  shifting  of  tracks 
or  for  some  other  concession  which  the  company  wanted  for  better 
service,  with  a  suggestion  that  they  would  grant  it  if  the  company 
would  pave  a  certain  piece  of  track  or  change  the  pavement  to  con- 
form to  something  that  the  city  had  been  putting  in.  So  there  is  no 
doubt  that  this  item — in  my  judgment — is  very  much  below  the  actual 
fact.  And  of  course,  as  Mr.  Welsh  said — and  you  will  correct  me  if 
this  is  not  right,  Mr.  Welsh — this  is  merely  the  annual  expenditure  on 
paving  from  year  to  year  and  does  not  include  the  paving  connected 
with  the  construction  of  track  at  all,  does  it? 

Mr.  WELSH.  As  indicated  here;  yes,  sir. 

Mr.  WARREN.  On  the  cost  of  which  the  company,  of  course,  is  pay- 
ing interest.  Years  ago  in  Boston  it  used  to  cost  about  $7,000  a  mile 
for  block  paving  the  track.  I  presume  now  it  costs  much  more.  That 
went  into  the  capital  and  is  one  of  the  reasons  why  the  capital  cost 
of  street  railways  is  so  high  as  compared  with  other  railroads. 

This  is  the  questionnaire  that  was  sent  out:  In  State  taxes — first 
the  kind,  then  the  basis,  then  the  cost  for  the  five  fiscal  years,  1912  to 
1916,  inclusive,  and  the  total.  City  taxes — franchise,  school,  gross  re- 
ceipts, car,  pole,  wire,  real  property,  cars  for  each  year,  and  the  total. 
Federal  taxes — left  blank  in  the  first  column.  Apparently  they 
thought  it  was  not  safe  to  specify,  because  they  could  not  tell  what 
they  would  be  from  day  to  day. 

Other  State,  county,  or  municipal  requirements — paving;  please 
check  extent  of  requirement;  construction  cost  between  tracks  only; 
blank  feet  outside  tracks,  full  width  of  street;  maintenance  cost; 
maintenance  cost  is  against  those  last  three  items;  cleaning  streets; 
sprinkling;  snow  and  ice  removal  from  surface  other  than  between 
tracks — in  other  words,  the  company  takes  that  as  part  of  its  oper- 
ating expenses— -clearing  its  own  tracks — free  municipal  lighting; 
free  transportation,  State,  municipal,  or  Federal  employees;  bridge 
or  viaduct  tolls  or  repairs,  free  to  others;  special  crossing  policemen  j 

160643°— 20 9 


122     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 


gross  earnings,  railway  operation  only ;  operating  expenses,  excluding 
taxes;  total  car-miles  operated.  If  company  is  subject  to  any  tax  or 
requirement  not  listed  above,  plea.se  indicate  below  in  detail. 

I  will  ask  to  have  this  marked  "  Filed." 

(The  paper  was  marked  "  Filed.") 

Mr.  WARREN.  Have  you  extra  copies  of  this? 

Mr.  WELSH.  We  can  very  readily  get  them.  I  do  not  think  we 
have  enough  this  afternoon, 

Mr.  WARREN.  I  will  leave  this  one  now  before  the  Commission  and 
we  will  furnish  the  others  as  soon  as  we  can  obtain  them. 

Is  there  anything  else  that  ought  to  be  called  to  the  attention  of 
the  board  on  that  chart?  , 

Mr.  WELSH.  I  do  not  think  so. 

The  statement  accompanying  Chart  C-132  is  as  follows: 

Paring  and  "  other  imposts  "  and  taxes  for  all  electric  railways  of  the  United 

States. 

(Chart  C-132— Based  on  replies  from  214  companies  (D.  S.  182)  and  census  reports.) 


1912 

1013 

1914 

1915 

Taxes  

JM,  027,  965 
15,068,414 

$38,780,938 
21,372,414 

$41,139,955 
21,536,481 

$40,761,586 
20,442,519 

Paving  and  otherimposts  

Total  

40,086,379 
585,930,517 
5.98 

2.57 

60,153,352 
640,857,949 
6.05 

3.33 

62,676,436 
647,350,574 
6.36 

3.32 

61,204,105 
636,719,681 
6.40 

3.21 

G  ross  earnings.  ..                   

Taxes  of  per  cent  of  gross  earnings  

Paving  and  other  imposts,  per  cent  of  gross 
earnings.  . 

1916 

1917 

1918 

Taxes  

$43,  633,  934 
18,472,989 

$45,  756,  695 
17,522,593 

$49,496,334 
16,065,000 

Paving  and  other  imposts  ..  .  ... 

Total  

62,106,923 
688,968,612 
6.35 
2.68 

63,  279,  288 
730,108,040 
6.27 
2.40 

65,5(51,334 
765,000,000 
6.47 
2.10 

Gross  earnings.  .         .         

Taxesof  percent  of  gross  earnings  -.  

Paving  and  other  imposts,  per  cent  of  gross  earn 

ings 

Mr.  WARREN.  You  spoke  of  the  amount  of  this  paving  and  other 
imposts  falling  off  because  of  the  diminution  in  the  amount  of  public 
work  being  done.  You  mean  owing  to  the  war  the  municipalities 
themselves  have  been  doing  less  work  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  And  it  is  usually  in  connection  with  their  public 
work  that  this  requirement  increases? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Now,  if  you  will,  pass  to  the  next  chart. 

The  CHAIRMAN.  Will  you  follow  this  with  someone  who  will  tes- 
tify more  specifically  with  regard  to  the  different  forms  of  taxation 
and  the  cost  of  it  and  the  effect  it  has  on  the  stability  of  the  industry  ? 

Mr.  WARREN.  The  different  forms  more  specifically? 

The  CHAIRMAN.  Yes. 

Mr.  WARREN.  Yes,  we  hope  to  call  an  expert  of  pretty  wide  reputa- 
tion on  that  subject.  I  might  say  we  are  trying  to  get  these  statistics 
before  the  commission  as  a  basis  upon  which  we  can  call  the  experts 
for  the  various  specific  points  like  that. 

Now  the  next  chart,  Mr.  Welsh,  is  marked  "  C-138."  This  chart  is 
marked  "  Economies  in  Operation."  What  does  that  show  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     123 


Mr.  WELSH.  We  have  taken  three  measures  of  general  economies 
in  operation,  the  first  being  the  revenue  passengers  per  passenger  car 
based  upon  the  United  States  census  reports. 

There  has  been  a  very  remarkable  increase  in  this  from  the  year 
1902  to  1912.  That  represents  probably  a  number  of  different  things. 
The  thing  that  first  occurs  to  you  is  a  greater  crowd  in  the  cars.  Un- 
doubtedly to  some  extent  that  has  taken  place.  The  size  of  the  car 
body  has  also  increased  during  this  period,  making  a  larger  unit  in 
which  passengers  are  handled.  To  some  extent  there  has  undoubt- 
edlj"  been  an  increase  in  traffic  at  other  times  during  the  day  to  take 
care  of  this,  so  that  it  represents  in  general  an  increased  use  of  the 
plant  and  equipment  of  electric-railway  properties  and  therefore  is  in 
the  nature  of  an  economy. 

This  is  further  illustrated  in  a  different  way  in  the  bottom  curve, 
which  represents  the  service  performed  by  each  car  and  shows  the 
revenue  car-miles  per  passenger  car  increasing  at  an  approximately 
uniform  rate  from  the  earliest  period  to  1917.  This  in  some  measure 
may  be  accounted  for  by  fitting  the  service  more  accurately  to  the 
traffic.  This  would  be  represented  by  an  improvement  in  car  sched- 
ules so  that  each  car  is  able  to  perform  more  effectively  its  service. 
The  introduction  of  such  plans  as  turn-back  service  would  result  in 
a  greater  car  mileage  per  car,  for  example.  And  therefore  this,  we 
believe,  is  indicative  of  an  improvement  in  operating  management 
throughout  this  period. 

The  middle  curve,  representing  the  revenue  car-miles  per  mile  of 
track,  is  possibly  a  measure  of  the  density  of  traffic  and  may  to  some 
extent  show  the  result  of  extensions  in  outer  districts  that  have  oc- 
curred during  this  middle  period  here,  over  which  portions  of  track 
the  density  of  service  is,  of  course,  less  than  in  the  more  congested 
districts,  this  curve  here  being  practically  uniform  throughout  the 
entire  period. 

Mr.  WARREN.  Summarizing  the  chart  generally,  you  would  say  that 
it  rebutted  the  suggestion  that  the  increase  in  your  expense  of  opera- 
tion was  due  to  extravagant  or  ill-considered  operation,  would  you? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Because  it  shows  you  are  getting  more  out  of  your 
cars  ? 

Mr.  WELSH.  It  shows  an  increased  use  of  plant  and  equipment. 

Mr.  WARREN.  That  is  all  on  that,  Mr.  Welsh? 

Mr.  WELSH.  Yes. 

The  statement  accompanying  Chart  138  is  as  follows: 

Economies  in  operation. 
(Accompanying  chart  138.) 


Year. 

Revenue 
car-miles  per 
passenger  car. 

Revenue 
car-miles  per 
inile  of  track. 

Revenue 
passengers 
per  passenger 
car. 

1890                                                  .                         

'11,788 

'47,172 

'62,20<> 

1602                                  ...                                   

'IK,!  S2 

»  50,  701 

'  79.187 

1907 

>23  105 

»47  053 

»  10»i  277 

J012              ....          .              

»2.">,231 

«  *>,  79« 

•125,332 

1817                                                           

»  2ti,  770 

•47,726 

>141,4t><> 

1918  

<2G,2»1 

«  44,  930 

<142,04S 

'  U.  8.  Census  Report,  1902,  p.  6,  Table  1. 

M  .  8.  Census  Report,  1912,  p.  186,  Table  5. 

•  Advance  report,  Table  5. 

« Estimate  of  capital,  etc.,  1918;  based  on  data  sheet  191,  American  Electric  Railway  Association. 


124     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  The  next  chart  is  marked  "  C-103,  Income  accounts 
of  electric  railways."  Now,  Mr.  Welsh,  what  does  this  chart  show? 
I  suggest  that  in  connection  with  the  chart  you  look  at  the  accom- 
panying table  so  you  can  give  the  figures  as  well  as  referring  to  the 
lines  on  the  chart. 

Mr.  WELSH.  With  this  chart  we  start  at  the  net  operating  revenue, 
which  was  the  point  which  we  left  off  in  comparing  the  income  ac- 
counts in  the  previous  charts. 

Mr.  WARREN.  That  means  the  money  which  is  available  after  you 
have  paid  your  operating  expenses  for  running  the  road,  does  it  not  ? 

Mr.  WELSH.  Exactly.  It  represents  the  net  difference  by  deduct- 
ing the  operating  expense  from  the  operating  revenue.  This  shows  a 
uniform  increase  in  the  operating  revenue  up  to  1912,  and  from  1912 
to  1917  the  rate  of  increase  has  notably  fallen  off  as  indicated  in  the 
chart,  whereas  from  1917  to  1918  there  has  been  an  actual  decrease  in 
the  net  operating  revenue. 

Mr.  WARREN.  That  decrease  is  from  $228,898,000  to  $192,615,000 ; 
is  it  not  ? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  As  appears  on  the  table  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  From  that  operating  revenue  under  the  system  of 
accounting  what  do  you  first  deduct? 

Mr.  WELSH.  The  net  operating  revenue  is  available  for  the  fol- 
lowing items:  The  deductions  from  income— I  should  first  say  for 
taxes 

Mr.  WARREN.  Taxes  come  out  first? 

Mr.  WELSH.  Taxes  come  out  first,  and  they  are  represented  as  in- 
creasing at  an  approximate  uniform  rate  throughout  the  period. 

The  next  deduction  is  known  as  the  deductions  from  gross  income 
which  also  have  run  at  about  a  uniform  rate  until  1912,  at  which 
point  the  rate  decreases.  This  leaves  what  is  known  as  the  net  in- 
come. I  should  say,  however,  that  inasmuch  as  this  is  the  net  operat- 
ing revenue  from  railway  operation,  before  you  arrive  at  the  net  in- 
come it  is  necessary  to  add  the  net  revenue  from  auxiliary  operations 
and  the  nonoperatmg  income,  and  that  has  been*  done  as  indicated  in 
the  Census  reports  and  that  is  in  accordance  with  the  Interstate  Com- 
merce Commission's  classification  methods.  I  wanted  to  explain  that 
this  net  income  was  not  the  arithmetical  difference  by  deducting  taxes 
and  deductions  from  gross  income  from  the  net  operating  revenue. 

Mr.  WARREN.  Because  you  first  have  to  add  these  miscellaneous 
sources  of  income  ? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Which  are  not  the  result  of  operating  the  railroad  ? 

Mr.  WELSH.  The  net  revenue  from  auxiliary  operations  is  shown 
on  this  chart,  and  it  is  rather  interesting  to  note  that  it  has  through- 
out this  entire  period,  even  including  1918,  increased  in  amount, 
whereas  the  net  revenue  from  railway  operations  has  gone  through 
the  cycle  indicated  here,  showing  that  the  auxiliary  operations  which 
include  such  things  as  operation  of  inclined  planes,  ferryboat  service, 
or  any  other  transportation  activity  that  a  company  may  be  engaged 
in — it  may  also  include  some  small  power  business. 

Mr.  WARREN.  Now,  Mr.  Welsh,  take,  on  your  statement  accom- 
panying this  chart,  these  figures  for  1918,  and  explain  to  the  com- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      125 

mission  just  how  they  should  be  treated  to  reach  your  net  income. 
The  first  item  I  notice  here  is  net  operating  income,  $192,000,000.  Is 
that  before  or  after  the  taxes  have  been  deducted? 

Mr.  AYELSH.  That  is  before  the  taxes  have  been  deducted.  The 
next  operation  is  the  deduction  of  taxes  amounting  to 

Mr.  WARREN.  In  other  words,  subtract  $49,000,000  taxes  from 
$192,000,000  operating  revenue? 

Mr.  WELSH.  Yes." 

Mr.  WARREN.  The  next  is  to  add  the  net  revenue  from  auxiliary 
operations  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  $30,000,000? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  And  then  from  that  result  you  subtract  your  de- 
ductions from  income;  is  that  right? 

Mr.  WELSH.  Before  that  you  also  add  the  nonoperating  income, 
which  is  not  shown  here. 

Mr.  WARREN.  You  add  that  as  well  as  the  auxiliary  operations  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  Then  you  subtract  your  deductions  from  income  ? 

Mr.  AYELSH.  Yes,  sir. 

Mr.  WARREN.  Which  is  $180,000,000? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  And  that  consists  of  rentals  for  leased  lines  and, 
principally,  of  interest  on  funded  and  unfunded  debt,  does  it? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  And  the  residuum  after  that  subtraction  is  what  is 
available  as  a  dividend  on  the  stock? 

Mr.  WELSH.  It  is  what  is  known  as  net  income  or  loss,  and  that 
item  is  usually  divided  into  either  dividends,  if  it  is  a  net  income, 
and  a  surplus,  or  it  may  be  a  loss. 

Mr.  WARREN.  But  if  it  is  not  a  loss,  if  you  have  not  made  a  loss, 
at  that  point  that  is  the  only  fund  available  for  dividends  on  the 
stock  ? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  And  in  this  case  in  1918  that  amount  was  $20,000,000. 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  For  all  the  street  railways? 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  As  against  $56,000,000  in  1917.  Do  you  know  what 
that  figure  was  in  1916? 

Mr.  WELSH.  No,  I  do  not. 

Mr.  WARREN.  You  do  not  remember  that  it  was  about  $70.000,000. 

Mr  WELSH  No,  I  do  not. 

Mr.  WARREN.  Have  you  anything  that  you  could  check  that  up  by? 

Mr.  WELSH.  We  could  get  it,  but  I  do  not  have  the  figure. 

Mr.  WARREN*.  Assuming  it  was  $70,000,000,  that  means  in  two 
years  the  net  income  or  the  amount  available  for  dividends  or  for 
surplus  or  reserve  has  run  down  from  $70,000,000  to  $20,000,000? 

Mr.  WELSH.  Yes. 

Commissioner  GADSDEN.  This  net  income  in  1918  of  $20,000,000 
does  not  include  more  than  about  50  per  cent  of  the  labor  increases 
growing  out  of  the  decisions  of  the  War  Labor  Board,  does  it? 

Mr.  WELSH.  I  think  that  is  true;  yes,  sir. 


126     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  GADSDEN.  What  were  those  increases  estimated  at 
for  the  industry? 

Mr.  WELSH.  Around  33  per  cent. 

Commissioner  GADSDEN.  In  dollars  and  cents? 

Mr.  WARREN.  About  $100,000,000,  was  it  not? 

Mr.  WELSH.  About  $100,000,000;  yes,  sir. 

Commissioner  GADSDEN.  Between  one  hundred  and  a  hundred  and 
twenty-five  million  dollars.  Therefore,  if  the  full  increase  had  been 
included  in  the  1918  report,  there  would  have  been  an  actual  deficit 
instead  of  a  net  income,  would  there  not? 

Mr.  WELSH.  Yes. 

Commissioner  GADSDEN.  Of  some  $30,000,000? 

Mr.  WELSH.  Yes ;  its  operating  revenue  had  not  also  increased. 

Commissioner  GADSDEN.  The  industry  would  have  failed  by  some 
$30,000,000  to  meet  its  interest  charges? 

Mr.  WELSH.  Yes. 

Commissioner  GADSDEN.  Is  not  that,  in  your  judgment,  what  is 
happening  right  now? 

Mr.  WELSH.  I  believe  it  is. 

Mr.  WARREN.  That  is  what  this  year  is  up  against  ? 

Mr.  WELSH.  That  is  what  we  are  up  against  this  year,  based  on 
the  first  four  months. 

Mr.  WARREN.  And  is  not  another  element  which  should  make  that 
still  worse  in  so  far  as  any  companies  which  had  supplies  on  hand 
Avhich  they  bought  before  the  latest  increase  in  the  cost  of  sup- 
plies— they  are  still  putting  those  supplies  in  at  the  lower  prices, 
whereas  this  year  they  would  have  to  pay  the  high  price? 

Mr.  WELSH.  Undoubtedly  many  companies  purchased  materials  in 
1918  on  the  basis  of  contracts  which  were  still  in  effect  and  were 
undoubtedly  lower  than  anything  they  could  buy  at  this  time. 

Mr.  WARREN.  I  have  in  mind  one  company  in  Massachusetts,  for 
example,  which  made  a  rail  contract,  I  think  in  1914,  and  made  it 
for  a  very  large  quantity  of  rails  on  the  theory  that  the  prices  were 
going  to  go  up.  It  may  have  been  just  after  the  war  started.  They 
have  been  using  those  rails  up  to  about  this  time.  I  think  they  are  just 
getting  their  last  deliveries  under  that  contract,  and  the  contract 
price  is  something  like  40  or  50  per  cent  below  what  they  would  have 
to  pay  to-day  on  the  present  market  price  for  rails.  So  that  the 
$100,000,000  increase  in  wages  is  going  to  be  reflected  also  in  sup- 
plies and  materials. 

Commissioner  WEIILE.  Those  rails  were  for  replacement? 

Mr.  WARREN.  Yes. 

Commissioner  WEHLE.  The  scrap,  of  course,  is  more  valuable  than 
it  was? 

Mr.  WARREN.  It  was  during  the  war,  yes ;  and  it  may  be  more  valu- 
able now  than  it  was  before  the  war.  Is  it,  Mr.  Pardee  ? 

Mr.  PARDEE.  I  am  not  sure.  I  do  not  think  so.  I  know  scrap 
rail- 
Mr.  WARREN.  I  know  one  Maine  street  railway  where  I  am  on  the 
bondholders'  committee  and  we  expected  to  sell  it  for  scrap  and  we 
could  have  gotten  a  very  good  price  for  it  during  the  war.  Unfor- 
tunately the  road  was  serving  the  navy  yard  down  at  Kittery,  down 
near  Portsmouth,  and  the  Government  not  only  objected  to  our  scrap- 
ping the  road,  but  we  felt  as  patriotic  citizens  we  should  not,  so  we 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.     127 


proceeded  to  operate  it,  and  the  minute  the  armistice  came  there  was 
no  market  for  the  stuff  at  all.  We  could  have  gotten  quite  a  dividend 
on  our  bonds  if  we  could  have  sold  it  during  the  war. 

Commissioner  WEHLE.  Is  there  some  way  by  which  we  could  have, 
in  connection  with  this  chart,  a  statement  of  what  elements  are  de- 
ducted from  the  income? 

Mr.  WELSH.  The  census  report  shows  three  items,  the  interest  in 
bonds,  the  rental  of  leased  property,  and  miscellaneous  deductions, 
which  are  a  very  minor  amount. 

Mr.  WARREN.  That  balance  sheet  you  expect  to  get  copies  of  from 
the  Census  Department,  do  you  not? 

Mr.  WELSH.  Yes.  sir. 

Mr.  WARREN.  They  have  not  come  yet? 

Mr.  WELSH.  No.     I  expect  them  any  time. 

Commissioner  MEEKER.  I  notice  that  reference  is  made  to  data  sheet 
No.  186.  What  does  that  refer  to? 

Mr.  WELSH.  Here  again,  we  have  estimated  the  1918  values  on  the 
basis  of  the  345  companies. 

Mr.  WARREN.  If  there  are  no  further  questions  we  will  pass  to  the 
next.  You  have  nothing  more  to  say  on  that? 

Mr.  WELSH.  No. 

Tlie  statement  accompanying  Chart  103  is  as  follows : 

Income  accounts  of  electric  raihcays. 
(Chart  C-103— Based  on  United  States  census  reports.) 


'1902 

1907 

1912 

1917 

1918 

'$105,241,420 

'$155,755,655 

'1217,295.588 

*$228,898,968 

'$192  615  567 

Reductions  from  income  

164,516,154 

<  118,  339,114 

«  149,  866,  307 

*  175,305,781 

8  180  3S2  390 

i  30,596,977 

*  40,  340,  286 

<  68,  139,  889 

<  56,  450,  930 

8  20  183  413 

Taxes       

1  13,078,899 

*  19,  755,  602 

<  35,  027,  965 

<  45,  156,  695 

•49  496  334 

Nit  revenuefrom  auxiliary  oper- 
ations .  

'11,122,951 

»  17,  319,  760 

•28,331,470 

»30  790  165 

1  U.  S.  census  reports,  1912,  Table  5,  p.  188. 

'  Advance  report,  Table  5,  less  advance  report,  Table  162. 


» Data  sheet  No.  186  (estimated). 
« Advance  report,  Table  5. 


Mr.  WARREN.  We  will  pass  to  the  next,  which  is  marked  for  identi- 
fication, "  C-154,  Net  income  of  electric  railways."  Will  you  explain 
what  that  shows? 

Mr.  WELSH.  This  takes  up  the  distribution  of  operating  income 
from  the  point  where  it  was  left  on  the  previous  chart,  starting  with 
the  net  income,  and  shows  the  distribution  of  the  net  income  be- 
tween dividends  and  surplus  or  deficit. 

Mr.  WARREN.  That  is,  this  is  the  income  available  after  you  have 
paid  interest  and  taxes  and  items  of  that  sort? 

Mr.  WELSH.  Yes;  this  represents  the  net  income  after  the  interest 
on  bonded  indebtedness  has  been  paid  and  represents  the  amount 
available  for  dividends.  The  rapid  increase  from  1907  to  1912  is 
apparent  and  the  rapid  decrease  from  1912  to  1917  and  the  disas- 
trous decline  in  1918,  from  $56,000,000  to  approximately  $20,000,000, 
is  shown.  At  the  same  time  the  dividend  follows  very  closely  the 
curve  of  net  income  up  to  1912,  falling  off  somewhat  less  rapidly  to 
1917,  due,  however,  apparently  at  the  expense  of  the  surplus,  because 
the  surplus  has  fallen  off  at  a  higher  rate,  which  permitted  somewhat 


128     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 


higher  dividends  to  be  paid  in  1917  in  proportion  than  were  paid  in 
1912. 

Mr.  WARREN.  But  those  were  paid  at  the  cost  of  the  surplus? 

Mr.  WELSH.  Of  the  surplus.  In  1918  the  surplus  changed  to  a 
deficit  of  about  $24,000,000.  At  the  same  time  dividends  were  paid. 
This  apparently  nominally  can  be  explained  by  the  fact  we  are  deal- 
ing with  a  group  of  companies  and  not  with  one  business,  in  which 
the  deficit  of  those  companies  operating  at  a  loss  far  exceeded  the  sur- 
plus of  those  companies  that  were  able  to  declare  some  dividends. 

Commissioner  MEEKER.  Would  it  not  be  better  to  segregate  the 
companies  showing  a  deficit  from  those  which  do  not  show  a  deficit? 

Mr.  WELSH.  That  can  be  done,  I  believe.  I  believe  the  census  re- 
port does  make  that  separation. 

Mr.  WARREN.  The  census  does  not  make  the  segregation,  does  it? 

Mr.  WELSH.  It  makes  this  segregation;  it  shows  a  group  of  com- 
panies that  have  a  net  income  and  it  shows  another  group  of  com- 
panies that  have  a  net  surplus. 

Mr.  WARREN.  You  might  be  able  to  combine  those  two  to  answer 
Mr.  Meeker's  inquiry  in  that  way. 

Mr.  WELSH.  Yes. 

Commissioner  MEEKER.  If  the  data  as  presented  is  anomolous,  as 
Mr.  Welsh-  says,  it  would  be  very  much  better  to  give  us  refined 
statistics,  it  seems  to  me.  Statistics  of  a  birth  rate  based  upon  popu- 
lation including  men  and  babies  and  old  women  is  not  so  useful  as  a 
refined  statement  of  the  birth  rate  based  upon  the  child-bearing 
women,  women  of  child-bearing  age,  and  the  same  principle  I  should 
think  should  apply  in  drawing  up  these  statistics. 

Mr.  WELSH.  I  would  like  to  call  attention,  however,  that  that  same 
situation  existed  in  the  prior  census  years,  although  not  aggravated 
in  the  same  way.  In  other  words,  in  1917  when  there  was  a  surplus 
and  dividends  were  declared,  there  was  a  group  of  some  three  hun- 
dred and  odd  companies,  as  I  recall  it,  which  operated  at  a  deficit, 
and  that  same  situation  was  true  in  prior  years,  but  this  represents 
the  situation  of  the  whole  industry. 

The  statement  accompanying  Chart  C-154  is  as  follows : 

Net  income  of  electric  railways,  including  1918  estimates  of  dividends  and 

surplus. 


1902 

1907 

1912 

1917 

1918 

Capital  stock  

'$1,957,300,149 

3  $1,543,269,002 

2  $1,957,300,149 

2  $2,006,151,013 

»  $2,237,539,630 

430,596,977 

2  40,  3  40,  286 

«68,139,889 

2  56,  450,  930 

*  20,  183  413 

Dividends    

4  15,  882,  110 

5  26,  454,  732 

251,650,117 

3  48,  337,  435 

8  44,  482.  218 

Surplus    

414.714,867 

"13,885,554 

2  16,  489,  772 

3  8,  113,495 

3  24,  298,  805 

Rate  of  return,  per  cent  . 

«1.61 

'  1.78 

'2.64 

'2.49 

a 

1  U.  S.  census  report,  1912,  p.  186,  Table  5. 

2  Advance  report,  Table  5. 
s  Datasheet  No.  191. 

4  U.  S.  census  report,  1912,  p.  302,  Table  158. 


»  Data  sheet  No.  186. 

•  Based  on  U.  S.  census  report,  1932,  p.  223,  Table  59. 

7  Based  on  advance  report,  Table  5. 


Mr.  WARREN.  Turning  to  your  statement  accompanying  this  chart, 
Mr.  Welsh,  what  was  the  rate  of  return  on  the  capital  stock  for  the 
different  census  years,  beginning  with  1902  ? 

Mr.  WELSH.  The  rate  of  return  in  1902  was  obtained  by  applying 
the  dividends  to  the  capital  stock  in  each  census  year.  The  rate  of 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      129 

return  in  1902  was  1.61  per  cent;  in  1907,  1.78  per  cent;  in  1912,  2.64 
per  cent ;  in  1917,  2.49  per  cent ;  and  in  1918,  0.9  of  1  per  cent. 

Mr.  WARREN.  Less  than  1  per  cent? 

Mr.  WELSH.  Less  than  1  per  cent. 

Commissioner  WEHLE.  Is  this  copied  from  the  United  States 
census  ? 

Mr.  WELSH.  No;  it  has  not  been — that  is,  that  value  for  the  rate 
of  return  has  been  determined  by  taking  the  dividends  shown  in  the 
United  States  census  and  the  capitalization  shown  in  the  United 
States  census,  and  then  the  rate  of  return  is  based  upon  those  two 
amounts. 

Commissioner  WEHLE.  So  that  the  capitalization  is  not  based  upon 
any  assumption  of  the  railway  association,  but  that  is  taken  actually 
from  the  census  report? 

Mr.  WELSH.  Yes,  sir. 

Commissioner  WEHLE.  Do  you  happen  to  know 

Mr.  WELSH.  Pardon  me.  That  capitalization  is  the  capital  stock, 
not  the  total  capitalization.  It  is  the  rate  of  return  on  the  capital 
stock. 

Mr.  WARREN.  That  seems  to  indicate  that  the  industry  has  not 
been  in  a  prosperous  condition  for  some  time.  Mr.  Welsh ;  does  it  not  I 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  And  it  bears  out  what  Mr.  Pardee  said  in  his  open- 
ing statement  to  the  commission,  that  it  has  not  been  prosperous  for 
a  long  time,  and  that  the  war  has  greatly  increased  that  bad  situa- 
tion? 

Mr.  WELSH.  Yes.  sir. 

Mr.  WARREN.  As  shown  by  your  estimate  of  the  dividends  for 
1918? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Now.  the  next  charts  are  these  in  which  you  have 
divided  the  companies  into  groups,  beginning  with  that  marked 
"C-126?" 

Mr.  WELSH.  I  do  not  have  the  last  chart. 

Mr.  WARREN.  Have  you  any  of  those? 

Mr.  WELSH.  I  have  No.  129. 

Mr.  WARREN.  Well,  we  will  distribute  these  now.  We  will  take 
up  the  one  marked  "  C-126,"  of  which  you  have  no  large  chart,  Mr. 
Welsh? 

Mr.  WELSH.  Yes.  sir. 

Mr.  WARREN.  But  the  commissioners  have  a  small  one. 

Mr.  WELSH.  Yes. 

Mr.  WARREN.  Now,  will  you  explain  that? 

Mr.  WELSH.  The  census  reports  divide  the  electric-railway  com- 
panies into  three  classes,  based  upon  their  operating  revenues.  Class 
A  are  those  companies  having  an  annual  operating  revenue  of 
$1;000,000  or  over;  class  B  are  those  companies  having  an  annual 
operating  revenue  of  $250,000  and  up  to  $1,000,000;  and  class  C  are 
those  companies  having  a  operating  revenue  of  $250,000.  This  is 
the  Interstate  Commerce  Commission  method  of  classification,  and 
the  census  report  show  the  income  accounts  upon  the  same  basis.  In 
addition  to  that,  the  census  reports  also  show  a  separation  of  the 
elevated  and  .subway  lines. 


130      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION'. 

Mr.  WARREN.  How  do  you  mean  they  are  class  A?  For  instance, 
take  the  Boston  Elevated  Railway.  That  is  both  elevated  and  sub- 
way lines,  and  it  also  has  surface  lines.  Would  that  be  class  A? 

Mr.  WELSH.  I  understand  that  all  elevated  or  subway  lines  are 
classified  together,  and  their  operation  does  include  the  surface 
lines — that  is,  it  is  put  in  the  classification  of  the  rapid-transit  lines. 

Mr.  WARREN.  So  that  it  is  practically  four  classifications,  is  it? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Those  companies,  like  the  rapid  transit  of  New  York 
and  the  elevated  in  Boston,  and  the  company  in  Philadelphia,  would 
be  in  the  elevated  and  subway  class,  and  not  in  class  A? 

Mr.  WELSH.  That  is  true. 

Mr.  WARREN.  Now,  this  Chart  C-126  shows  the  net  operating  in- 
come of  the  electric  railways  by  classes? 

Mr.  WELSH.  Yes,  sir ;  and  in  order  to  take  account  of  the  varying 
size  of  the  companies,  the  charts  have  been  plotted  on  a  per-mile-of- 
track  basis,  so  that  there  is  shown  here  the  first  part  of  the  income 
account,  the  net  operating  revenue  for  those  four  classes. 

Mr.  WARREN.  For  1  mile  of  track? 

Mr.  WELSH.  Per  mile  of  track.  The  obviously  greater  amount 
of  the  elevated  and  subway  lines  as  compared  with  class  A,  class  B, 
and  class  C,  in  all  the  census  years,  is  apparent.  There  has  been  a 
falling  off  in  the  net  operating  revenue  also  to  some  extent  in  all 
three  classes  from  1912  to  1917,  although  this  is  more  apparent  in 
the  case  of  the  elevated  and  subway  lines,  and  in  class  A  than  it  is 
in  the  other  two,  where  it  seems  that  the  net  operating  revenue  per 
mile  of  track  has  been  about  constant  for  classes  B  and  C. 

Mr.  WARREN.  Have  you  any  explanation  of  that,  Mr.  Welsh  ? 

Mr.  WELSH.  Apparently,  the  smaller  companies  have  not  been 
hit  so  hard  with  respect  to  several  items  of  expense.  Among  other 
things,  the  rush-hour  service  does  not  affect  the  smaller  companies 
at  all,  you  might  say,  or  to  anything  like  the  degree  that  it  does  af- 
fect the  other  companies. 

Mr.  WARREN.  That  is,  the  small  companies  are  apt  to  operate  in 
the  country  or  in  small  towns  where  the  riding  is  more  uniform 

Mr.  WELSH.  Throughout  the  day. 

Mr.  WARREN.  Throughout  the  day? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  And  that,  of  course,  reduces  their  operating  ex- 
pense very  largely? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  The  reason  it  does  is  because  they  do  not  have  to 
have  so  many  men,  they  do  not  have  to  have  so  many  cars,  and  they 
do  not  have  to  have  so  much  power  for  use  for  short  periods;  is  it 
not? 

Mr.  WELSH.  All  at  one  time;  yes,  sir. 

Mr.  WARREN.  As  a  matter  of  fact,  the  smallest  class  here  of  all, 
class  C,  which  you  say  has  net  earnings  of  what  ? 

Mr.  WELSH.  Under  $250,000. 

Mr.  WARREN.  Under  $250,000 — seems  to  have  shown  an  increase 
in  the  net  operating  revenue  between  1902  and  1917. 

Mr.  WELSH.  Yes,  sir ;  a  slight  increase. 

Commissioner  GADSDEN.  What  is  class  A? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.     131 


Mr.  WELSH.  Class  A  are  companies  having  an  operating  revenue  in 
excess  of  $1,000,000. 

Commissioner  GADSDEN.  And  class  B  ? 

Mr.  WELSH.  From  $250,000  to  $1,000,000. 

Mr.  WARREN.  You  have  not  figured  the  percentage  of  those  earn- 
ings, have  you,  Mr.  Welsh  ? 

Mr.  WELSH.  In  what  way? 

Mr.  WARREN.  The  per  cent  of  increase  and  decrease  for  the  dif- 
ferent census  periods. 

Mr.  WELSH.  No ;  we  have  not. 

Mr.  WARREN.  I  think  it  would  be  interesting  if  you  could  figure 
the  per  cent  of  decrease  on  that  class  A  from  1912  to  1917 — that  is, 
the  large  city  companies  I  do  not  mean  now. 

The  figures  on  the  statement  accompanying  Chart  126  are  as  fol- 
lows: 

Net  operating  revenue  per  mile  of  track  by  classes  of  electric  railways. 
(Chart  126. — Based  on  United  States  census  reports.) 


Elevated 
and 
subway. 

Class  A. 

Class  B. 

Class  C. 

1902              

$9,025 

$3,408 

$1  443 

1907                                   

$42,  879 

8,036 

3  053 

1  712 

1912     

63,  727 

8,592 

3,420 

1  835 

1917                                ;. 

51,485 

7,893 

3  461 

1  877 

NOTE. — All  above  figures  were  taken  directly  from  1012  census  table  No.  120,  p.  258, 
with  exception  of  those  duplicated  below,  together  with  figures  used  in  calculating  same 
and  source  of  figures  used 


Year. 

Net  operating 
revenue. 

Miles  of  track. 

Net 
operating 
revenue 
per  mile 
of  track. 

Subway  and  elevated  

f  1907 
<  1912 

(90)  $18,  745,  029 
(90)  28,  625,  860 

(153)  437.  16 
(153)  532.80 

$42,879 
53  727 

Class  A  

I  1917 
1917 

(90)  36,  867,482 
(85)205,743,098 

(153)716.08 
(53)  26  005 

51,485 
7  893 

Class  B.                                     .                 .... 

1917 

(85)  35  507  354 

(53)  10  259 

3  461 

Class  C  

1917 

(85)  15,  979,  986 

(53)  8,512 

l's77 

NOTE. — Figures  In  parentheses  shown  above  are  census  table  numbers  giving  source  of 
information,  taken  from  the  1917  advance  sheets,  the  numbers  corresponding  to  .similar 
ouml>er8  of  1012  census. 

Mr.  WARREN.  Now,  the  next  chart,  which  is  a  large  one. 

Mr.  WELSH.  No.  129  is  the  next. 

Mr.  WARREN.  You  have  not  a  large  chart  on  129,  either,  have  3*011  ? 

Mr.  WELSH.  No. 

Mr.  WARREN.  That  shows  the  net  income  of  electric  railways  by 
classes  per  mile  of  track,  the  previous  one  having  shown  the  net 
operating  revenue.  This  is  the  same  classification,  is  it  not? 

Mr.  WELSH.  This  is  the  same  classification,  and  takes  up  the  next 
income  account.  It  shows  a  greater  falling  off  in  comparing  li)17 
with.1912  for  all  classes  of  electric-railway  property. 

Mr.  WARREN.  Bearing  out  the  general  result  on  the  figures  that 
you  put  in  earlier  on  the  income? 


132      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WELSH.  Yes,  sir. 

Commissioner  MEEKER.  These  classes,  A,  B,  and  C,  are  the  same 
classes  A,  B,  and  C,  as  appear  in  the  previous  chart? 

Mr.  WARREN.  The  same  classes. 

Mr.  WELSH.  The  same  classes. 

Commissioner  MEEKER.  Class  A  includes  those  lines  with  net  oper- 
ating revenues  in  excess  of  $1.000,000? 

Mr.  WELSH.  No;  total  operating  revenues. 

Commissioner  MEEKER.  Total  operating  revenues? 

Mr.  WELSH.  Total  operating  revenues. 

Commissioner  MEEKER.  Not  net. 

The  CHAIRMAN.  May  I  ask  one  question  there  with  reference  to 
Chart  No.  126? 

What  significance  do  you  draw  from  the  fact  that  the  net  operating 
revenue  of  the  subway  and  elevated  railways  is  so  much  higher  than 
that  of  the  surface  lines? 

Mr.  WELSH.  That  is  the  result  of  two  things.  In  the  first  place, 
the  density  of  traffic  on  the  rapid-transit  lines  is  far  in  excess  of 
that  on  the  surface  lines,  the  number  of  cars  and  the  number  of  car- 
miles  operated  per  mile  of  track;  and  secondly,  the  number  of 
passengers  carried  per  mile  of  track  is  far  in  excess  of  those  on  the 
surface  lines.  Correspondingly,  the  investment  per  mile  of  track  is 
very  much  greater  than  on  the  surface  lines.  The  necessary  sequence 
is  that  that  should  be  so,  that  there  should  be  that  difference. 

The  CHAIRMAN.  Does  it  not  also  indicate  that  people  are  de- 
manding quicker  transportation  than  that  which  can  be  furnished 
by  the  surface  lines? 

Mr.  WELSH.  I  do  not  see  that  it  does. 

Mr.  WARREN.  There  is  a  greater  volume  of  traffic. 

Mr.  Welsh,  in  that  first  chart.  C-126",  it  appears  that  in  1912  the 
elevated  and  subway  lines  earned  between  fifty  and  fifty-five 
thousand  dollars  per  mile  net  operating  revenue ;  is  that  right  ? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  That  means,  after  paying  their  operating  expenses, 
they  earned  over  $50,000  a  mile? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  Now,  if  the  commission  does  not  object,  Mr.  Trip'pr 
who  is  a  director  in  the  rapid-transit  company  in  New  York,  would 
like  to  make  a  statement  about  the  earnings  of  the  elevated  and  sub- 
way lines. 

Gen.  TRIPP.  I  do  not  quite  understand  the  chart,  which  appears  to 
show  that  the  net  income  per  mile  of  track  on  elevated  and  subway 
lines,  as  shown  by  the  heavy  black  line  on  the  chart,  is  holding  rea- 
sonably steady  for  the  year  1917 — only  a  slight  decrease. 

I  am  a  director  in  the  Interborough  Rapid  Transit  Co.  of  New 
York,  which  operates  the  subwaj^s  and  the  elevated  there.  The  In- 
terborough Rapid  Transit  Co.,  a  year  ago,  or  perhaps  slightly  over 
a  year  ago,  paid  20  per  cent  dividends  on  its  stock.  To-day  it  is  not 
earning  its  fixed  charges.  Therefore,  I  do  not  quite  understand  the 
situation  as  set  out  by  these  charts.  Perhaps  I  do  not  understand  the- 
charts,  but  I  felt  that  perhaps  the  gentlemen  of  the  commission 
might  be  in  the  same  situation  that  I  am  in.  I  am  familiar  with  the 
operations  of  the  elevated  railways  in  Chicago,  and  those  railways 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      133 

are  in  a  still  more  critical  condition  than  the  subways  and  elevated 
in  New  York  city. 

Mr.  WARREN.  How  is  that,  Mr.  Welsh? 

Mr.  WELSH.  Well,  we  have  no  figures  for  anything  more  recent 
than  that  given  by  the  census  report. 

Mr.  WAHREN.  That  is  1917? 

Mr.  WELSH.  1917 ;  yes,  sir. 

Mr.  WARREN.  Xow,  do  you  happen  to  know  whether  there  has  been 
a  marked  change  in  the  elevated  and  subway  net  operations? 

Mr.  WELSH.  Undoubtedly  tliere  has  been ;  yes,  sir ;  but  we  have  no 
figures  on  it. 

Mr.  WARREN.  You  have  not  the  figures? 

Mr.  WELSH.  Xo,  sir. 

Commissioner  GADSDEN.  Well,  do  those  charts  show  any  1917  fig- 
ures? 

Mr.  WELSH.  It  only  shows  as  far  as  1917.    I  have  nothing  on  1918. 

Mr.  WARREN.  Would  it  be  possible,  Mr.  Welsh,  for  you  to  get  the 
1918  figures  now7  for  some  of  those  subway  and  elevated  lines? 

Mr.  WELSH.  I  presume  we  could  get  them ;  yes,  sir.  We  have  made 
no  attempt  to  get  them. 

Mr.  WARREN.  If  we  could  get  them,  I  think  it  would  be  well  to  do 
so,  and  add  them  to  the  charts  which  we  have  filed. 

The  Brooklyn  Rapid  Transit  has  elevated  lines  also? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  As  a  matter  of  fact,  that  is  one  of  the  companies  that 
is  in  the  receiver's  hands  at  the  present  time ;  is  it  not  ? 

Mr.  WELSH.  Yes,  sir. 

Commissioner  GADSDEN.  Mr.  Warren,  I  would  suggest  that  it  would 
help  the  commission  to  take  up  one  or  more  of  those  large  properties 
and  have  somebody  fully  conversant  with  their  affairs  come  here  and 
tell  us  about  them,  as  an  illustration  of  what  these  charts  mean.  You 
might  get  someone  here  from  the  Brooklyn  Rapid  Transit  or  Inter- 
borough. 

Mr.  WARREN.  Yes. 

Commissioner  GADSDEN.  And  let  him  testify  from  his  own  knowl- 
edge of  the  difficulties  of  the  industry. 

Mr.  WARREN.  We  expect  to  call  the  receivers  of  some  of  those  roads 
to  address  the  commission  on  their  condition.  Of  course,  it  is  a  fact, 
an  unfortunate  fact,  in  presenting  the  case,  and  it  is  still  a  more  un- 
fortunate fact  for  the  industry  itself,  that  every  year  and  every 
month,  and  every  week,  in  fact,  that  is  passing  over  our  heads,  is 
making  this  situation  very  much  more  desperate  than  we  can  possibly 
show  from  any  figures  for  any  past  period  of  time.  Gen.  Tripp's 
question  illustrates  that.  In  1917,  apparently,  if  our  chart  is  cor- 
rect, and  I  believe  it  to  be  right — 

Mr.  WELSH.  I  have  a  photostatic  advance  copy  here  to  check  it 
with. 

Mr.  WARREN.  You  have? 

Mr.  WELSH.  Yes,  sir. 

Mr.  WARREN.  And  if  our  chart  is  right,  it  shows  that  those  sub- 
way and  elevated  lines  were  earning  a  net  income  in  1917.  Now,  as 
a  result  of  what  h;is  happened  since  1917,  one  of  the  largest  of  them, 
that  in  Brooklyn,  has  had  to  go  into  the  receiver's  hands,  and  one 


134     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

in  New  York  has  had  to  default  on  some  of  its  bonds.  The  Boston 
one  is  having  very  hard  sledding,  and  the  Chicago  company,  I  un- 
derstand, is  in  a  more  or  less  similar  difficulty.  That  is  true  not  only 
of  those  companies,  but  it  is  true  of  nearly  all  of  the  surface  com- 
panies also. 

Commissioner  WEHLE.  How  many  companies  are  included  in  that 
statement  ? 

Mr.  WARREN.  It  is  a  census  report.  These  charts  that  we  are  now 
putting  in 

Commissioner  WEHLE.  But  how  many  companies  are  covered  in 
connection  with  the  subway  and  elevated  part  of  Charts  C-126  and 
C-129? 

Mr.  WARREN.  Can  you  answer  that,  Mr.  Welsh? 

Mr.  WELSH.  I  can  not  answer  it  offhand.  I  am  not  sure  that  the 
census  reports  show  that. 

Mr.  WARREX.  You  see,  even  the  census  reports  which  we  have  used 
for  the  year  1917  are  advance  sheets  which  were  furnished  to  us 
through  the  courtesy  of  the  Census  Office,  to  enable  us  to  make  up 
these  figures  as  well  as  we  could.  That  is  one  of  the  difficulties  of  the 
situation,  which  are  insurmountable.  In  order  to  get  the  informa- 
tion for  any  definite  period,  we  have  to  take  a  past  year,  and  the  con- 
dition is  changing  so  rapidly  for  the  worst  that  a  past  year  is  of 
very  little  value  as  indicating  the  present  condition. 

Do  you  think  you  could  get  that  from  the  census  reports  ? 

Mr.  WELSH.  I  think  very  likely;  yes. 

Commissioner  BEALL.  There  are  only  four  places,  as  I  remember  it, 
that  have  subways,  or,  at  any  rate,  three,  and  four  that  have  elevated 
railways.  I  do  not  think  there  are  any  more.  There  is  a  small  ele- 
vated system  in  Sioux  City,  but  I  do  not  think  there  is  any  large 
subway  system  outside  of  Boston,  New  York,  and  Philadelphia.  For 
the  elevated,  you  will  have  to  add  Chicago.  I  do  not  know  of  any 
others. 

Mr.  WARREN.  Those  are  the  only  ones  that  I  know  of. 

Commissioner  BEALL.  Well,  there  is  one  in  Baltimore,  the  Roland 
Park  Elevated  road.  I  do  not  know  how  big  it  is. 

Mr.  WELSH.  I  have  the  figures  here.  There  are  seven  companies, 
in  1917,  classified  as  elevated  and  subway. 

Commissioner  BEALL.  How  many? 

Mr.  WTELSH.  Seven. 

Commissioner  BEALL.  What  were  they? 

Mr.  WELSH.  It  does  not  give  the  names  of  the  companies. 

Commissioner  BEALL.  I  think  that  you  will  find  two  of  them  are 
verjr  small,  the  one  in  Baltimore,  and  the  one  in  Sioux  City.  They 
do  not  amount  to  anything. 

Mr.  WTARREN.  You  do  not  suppose  they  count  the  Manhattan  Ele- 
vated as  one  and  the  Rapid  Transit  as  another  ? 

Commissioner  BEALL.  I  was  speaking  of  the  cities. 

Mr.  WARREN.  Two  in  New  York,  anyhow. 

Commissioner  BEALL.  Yes ;  two  in  New  York  and  two  subways. 

Mr.  WARREN.  Do  any  of  you  street-railway  gentlemen  know  of  any 
cities  with  subways  or  elevated  railroads  except  Boston,  New  York, 
Philadelphia,  and  Chicago? 

Mr.  BLAKE.  There  are  the  so-called  McAdoo  tubes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     135 

Mr.  WARREN.  I  think  that  is  classed  as  a  steam  road. 

Commissioner  BEALL.  I  think  it  is. 

Mr.  WARREN.  It  was  taken  over  by  the  Government  when  it  took 
over  the  roads. 

The  figures  on  the  statement  accompanying  Chart  129,  are  as 
follows : 

Net  income  per  mile  of  track  by  classes  of  electric  railways. 

[Based  on  U.  S.  census  reports.] 
NET  INCOME  PER  MILE  OF  TRACK. 


1902 

1907 

1912 

1917 

$12,969 

$17,  326 

$16  843 

Class  \         

$2,575 

1,780 

2,508 

1,821 

Class  B         —  ... 

1,134 

858 

1,132 

643 

Class  C  

364 

520 

373 

277 

NET  INCOME.i 


$5  669  738 

$9  231  122 

$12  060  843 

Class  A         

$21,666,551 

27,707,790 

53,442  502 

47  4tv;  >?72 

Class  B        

5,566,046 

7,207,076 

10,927,455 

6,623  19t» 

Class  C         

3,364,380 

5,425  420 

3  769  932 

2  360  562 

MILES  OF  TRACK.* 


437.  16 

532  80 

716  08 

Class  \.        

8,514.31 

15,  564.  34 

21,305  99 

26  064  85 

Class  B         

4,909.88 

8,  396.  00 

9,652.09 

10,  258.  75 

Class  C    

9,  252.  80 

10,  443.  22 

10  106.74 

8  511  77 

>  Table  85,  1912  and  1917  census. 


Tables  53  and  153, 1917  and  1912. 


Mr.  WARREN.  That  concludes  the  charts  which  we  have  ready  for 
to-day,  Mr.  Chairman. 

The  CHAIRMAN.  Are  you  prepared  to  go  ahead  with  another  wit- 
ness I 

Mr.  WARREN.  Yes,  sir;  I  would  like  to  call  Mr.  Clark. 

STATEMENT  OF  MR.  WILLIAM  J.  CLABK. 

Mr.  WARREN.  Your  full  name,  Mr.  Clark? 

Mr.  CLARK.  William  J.  Clark. 

Mr.  WARREN.  You  are  connected  with  the  General  Electric  Co.  1 

Mr.  CLARK.  The  General  Electric  Co. 

Mr.  WARREN.  And  you  have  been  for  how  long? 

Mr.  CLARK.  Thirty-two  years. 

Mr.  WARREN.  And  that  company,  I  suppose  it  is  unnecessary  to 
say,  has  been  very  closely  identified  with  the  development  of  the 
electric  transportation  art? 

Mr.  CLARK.  It  has. 

Mr.  WARREN.  Will  you  state  to  the  commission  your  experience 
in  connection  with  electric  transportation  preparatory  to  going  ahead 
and  making  a  statement  to  them  about  the  development  of  the  art? 

Mr.  CLARK.  To  begin  with,  my  first  practical  knowledge  of  elec- 
tricity— not  in  an  engineering  way — began  as  far  back  as  1870,  as  a 


136     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

boy,  through  William  Wallace,  the  pioneer  of  arc  lighting  and  the 
man  who  produced  the  first  modern  electric  motor.  However,  my 
first  active  participation  in  the  electric  or  street-railway  business 
was  with  my  associate,  the.  late  H.  Holden  Wood,  in  securing  a  char- 
ter from  the  Connecticut  Legislature  for  what  was  the  first  electric 
street  railway  in  the  world — a  very  small  affair,  connecting  the  docks 
at  Derby  with  the  mills  at  Ansonia  and  what  is  now  known  as  West 
Derby.  It  was  at  that  time  known  as  Birmingham. 

In  that  connection  I  became  intimate  with  Van  Depoele,  one  of 
the  earlier  producers  of  electric-railway  inventions,  and  the  manage- 
ment of  the  concern  at  Chicago  which  owned/these  inventions  of  his, 
and  it  was  in  a  bad  financial  way. 

At  the  urgent  request  of  Mr.  Van  Depoele  and  the  management 
of  the  company,  which  controlled  these  patents,  I  undertook  to  in 
some  way  raise  capital,  so  that  they  could  go  ahead  and  develop 
the  industry  under  those  patents.  That  resulted  finally  in  my  sell- 
ing the  same  to  the  Thomson-Houston  Electric  Co.,  one  of  the  prede- 
cessor interests  of  the  General  Electric  Co.,  and  ultimately,  in  my 
going  with  them  and  taking  charge  of  their  electric-railway  develop- 
ment in  the  field. 

That  proposition  involved  more  detail  than  is  apparent  on  its 
face,  because  the  first  task  which  I  performed  was  the  purchase  of  a 
railway  where  they  could  demonstrate  their  new  system. 

For  quite  a  number  of  years  I  averaged  over  70,000  miles  a  year 
traveling  on  American  railways  in  connection  with  this  electric- 
railway  development,  having  crossed  the  continent  some  14  times 
in  one  year,  during  all  of  which,  of  course,  I  was  obliged  to  familiar- 
ize myself  with  the  financial  and  operating  conditions  involved  in 
connection  with  the  entire  industry. 

I  am  afraid,  gentlemen,  as  I  have  had  no  chance  for  preparation, 
nor  to  talk  with  counsel,  I  might  get  into  things  that  are  not  rele- 
vant, and  I  hope  you  will  not  hestitate  to  so  inform  me,  if  I  do. 

Now,  the  history  of  the  street-railway  business  is  briefly  this: 
As  you  may  know,  as  early  as  1838,  there  was  one  experiment  on  the 
Baltimore  &  Ohio  Railway  right  out  here.  I  think  there  were 
scattered  experiments  throughout  the  world.  There  were  two  or 
three  more  in  this  country,  up  until  about  1879,  when  Siemenes  began 
his  experiments  at  Berlin,  and  immediately  after  followed  by  Mr. 
Edison's  famous  road  at  Menlo  Park,  experimental. 

For  the  next  seven  or  eight  years,  and  during  that  time,  there  were 
quite  a  number,  say  some  12  or  15.  I  could  give  you  the  list  if  I  had 
my  memoranda  here.  They  were  roads  of  different  character  con- 
structed in  this  country,  growing  in  size  and  importance,  when  the 
industry  was  given  a  tremendous  impetus  by  the  electrification  of 
new  lines  at  Richmond,  Va.,  by  my  good  friend,  Mr.  Sprague,  who, 
I  understand,  is  to  testify  here  to-morrow. 

Now,  digressing  for  a  moment,  as  I  see  the  situation  in  a  practical 
way,  it  was  the  development  of  three  things  of  an  engineering 
character  which  gave  the  tremendous  impetus  to  the  adoption  of 
electric  railways  which  began  early  in  1888.  I  think  it  Avas  February 
12,  1888,  that  the  Richmond  installation  started.  They  were  these 
things:  What  was  known  as  the  Sprague  motor  suspension,  the 
very  same  practice  as  is  followed  everywhere  on  street-cars  to-day; 
the  carbon  commutator  brush,  which  is  used  on  motors  universally 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      137 

the  world  over  to-day,  Avhich  created  a  great  saving;  and  what  was 
known  as  the  pivoting  underrunning  trolley.  Those  three  im- 
portant inventions,  developed  at  about  this  same  time,  were  incor- 
porated by  Sprague  in  his  development  at  Richmond.  The  Thomson- 
Houston  Co.  immediately  thereafter  proceeded  to  do  the  same  thing. 

Xow,  perhaps,  I  had  better  continue  along  this  line,  although  I 
should  like  to  say  something  about  the  economics  of  the  street-rail- 
way situation  prior  to  electricity  coming  into  the  field. 

We  thought — we  in  the  industry — that  when  these  inventions  had 
been  produced  we  had  solved  the  great  problem;  in  other  words, 
that  a  car  equipment  produced  would  be  good  for  20  years;  that  a 
generator  or  dynamo  would  be  good  for  20  years;  tracks,  especially 
as  in  most  of  the  electric-railway  construction  the  best  of  engineer- 
ing advice  was  secured  from  others,  would  last  a  good  many  years. 
But  experience  demonstrated  otherwise ;  and  perhaps  I  can  not  better 
illustrate  it  specifically  than  to  refer  to  this  little  road  of  mine  in 
Connecticut. 

We  retained  the  man  who  was  then  the  chief  engineer  of  the 
Baltimore  &  Ohio  Railroad  to  advise  us  on  this  roadbed  construction 
especially.  We  laid  it  with  a  45-pound  rail.  Before  1896  it  had 
been  relaid  three  times,  and  heaven  only  knows  how  many  times 
since. 

We  will  turn  now  to  the  car  equipment  and  the  car  bodies.  Dur- 
ing this  same  period  it  was  found  necessary  to  change  the  car  bodies 
three  times  and  the  motors  w7ere  changed  five  times,  as  well  as  the 
bn lance  of  the  car  equipment. 

These  same  things  occurred  in  connection  with  power  station.  We 
supposed  that  we  had  constructed  something  that  was  going  to  last 
for  a  great  many  years.  By  1896  the  third  power  station  had  been 
built  to  operate  that  system. 

I  am  citing  these  facts,  gentlemen,  to  try  to  make  clear  to  you 
that  to  better  serve  the  public  and  meet  its  demands,  the  losses  of 
depreciation  through  obsolescence  have  been  almost  beyond  estimate, 
in  connection  with  all  of  the  electric-railway  systems  of  importance, 
other  than  those  built  since,  we  will  say,  1896  or  1897. 

To  speak  plainly,  gentlemen— I  known  the  accusation  has  been 
made — there  is  far  less  water  in  the  capitalization  of  the  street 
railways  than  is  generally  supposed.  There  is  some,  but  what  now 
may  seem  excessive  capitalization  has  been  created  to  a  greater 
extent  through  this  continual  change,  change  and  change,  through 
advancement  in  the  art  to  better  meet  the  requirements  of  the  public 
in  the  way  of  service. 

Xow,  turning  back,  electricity  did  not  bring:  about  a  manipulation 
of  finance  into  the  electric-railway  field.  It  began  long  before  that, 
as  I  could  trace  for  you  if  I  had  certain  data,  which  I  will  have  here 
to-morrow.  A  very  large  part  of  what  may  be  considered  over- 
capitalization to-day  can  be  traced  back  to  those  periods. 

Tn  the  horse-railway  days  there  were  certain  contracting  concerns 
who  used  to  do  this  thing  in  a  sort  of  a  way.  Thev  disappeared,  al- 
most all  of  them,  with  the  advent  of  electricity.  They  were  the  fel- 
lows who  built  track  with  a  20  or  25  pound  mil.  As  long  as  they  had 
something  to  run  cars  over,  on  which  to  sell  securities,  bonds  espe- 
cially, they  were  contented. 
1GOG430— 20 10 


138     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

That,  as  I  said,  was  more  common  in  the  days  before  the  advent  of 
electricity  than  afterwards. 

Now,  going  on  with  this  question  of  the  seemingly  large  capitaliza- 
tion, let  me  tell  you  how  much  of  that  was  brought  about — and  I  want 
to  say  this,  gentlemen,  that  I  personally  have  never,  directly  or  in- 
directly, participated  in  putting  a  dollar  of  water  into  any  street  rail- 
way or  any  other  public-utility  property.  If  I  may  so  put  it,  there  is 
an  infatuation  about  doing  things  electrically.  It  seems  to  inspire 
people  with  a  public  spirit,  and  through  all  of  this  development  there 
has  been  this  tendency  to  go  fully  up  to  meet  the  public  demands,  and 
incidentally  to  give  the  public  advantages,  beyond  what  they  had 
hoped  for. 

Once  more  returning  to  my  own  experience  on  this  little  line  which 
we  built — that  was  the  nucleus  of  that  tremendous  system  which  now 
radiates  over  practically  the  whole  State  of  Connecticut.  We — that 
is,  I  mean  my  immediate  associates  and  myself — felt  that  we  had  con- 
ferred a  great  blessing  upon  the  public  where  we  operated.  We  ex- 
tended it  somewhat  before  we  sold  it.  We  made  no  profit  out  of  it. 
We  were  glad  to  get  out  alive.  We  lost  nothing  but  our  interests,  but 
owing  to  what  I  have  said,  and  I  hope  to  have  the  figures  here  to- 
morrow, we  sold  it,  if  I  recollect  aright,  Mr.  Morgan,  about  1896  or 
1897- 

Mr.  MORGAN.  I  think  so. 

Mr.  CLARK.  I  mean  that  property  up  in  Connecticut. 

Now,  Mr.  Morgan  and  his  associates  believed  that  they  could  afford 
to  pay  us  what  was  seemingly  a  large  price  for  that  property,  be- 
cause, by  extending  it  as  they  did,  they  could  earn  a  larger  return. 
They  went  ahead,  and  as  I  said  before,  it  was  the  nucleus  of  their 
great  Connecticut  railway  and  lighting  property,  which  has  con- 
ferred a  great  many  benefits  on  that  little  State,  more  of  them  than 
you  can  estimate.  Now,  I  hope  that  they  have  made  some  money  out 
of  it  in  selling  out  that  property.  They  well  deserved  to ;  but,  gentle- 
men, it  was  only  a  small  fraction  of  the  benefits  which  I  know  of — be- 
cause I  still  consider  myself  a  Connecticut  man — which  it  conferred 
on  that  entire  State,  in  every  manner,  way,  shape,  and  form,  as  it  has 
elsewhere. 

Now,  in  continuing  that  illustration,  the  New  York,  New  Haven 
£  Hartford  interests,  as  you  know,  thought  that  they  could  buy  Mr. 
Morgan's  interests  and  those  of  his  associates  in  the  property,  and 
that  by  adding  on,  they  could  earn  a  return  upon  it.  They  were  not 
so  successful.  But  in  carrying  this  illustration  into  almost  every 
community  in  this  country  we  find  the  same  thing.  It  is  not  the 
water  that  has  been  put  in,  you  understand.  It  is  upon  this  deprecia- 
tion through  obsolescence,  and  this  increasing  through  combinations, 
facilities,  in  the  belief  that  the  ones  holding  the  properties  will  be 
paid  a  large  price — you  can  call  that  water  if  you  want  to,  but  the  in- 
tentions were  good,  and  the  public  derived  terrific  benefits  from  that. 

Now,  gentlemen,  I  fear  that  I  have  rambled  greatly  and  have  not 
been  very  relevant  in  my  remarks. 

Are  there  any  questions  that  any  of  you  gentlemen  wish  to  ask  me? 
I  will  be  glad  to  answer  them  if  I  can. 

Commissioner  GADSDEN.  Mr.  Clark,  are  you  familiar  with  the  re- 
port of  the  Connecticut  Commission  recently  on  those  properties  3 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     139 

Mr.  CLARK.  I  am  not,  I  am  sorry  to  say.  I  ha\\x  been  very  busy  for 
Uncle  Sam  for  nearly  two  years. 

Commissioner  GADSDEN.  You  do  know  that  there  was  a  committee 
appointed 

Mr.  CLARK.  Oh,  yes. 

Commissioner  GADSDEN  (continuing).  To  investigate  those  prop- 
erties ? 

Mr.  CLARK.  Yes. 

Commissioner  GADSDEX.  Do  you  happen  to  know  that  they  re- 
ported that  every  mile  of  electric  railway  in  Connecticut,  except  12, 
was  bankrupt  ? 

Mr.  CLARK.  Well,  I  am  not  surprised.    I  had  word  to  that  effect. 

Commissioner  GADSDEX.  And  there  is  over  1,000  miles  in  that 
State? 

Mr.  CLARK.  Yes,  sir,  and  I  believe  Connecticut  to  be  enormously 
benefited. 

Commissioner  GADSDEX.  That  is  the  same  property  that  you  have 
been  giving  us  the  history  of? 

Mr.  CLARK.  Yes ;  my  little  baby  was  the  nucleus  of  it. 

The  CHAIRMAN.  You  have  grown  up  with  the  electric-railway  in- 
dustry. What  is  the  future? 

Mr.  CLARK.  I  wish  that  I  knew.  I  believe  that  if  temporary  relief 
is  afforded  them,  it  is  going  to  survive  and  continue  on  and  be  a 
great  public  blessing. 

Now,  in  addition  to  all  that  has  been  shown  you  to-day — and  more 
of  the  same  character  will  doubtless  be  presented  to  you — as  I  see 
it,  the  street-railway  industry  is  suffering  from  another  cause,  most 
acutely,  and  while  this  cause  is  going  to  be  continued,  I  think  you 
will  find,  looking  back  over  the  past  history,  a  situation  somewhat 
analogous  as  regards  the  effect  of  the  electric  railways  on  the  local 
traffic  on  steam  railroads.  I  mean  the  effect  of  the  cheap  auto — not 
of  the  jitney  per  se — but  the  cheap  auto — which  means  really,  as  near 
as  I  can  estimate  it,  after  a  good  deal  of  study,  the  loss  of  anywhere — • 
an  average  loss,  we  will  say,  of  from  three  to  five  fares  a  day,  be- 
cause the  man  who  owns  the  cheap  auto  not  only  goes  back  and  forth 
himself,  to  and  from  his  employment,  but  carries  one  or  two  of  his 
neighbors.  Now,  the  effect  of  that  has  been  very,  very  acute,  as  you 
know,  during  the  last  few  years.  The  cheap  auto  is  going  to  con- 
tinue. There  is  no  mistake  about  that,  and  yet  I  think  ultimately 
you  will  find,  as  I  remarked  a  moment  agoT  that  in  time" the  travel 
which  is  now  taken  that  way  will  come  back  to  the  street  railways, 
just  the  same  as  the  travel  which  the  street  railways  took  from  the 
steam  railroads  locally  has  come  back,  to  a  great  extent,  to  the  steam 
railroads. 

The  CHAIRMAN.  Is  there  any  evidence  of  that  ? 

Mr.  CLARK.  No;  I  can  not  say  that  there  is  as  yet.  I  am  simply 
judging  by  past  experience  in  the  other  direction.  Well,  if  I  may 
qualify  my  remark — yes,  I  think  there  is,  as  shown  in  the  dropping 
off  of  jitney  traffic  in  certain  localities,  where  apparently  it  is  not 
as  popular  as  it  was.  At  the  outset,  everybody  wished  to  ride  in  an 
auto.  Now,  I  think  that  has  changed  very  materially. 

Commissioner  GAI>HI>KN.  Mr.  Clark,  don't  you  think  the  parking 
problem  is  going  to  bring  about  a  change  in  the  use  of  automobiles  2 


140     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CLARK.  I  do. 

Commissioner  GADSDEX.  The  inability  to  park  cars  downtown. 

Mr.  CLARK.  Yes,  sir;  and  congestion  on  your  streets. 

Commissioner  GADSDEX.  In  some  cities  they  are  now  stopping  them 
from  parking,  are  they  not? 

Mr.  CLARK.  Yes;  and  I  think  that  is  going  to  have  its  effect.  I 
think  you  will  have  a  great  deal  of  restriction  placed  on  the  use  of 
the  automobile. 

Commissioner  BEALL.  When  you  say  that  you  can  not  foresee  the 
future  of  the  electric-railway  industry,  is  it  true  that  the  average 
street  railway  is  giving  practically  as  good  service  with  as  good 
equipment,  and  has  put  in,  in  the  past,  all  the  improvements  known 
to  the  art,  yet  the  trouble  is  due  to  various  reasons  ?  They  simply  are 
not  allowed  to  charge  a  proper  return.  There  is  nothing  else  to 
replace  it,  is  there? 

Mr.  CLARK.  No. 

Commissioner  BEALL.  When  you  say  that  you  can  not  foresee  the 
future,  I  just  wanted  to  get  it  into  the  record  that  you  do  not 
mean  to  say  that  their  situation  is  due  to  the  methods  they  have 
pursued,  and  that  there  is  a  better  and  cheaper  method  of  doing  it. 

Mr.  CLARK.  No. 

Commissioner  BEALL.  But  simply  that  they  are  not  allowed  to  earn 
enough  to  enable  them  to  live? 

Mr.  CLARK.  Yes;  that  is  it  exactly. 

I  will  tell  you  two  stories,  if  you  will  permit  my  digression,  which 
I  think  are  apropos. 

As  I  remarked  earlier  in  my  testimony,  I  came  into  this  industry 
through  the  selling  to  the  Thomson-Houston  Co.  the  Van  Depoele 
railway  patents.  This  deal  was  consummated  on  Washington's 
Birthday  of  1888,  at  Boston.  It  being  a  holiday,  Mr.  C.  A.  Coffin, 
the  man  who  has  really  made  the  General  Electric  Co.,  and  is  its 
chairman  to-day,  took  more  time  than  usual  at  the  luncheon  table, 
and  he  turned  on  me  with  this  statement,  "  Clark,  I  never  would  have 
made  that  deal  which  I  did  make  with  you  this  morning,  if  I  did  not 
consider  the  possibilities  of  electric  lighting  exhausted  to-day."  Now, 
you  can  hardly  grasp  that  to-day,  but  there  were  grounds  for  his 
making  the  statement. 

Mr.  WARREN.  That  was  in  1888? 

Mr.  CLARK.  That  was  on  Washington's  Birthday,  1888. 

The  country  was  filled  with  series  of  arc-lighting  stations,  which 
meant  very  little  in  the  way  of  investment.  That  wras  the  erecting 
of  a  central  station,  with  new  machines,  and  the  hanging  of  some 
wire  in  the  air  and  putting  out  some  arc  lamps.  The  possibilit}^  of 
direct  current  low-tension  was  appreciated,  but  you  could  not  go 
great  distances  with  that,  probably  only  in  the  hearts  of  the  large 
cities.  The  alternating  current  had  not  come  along.  So,  seemingly, 
he  had  good  grounds  for  making  that  statement. 

The  next  is  somewhat  akin  to  that. 

In  that  depressed  condition  of  1896 — that  awful  summer — I  caused 
a  careful  survey  of  the  activities  of  all  of  the  street  railwa}7s  in  the 
United  States  to  be  made,  delegating  our  own  men,  and  taking  men 
from  student  courses,  young  engineers,  supply  salesmen,  and  had  an 
actual  canvass  or  census  made  of  all  of  their  conditions. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      141 

The  net  result  I  was  able  to  get  together  in  August.  I  summar- 
ized it  on  a  half  sheet  before  I  sent  it  over  to  Mr.  .  There 

was  a  hurry  call  for  me  to  come  to  his  office  immediately.  When  I 
got  there,  he  was  pacing  up  and  down  the  floor,  and  he  said,  "  Clark, 
I  can't  see  how  we  are  going  to  do  business."  You  gentlemen  will 
remember  that  that  was  a  very  dull  time,  along  about  August,  1896. 
"  You  show  that  90  per  cent  of  all  of  the  street  railways  of  the 
United  States  are  already  electrified.  Now,  look  at  those  two  big 
factories  at  Schenectady.  How  are  we  going  to  keep  them  going?" 

I  told  him  the  first  story  that  I  have  just  given  you.  He  thought 
for  a  moment,  and  then  he  burst  into  laughter,  and  he  said,  "  I  guess 
you  are  right." 

Xow,  I  believe  most  thoroughly  that  the  electric  railway  is  going 
on,  and  not  only  in  its  present  form  upon  your  streets  and  other  local 
transportation  lines,  but  my  view  is  that  in  my  remaining  years  in 
this  industry,  I  will  see  the  electrification  of  steam  railroads.  I  have 
no  doubt  that,  when  conditions  are  adjusted  properly  in  this  country, 
that  form  of  electrification  is  going  to  come  like  a  whirlwind. 

Mr.  WARREN.  Mr.  Clark,  you  spoke  about  obsolescence  and  the 
earlier  costs  of  equipment.  Do  you  remember  what  the  electric  equip- 
ment of  a  car  used  to  cost  in  the  early  nineties  around  1890  or  1888? 

Mr.  CLARK.  I  hope  the  Lord  will  forgive  me  for  doing  it,  but  I 
sold  many  of  them  for  $4,500. 

Mr.  WARREN.  I  think  you  did.  I  think  you  sold  some  of  my 
clients  up  there.  Lately,  before  the  war  began,  what  would  a  better 
equipment,  much  better  equipment,  have  cost? 

Mr.  CLARK.  Well,  there  was  a  period  when  it  went  down — better 
equipment  than  that — when  we  sold  it  for  a  thousand  dollars,  during 
the  very  low  period  of  prices,  and  I  should  say  that  something  com- 
parable, before  the  war,  sold  for  about  $1,100  or  $1,200. 

Mr.  WARREN.  All  of  the  companies  which  were  organized  in  the 
earlier  years,  and  which  care  to  publish  the  early  benefit  of  this  im- 
proved traction  system,  bought  their  equipment  at  those  prices,  rang- 
ing from  $3,500  to  $4.500  per  car? 

Mr.  CLARK.  Oh,  yes. 

Mr.  WARREN.  And,  of  course,  that  was  a  legitimate  basis  for  capi- 
talization at  that  time? 

Mr.  CLARK.  It  surely  was. 

Mr.  WARREN.  And  yet  for  equipment  to-day — I  say  "  to-day,"  as- 
suming that  prewar  prices  were  still  in  effect— the  same  equipment, 
but  a  better  quality  or  better  character — better  suited  for  the  busi- 
ness of  to-day — it  would  be  figued  at  a  thousand  dollars  or  eleven 
hundred? 

Mr.  CLARK.  Yes ;  about  that. 

Mr.  WARREN.  And  that,  in  your  opinion,  accounts  for  a  great  deal 
of  the  so-called  over-capitalization  of  trolley  lines? 

Mr.  CLARK.  Yes;  it  does. 

Mr.  WARREN.  And  that  is  merely  one  type  of  the  things  that  those 
pioneer  companies  purchased,  is  it  not? 

Mr.  CLARK.  One  type.  You  might  carry  that  illustration  fur- 
ther, in  connection  witli  their  sources  of  current  supply  at  stations. 
If  (Lie  gentleman  will  pardon  me,  we  began  with  dynamos  of  80- 
horsepower  capacity  to  operate  the  electric  railways.  There  were 
very  many  electric  engineers,  when  it  was  suggested  that  we  build 


142      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

one  of  about  GOO  horsepower,  who  shook  their  heads,  saying  that,  it 
would  not  be  feasible.  However,  this  was  successfully  done,  but 
there  were  other  street-railway  engineers  who  still  considered  it  im- 
practicable;  and  if  I  recollect  right,  after  that  period,  there  was  a 
station  built  in  Cincinnati  where  there  were  some  80  of  these  little 
machines  put  in,  and  the  extent  of  the  building  to  put  them  in  was 
something  tremendous,  you  understand. 

Xow,  all  of  this  has  no  direct  bearing,  and  yet  it  does  serve  some 
of  of  these  points. 

I  have  heard  some  curious  discussions  among  some  of  the  celebrated 
engineers.  I  referred  earlier  in  my  testimony  to  the  development  of 
the  carbon  commutator  brush.  I  might  state  that  the  copper  brushes 
used  before  used  to  cut  these  to  pieces — the  most  important  and  ex- 
pensive part  of  the  machine — within  a  few  days.  But  the  carbon,  as 
you  know,  i*  a  good  preventive  of  that,  and  hence  its  great  advantage. 
I  heard  Prof.  Elihu  Townsend  tell  Mr.  Van  Depoele,  who  invented 
the  carbon  commutator  brush,  that  it  could  never  be  a  commercial 
success,  because  of  the  resistance  it  would  bring,  and  some  people 
were  furnished  motors  with  copper  brushes  for  a  little  while  after 
that,  as  a  result. 

Remember,  gentlemen,  that  this  deal  was  uncharted  when  we 
started  off,  both  electric  lighting  and  electric  railway,  and  while  the 
evolution  was  rapid,  there  was  much  of  it — very,  very  many  changes. 

One  of  the  features  after  this  period  that  I  refer  to  of  the  three 
great  inventions — no  one — Sprague,  or  any  of  the  rest  of  them  who 
were  in  the  field  during  any  of  those  days — had  a  satisfactory  con- 
troller. That  was  something  that  was  always  giving  out.  In  that 
connection,  I  heard  Prof.  Thompson  tell  Mr.  Potter  that  the  magnet 
which  was  invented  to  prevent  the  blowing  out  could  never  be  a  suc- 
cess. That  did  not  come  along  until  about  1892,  or  perhaps  the  early 
part  of  1891.  Now  that,  in  itself,  meant  the  change  of  the  control- 
ling apparatus  on  every  electric  car  then  in  operation. 

Mr.  WARREX.  Still,  that  change  was  justified  for  the  service? 

Mr.  CLARK.  Certainly,  as  many,  many  others. 

I  started  in  to  tell  you  about  the  power  stations,  and  I  might  go 
through  with  that. 

After  we  proceeded  to  build  the  big  dynamos,  for  which  we  must 
give  very  much  credit  to  our  Westinghouse  friends  and  to  William 
Stanley,  now  dead,  the  utilization  of  alternating  current  for  trans- 
mission purposes,  and  then  inserting  a  substation,  so  that  you  could 
extend  your  line,  was  another  great  step  forward.  In  those  days 
especially,  as  you  may  know,  the  cost  of  that  apparatus  was  terrifi- 
cally high ;  and  I  might  say  in  that  connection,  as  I  have  stated  about 
the  $4,500  per  car  equipment,  the  profits  were  not  so  very  large,  either. 
Expenses  for  engineering  and  engineering  blunders  were  very  enor- 
mous, in  both  cases. 

Commissioner  SWEET.  Mr.  Clark,  have  you  definitely  made  up  your 
mind  as  to  what  the  remedy  for  this  situation  is,  or  the  remedies, 
perhaps  ? 

Mr.  CLAEK.  I  have  not,  definitely. 

Commissioner  SWEET.  I  did  not  understand  you. 

Mr.  CLARK.  I  say  I  have  not,  definitely. 

Commissioner  SWEET.  Of  course,  in  some  way  or  other,  the  income 
of  the  electric-railway  companies  must  be  increased,  or  their  ex- 
penses diminished,  must  they  not,  in  order  to  live  ? 


PROCEEDINGS  OF  FEDEKAL  ELECTRIC  RAILWAYS  COMMISSION.     143 

Mr.  CLARK.  They  must  be. 

Commissioner  SWEET.  Perhaps  something  should  be  done  in  both 
directions. 

Mr.  CLARK.  Exactly. 

Commissioner  SWEET.  Do  you  take  into  account,  in  connection  with 
this  whole  question,  the  fact  that  the  purchasing  power  of  a  nickel 
has  been  very  much  reduced  in  the  last  few  years  ? 

Mr.  CLARK.  That  is  the  whole  story — not  the  whole  story,  but  a 
very  good  share  of  the  story,  of  course. 

Commissioner  SWEET.  The  people  generally  throughout  the  coun- 
ty have  a  sort  of  traditional  idea  that  they  ought  to  get  a  ride  on  a 
street-car  for  a  nickel,  have  they  not  ? 

Mr.  CLARK.  That  is  it. 

Commissioner  SWEET.  And  yet  the  nickel  of  the  present  day  is  not 
the  nickel  of  even  five  years  ago. 

Mr.  CLARK.  Oh,  no ;  it  is  only  about  half  of  it. 

Commissioner  SWEET.  To  satisfy  the  people  in  the  country — the 
general  public — that  they  ought  to  pay  more  for  the  service  they  are 
getting,  don?t  you  think  it  would  be  necessary  for  the  electric-railway 
companies  to  lay  their  cards  down  on  the  table,  practically,  and  show 
the  public  what  is  being  done? 

Mr.  CLARK.  Surely  I  do;  and  I  think  they  have,  in  a  great  many 
cases;  and  the  more  thoroughly  that  is  done  the  better,  unquestion- 
ably. 

Commissioner  SWEET.  Of  course  you  understand  that  this  commis- 
sion is  very  anxious  to  render  a  real  service  in  solving  tliis  very  diffi- 
cult problem. 

Mr.  CLARK.  I  appreciate  that  fully. 

Commissioner  SWEET.  And  we  want  all  the  advice  and  assistance  in 
the  way  of  acquiring  facts  and  ideas  and  suggestions  that  we  can 
possibly  get.  I  suppose  it  would  be  natural  for  the  general  public 
to  say,  "  Can't  the  railroad  companies  do  something  by  way  of  econ- 
omy to  cut  down  their  expenses?  " 

Mr.  CLARK.  Exactly. 

Commissioner  SWEET.  One  question  that  might  be  asked — one  ques- 
tion that  comes  into  my  mind  there — is  whether  the  alternating  cur- 
rent that  you  have  spoken  of  can  be  used  on  street-cars,  or  must  it  be 
transformed  into  direct  current?  Is  that  feasible? 

Mr.  CLARK.  That  has  not  been  done  vet,  in  an  economical  way.  It 
can  be  done.  It  has  been  tried,  you  know,  but  it  is  not  nearly  as 
economical  as  the  direct  current. 

Commissioner  BEALL.  Well,  it  has  been  a  failure,  has  it  not,  Mr. 
Chirk,  commercially,  on  every  road  that  has  ever  tried  it?  They 
have  always  lost  money  in  comparison  with  other  systems. 

Mr.  CLARK.  Well,  as  our  people  have  no  advocated  that,  you  will 
pardon  me  for  not  answering  that  question. 

Commissioner  SWEET.  You  say  you  have  advocated  it? 

Mr.  CLARK.  We  have  not. 

Commissioner  SWEET.  Oh !  There  are  probably  practical  reasons 
why  the  direct-current  motor  is  the  best  for  street-car  service? 

Mr.  CLARK.  So  far  as  we  know  to-day. 

Commissioner  SWEET.  Is  the  element  of  reversal  one  that  enters 
into  the  problem  ? 

Mr.  CLARK.  Oh,  yes. 


144     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  They  have  not  succeeded  in  making  an  alter- 
nating motor  that  can  be  reversed? 

Mr.  CLARK.  Oh,  yes;  it  can  be  done. 

Commissioner  SWEET.  It  can  be  done? 

Mr.  CLARK.  It  can  be  done. 

Commissioner  SWEET.  Then,  what  is  the  objection  to  it? 

Mr.  CLARK.  The  greater  expense  of  maintenance.  The  mainte- 
nance is  very,  very  much  higher. 

Mr.  WARREX.  The  maintenance  of  the  motor? 

Mr.  CLARK.  Yes;  the  whole  equipment. 

Commissioner  BEALL.  They  do  not  pick  up,  either,  do  they?  You 
can  not  start  them  ?  It  takes  more  current  ? 

Mr.  CLARK.  Yes,  it  takes  more  current  to  start  them,  but  the  great 
feature  is  the  maintenance,  and,  of  course,  you  have  more  than  the 
item,  per  se.  For  instance,  if  you  have  a  hundred  cars  on  the  system, 
and  you  are  averaging  1  per  cent  out  of  commission,  you  understand, 
that  is  very  small,  but  if  you  have  10  or  15  per  cent  out  of  commission, 
you  see  the  expense  is  cast  on  that  item,  as  well  as  in  the  maintenance 
proper. 

Commissioner  SWEET.  Then,  it  is  your  opinion  that  the  direct 
motor  is  less  likely  to  get  out  of  order? 

Mr.  CLARK.  Oh,  yes,  unquestionably.     That  has  been  demonstrated. 

Commissioner  SWEET.  What  about  the  original  cost? 

Mr.  CLARK.  The  direct  current  is  lower. 

Commissioner  SWEET.  So  that,  on  the  whole,  you  do  not  see  how 
anything  can  be  particularly  saved  by  a  change  in  that  direction? 

Mr.  CLARK.  Oh,  no.  Of  course,  this  is  true,  that  as  long  as  your 
labor  item  is  the  great  big  one  in  your  operating  expense,  there  is  not 
very  much  room  to  cut  down  otherwise.  Now,  your  current  costs  are 
small,  relatively.  Of  course,  it  is  entirely  possible.  I  have  ceased 
saying  that  anything  is  impossible.  I  have  seen  such  wonderful 
things  come. 

We  will  say,  for  instance,  Mr.  Ford  may  revolutionize  all  traction 
on  street  railways,  as  he  has  said  he  is  going  to  do.  I  don't  think 
he  will  be  able  to  do  it,  but  it  may  come  along  and  better  our  present 
form  of  electrification ;  but,  as  I  remarked  a  moment  ago,  so  long  as 
you  have  to  have  platform  wages,  3Tou  understand,  and  switchmen 
and  men  in  the  car-barn,  you  have  not  great  ways  to  go  in  the  way 
of  economy. 

Mr.  WARREN.  Mr.  Clark,  right  at  that  point,  you  spoke  of  Mr. 
Ford.  Do  you,  as  an  engineer,  think  that  a  carrier  on  tires  through 
the  highway  can  ever  be  as  satisfactory  economically  as  a  carrier  on 
rails? 

Mr.  CLARK.  Well,  don't  designate  me  as  an  engineer.  I  am  only 
a  hedgerow  engineer.  I  am  a  plain  everyday  business  man. 

Mr.  WARREN.  Well,  from  your  experience,  which  has  covered  a 
long  period,  do  you  think  it  can  ? 

Mr.  CLARK.  As  a  wholesale  transportation  proposition,  something 
equivalent  in  transportation  facilities  to  that  given  by  the  street 
railway,  no. 

Mr.  WARREN.  Mr.  Ford's  suggestion,  as  I  recall  it,  was  to  equip 
an  automobile  car  which  would  run  on  rails,  was  it  not? 

Mr.  CLARK.  Yes. 

Mr.  WARREN.  It  was  not  to  run  a  large  jitney,  for  instance? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      145 

Mr.  CLARK.  Oh,  that  was  not  his  idea,  but  if  you  will  let  me  finish  my 
answer,  of  course  it  does  appeal  to  the  average  person,  if  they  can  be 
picked  up  at  their  own  curbstone,  you  understand,  and  delivered  at 
the  curbstone  where  they  wish  to  go ;  but,  in  my  opinion,  with  any 
vehicle  propelled  by  any  power,  not  operating  on  rails,  you  can  not 
care  for  local  travel  under  the  requirements  of  the  American  public. 
You  can  not  do  it. 

Commissioner  SWEET.  Don't  you  think,  Mr.  Clark,  that  if  it  should 
result  from  this  investigation  that  we  are  making  that  a  recommenda- 
tion be  made  for  higher  fares — an  increase  in  the  rates  charged  the 
general  public — that  we  ought  to  be  able  to  satisfy  the  public  that  we 
have  investigated  all  possible  economies  from  the  side  of  the  railroad 
companies? 

Mr.  CLARK.  Surely. 

Commissioner  SWEET.  And  that  we  are  satisfied  nothing  material 
can  be  done  in  that  direction  before  our  recommendation  would  have 
very  much  weight  with  the  general  public. 

Mr.  CLARK.  Certainly  it  should,  gentlemen. 

Commissioner  BEALL.  Is  it  not  true,  Mr.  Clark,  that  for,  say,  10 

years,  there  has  not  been  any  great  new  invention  of  importance  of 

•the  ail  of  electric-railway  equipment  for  propulsion  that  will  save 

any  great  amount  of  money,  although  there  has  been  in  electric 

lighting  and  power? 

Mr.  CLARK.  That  is  true. 

Commissioner  BEALL.  And  there  has  not  been  any  great  improve- 
ment in  the  street-railway  business? 

Mr.  CLARK.  Xo. 

Commissioner  BEALL.  You  have  increased  the  size  of  the  car,  and 
you  have  used  more  power? 

Mr.  CLARK.  Yes. 

Commissioner  BEALL.  But  there  has  been  no  great  improvement  in 
10  years,  that  is,  that  you  can  see  at  the  moment? 

Mr.  CLARK.  Xo;  nothing  radical.  Of  course,  you  have  the  one- 
man  car  and  minor  improvements,  but  there  has  been  nothing  great  in 
connection  with  the  art,  like  in  electric  lighting. 

Commissoner  BEALL.  No ;  electric  lighting  and  power  has  gone  for- 
ward with  great  strides. 

Mr.  CLARK.  Yes;  certainly. 

Commissioner  SWEET.  Mr.  Clark,  you  will  be  here  to-morrow,  so 
that  is  we  wish  to  ask  you  anything  further  we  can? 

Mr.  CLARK.  I  surely  will. 

The  CHAIRMAN.  We  will  suspend  until  10  o'clock  to-morrow  morn- 
ing, sharp. 

(Whereupon,  at  5  o'clock  p.  m.,  the  further  hearing  in  this  case 
was  adjourned  until  to-morrow,  Wednesday,  July  16,  1919,  at  10 
o'cloc-k  a.  m.). 

WASHINGTON,  D.  C.,  July  16,  1019. 

The  commission  met  at  10  o'clock  a.  m.,  pursuant  to  adjournment 
of  yesterday. 

/'resent:  Charles  E.  Khnquist  (chairman),  Edwin  F.  Sweet  (vice- 
chairman),  Royal  Meeker,  C.  W.  Beall,  D.  B.  Wehle,  and  Philip  H. 
Gadsden,  commissioners. 

Appearances:  As  heretofore  noted. 


146    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

PROCEEDINGS. 

The  CHAIRMAN.  You  may  proceed  whenever  you  are  ready,  Mr. 
Wan-en. 

Mr.  WARREN.  I  will  ask  Gen.  Tripp  to  take  the  stand. 

The  CHAIRMAN.  Mr.  Clark  was  on  the  stand  at  the  time  of  adjourn- 
ment 3resterday. 

Mr.  WARREN.  Yes.  If  the  commission  will  permit  us,  I  should 
like  to  defer  the  completion  of  Mr.  Clark's  testimony.  He  wants 
some  figures  which  have  not  yet  arrived,  and  Gen.  Tripp  is  here  and 
is  very  anxious  to  get  away,  as  he  has  some  other  engagements. 

The  CHAIRMAN.  Very  well. 

Mr.  WARREN.  And  we  have  two  or  three  other  witnesses  in  the 
same  situation. 

STATEMENT  OF  GEN.  G.  E.  TRIPP. 

Mr.  WARREN.  Your  full  name  is  ? 

Gen.  TRIPP.  G.  E.  Tripp. 

Mr.  WARREN.  And  you  are  chairman  of  the  board  of  the  Westing- 
house  Electric  Co.? 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  Gen.  Tripp,  you  have  had,  I  believe,  a  long  experi- 
ence and  acquaintance  with  street  railways  and  electric  railways  ? 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  Will  you  kindly  state  to  the  commission  what  that 
experience  has  been  and  when  it  began. 

Gen.  TRIPP.  My  connection  with  street  railways  began  as  early  as 
1890,  at  which  time  I  was  in  the  employ  of  the  Thomson-Houston 
Electric  Co.,  and  was  assigned  to  the  contract  for  the  equipment  of 
the  West  End  Street  Railway  of  Boston  with  electrical  apparatus. 

Mr.  WARREN.  That  was  one  of  the  first  of  the  larger  systems? 

Gen.  TRIPP.  That  was  one  of  the  first  of  the  larger  systems. 

Following  that,  I  was  an  officer,  as  auditor  and  treasurer,  of  sev- 
eral street-railway  systems  throughout  the  United  States,  notably  at 
Lawrence  and  Brockton,  Mass.,  and  Allentown,  Pa. 

I  then  became  connected  with  Stone  &  Webster,  and  for  about  15 
3*ears  managed  several  of  their  street-railway  properties.  The  man- 
agers at  Seattle,  Wash.;  Dallas,  Tex.;  Fort  Worth,  Tex.;  and  Gal- 
veston,  Tex.,  reported  to  me. 

I  also,  during  that  period,  acted  as  expert  on  behalf  of  Stone  & 
Webster  in  various  examinations  of  street-railway  systems  and  re- 
organizations of  street-railway  systems. 

In  1912,  I  became  chairman  of  the  Westinghouse  Co.,  and  in  that 
capacity  directed  the  policy  of  the  various  street-railway  properties 
in  which  they  were  interested. 

During  that  period  I  was  president  of  the  West  Penn  Railways,  a 
system  operating  around  Pittsburgh,  Pa.  I  was  president  of  the 
Western  Light  &  Power  Co.  of  Colorado,  which  was  owned  by 
Westinghouse.  Church,  Kerr  &  Co.,  of  which  I  was  also  president. 

I  was  and  am  a  director  in  the  Interborough  Rapid  Transit  Co. 
of  New  York  City,  and  the  Interborough  Metropolitan  Co.  of  New 
York  City,  and  I  was  until  about  two  and  a  half  or  three  years  ago, 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".     147 

a  director  in  the  New  York  Railways  Co.,  which  operates  a  large 
portion  of  the  surface  lines  in  New  York  City. 

Mr.  WARREN.  Now,  Gen.  Tripp,  with  that  experience,  which  ap- 
parently has  been  continuous,  will  you  tell  the  commission  what  the 
tendency  in  the  street-railway  industry  has  been  during  the  last  few 
years — say,  since  the  outbreak  of  the  European  war  in  1914  ? 

Gen.  TRIPP.  It  is  more  than  a  tendency.  It  has  been  a  rapid 
progress  toward  bankruptcy. 

Mr.  WARREN.  And  what  has  been  the  cause  of  that — or  causes? 

Gen.  TRIPP.  The  principal  cause — and  all  other  causes  are  minor 
in  importance — was  the  decreased  purchasing  power  of  the  dollar. 

Mr.  WARREN.  And  as  regards  this  particular  industry,  why  could 
not  that  be  met  by  an  increased  price  for  the  commodity  sold  by  the 
companies,  the  price  of  transportation? 

Gen.  TRIPP.  Because  the  fares  had  been  fixed  either  by  franchise 
requirements  or  by  popular  impression  that  such  a  fare  was  standard 
forever  at  5  cents. 

Mr.  WARREN.  And,  as  you  say,  the  result  has  been  that  a  great 
many  of  the  companies  are  on  the  verge  of  bankruptcy? 

Gen.  TRIPP.  Not  only  on  the  verge  of  bankruptcy,  but  some  of  the 
larger  companies  are  already  in  bankruptcy. 

Mr.  WARREN.  Can  you  illustrate,  by  any  particular  company  with 
which  you  are  connected,  what  the  results  have  been  in  the  last  few 
years  ? 

Gen.  TRIPP.  There  is  only  one  company  concerning  which  I  feel  at 
liberty  to  speak  in  detail. 

I  have  an  intimate  acquaintance  with  the  situation  in  Chicago,  be- 
cause I  participated  in  the  reorganization  of  the  North  Side  street 
railways  into  what  is  now  the  Chicago  Railways  System.  I  also 
acted  for  the  bankers  in  the  consolidation  of  the  elevated  lines  in 
Chicago,  but  concerning  the  situation  regarding  those  companies  I 
do  not  feel  at  liberty  to  speak. 

There  is.  however,  one  company  which  presents  perhaps  all  of  the 
angles  of  the  question,  which  I  had  an  intimate  knowledge  of,  and  , 
which  now  being  in  the  hands  of  a  receiver,  I  see  no  impropriety  in 
telling  the  story  about. 

Mr.  WARREN.  What  is  that  company? 

Gen.  TRIPP.  That  is  the  New  York  Railways  Co. 

Mr.  WARREN.  That  is  the  company  operating  certain  of  the  surface 
lines  in  New  York  City? 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  Now,  tell  the  commission  the  history  of  that  com- 
pany and  the  effect  upon  it  of  this  reduced  purchasing  value  of  the 
dollar. 

(ion.  THIPP.  Yes,  sir. 

The  New  York  Railways  Co.  is  a  successor  company  to  the  Metro- 
politan Street  Railway  Co.,  which  went  into  the  hands  of  a  receiver 
in  1(.}07.  The  Metropolitan  Street  Railway  Co.  operated  all  the  sur- 
face lines  on  Manhattan  Island  and  the  Bronx.  Receivers  were  ap- 
pointed, I  believe,  in  1907,  and  they  found  the  system  composed  to 
a  large  extent  of  leases,  among  which  were  the  Third  Avenue  lines, 
the  Second  Avenue  lines,  the  bolt  lines,  sind  perhaps  one  other.  Those 
leases  which  I  have  just  mentioned  the  receivers  dropped  from  the 


148     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Metropolitan  receivership;  whereupon  they  also  went  into  the  hands 
of  separate  receivers. 

The  securities  which  were  defaulted  at  that  time  were  two  issues 
of  bonds,  one  a  4  per  cent  refunding  bond  and  a  5  per  cent  general 
mortgage  collateral  trust  bond.  Each  of  those  classes  of  securities 
organized  their  own  reorganization  committee.  It  seemed  wise  at 
an  early  date  in  that  receivership  for  them  to  join  issue,  and  a  joint 
committee  on  reorganization  of  the  Metropolitan  Street  Railway  was 
organized ;  and  I  became  chairman  of  that  reorganization  committee. 

In  1911,  a  reorganization  plan  was  promulgated  and  accepted, 
under  which  all  the  securities  which  were  issued,  both  of  the 
Metropolitan  company  itself  and  the  securities  of  tire  leased  lines 
which  still  remained  in  the  system,  added  together,  made  an  aggregate 
amount  of  less  than  the  physical  valuation  of  the  property  as  valued 
by  Ford,  Bacon  &  Davis,  and  as  verified  by  myself. 

The  classes  of  new  securities  consisted  of  a  real-estate  and  refund- 
ing 4  per  cent  bond.  I  do  not  just  recall  the  amount,  but  it  was  the 
only  fixed  charge  upon  the  new  property  and,  in  my  then  opinion 
and  in  the  opinion  of  all  those  connected  with  the  reorganization,  con- 
stituted a  security  which  would  be  safe  against  almost  anything  but 
an  earthquake. 

An  issue  of  income  bonds  was  also  put  out — those  bearing  interest 
at  5  per  cent — and  in  my  estimates  I  told  the  reorganization  com- 
mittee that  I  believed  that  those  bonds  would  pay  3  per  cent  for  the 
first  year,  4  per  cent  for  the  second  year,  and  5  per  cent  for  the  third 
year  of  the  operations  of  the  company. 

The  stock,  which  was  reduced  in  amount  from  $56,000,000  to  about 
$T,500,000,  was  issued  to  the  Interborough  Metropolitan  Co.,  which 
had  been  a  stockholder  of  the  Metropolitan  Co.  before  the  receiver- 
ship, upon  the  payment  by  them  of  an  assessment  of  cash.  I  do  not 
recall  now  what  that  assessment  was.  However,  the  total  amount  of 
the  securities  was  not  scaled  by  a  figure  which  represented  the  dif- 
ference between  $7,500,000  and  $56,000,000,  but  it  was  something  less, 
.because  the  income  bonds  and  other  bonds  had  been  issued  to  other 
classes  of  creditors,  notably  the  tort  creditors,  those  who  had  claims 
against  the  system  for  personal  injuries.  Their  claim  was  paid  in 
the  same  class  of  securities  and  in  the  same  amount  that  the  original 
4  per  cent  bondholders  of  the  Metropolitan  Street  Railway  Co.  re- 
ceived. 

The  result  was  that  the  securities  of  the  Metropolitan  system  was 
scaled  something  like  $40,000,000,  as  I  recall  it;  and,  as  I  say,  the 
total  of  all  securities  of  all  the  lines  now  in  the  New  York 
Railways  system  was  less  than  the  physical  value  of  the  property  as 
appraised  and  as  verified  by  me. 

Mr.  WARREN.  Gen.  Tripp,  may  I  interrupt  you  at  that  point  to  ask 
you :  Did  that  appraisal  include  any  value  for  the  franchises  of  any 
of  those  lines  ? 

Gen.  TRIPP.  No.  sir. 

Mr.  WARREN.  That  made  up  the  new  company  ? 

Gen.  TRIPP.  No,  sir. 

Mr.  WARREN.  Those  so-called  and  perhaps  actual  perpetual  fran- 
chises in  them  received  ofl  value  in  that  capitalization? 

Gen.  TRIPP.  They  received  no  value  in  that  capitalization. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      149 

Mr.  WARREN.  So  that  the  capitalization  was,  perhaps,  less  than  if 
the  property  had  been  then  built  for  the  first  time  and  capitalized  at 
that  time  ? 

Gen.  TRIPP.  Yes. 

Mr.  WARREX.  And  that  was  in  1911? 
Gen.  TRIPP.  That  was  in  1911. 

As  I  recall  it,  the  properties  were  turned  over  to  the  New  York 
Railways  on  January  1,  1912. 

Under  the  provisions  of  the  reorganization  agreement,  the  income 
bondholders,  which  had  a  class  of  security  that  was  comparable  to 
that  of  a  preferred  stock,  required  a  representation  on  the  board  of 
the  new  company.  There  were  nine  directors,  and  the  income  bond- 
holders were  entitled  to  four  out  of  the  nine;  and  I  went  on  the  board 
of  directors  as  one  of  the  four  representing  the  income  bondholders. 
My  recollection  is  that  we  did  pa}7  3  per  cent  on  the  income  bonds, 
as  estimated. 

The  directors,  of  which  I  was  one.  thought  it  wise  to  set  aside  cer- 
tain reserves,  or  to  build  up  certain  reserves,  against  accident  claims, 
and  I,  for  one,  coincided  with  the  instructions  that  had  been  given  us 
by  the  Public  Service  Commission  of  New  York  to  either  expend  in 
maintenance  or  set  aside  each  year  a  sum  which  would  equal  20  per 
cent  of  the  gross  earnings. 

If  these  two  things  had  not  been  done,  the  result  would  have  shown 
a  full  5  per  cent  on  the  income  bonds. 

The  holders  of  the  income  bonds  became  impatient  because  we  set 
aside  those  reserves  claiming,  with  considerable  justice,  that  if  they 
did  not  receive  income  at  the  present  time,  they  never  would  receive 
it,  because  it  was  not  cumulative.  So  they  waited  upon  me  and  other 
members  of  the  board  of  directors  representing  those  bonds,  and 
insisted  that  we  pay  out  the  full  net  earnings.  We  declined  to  do  it 
on  the  ground  that  it  was  not  good  business,  although  we  sympathized 
with  their  desire  to  receive  the  earnings  while  they  could.  Where- 
upon, a  campaign  for  proxies  was  instituted  at  the  next  annual  meet- 
ing, and  myself  and  three  associates  were  ousted  from  the  board. 

The  New  York  Railways  Co.  would  have  gone  along  on  about  the 
basis  we  estimated  if  it  had  not  been  for  the  war.  Due  to  the  increased 
expenses,  which  are  the  result,  in  my  opinion,  of  the  decreased  pur- 
chasing power  of  currency  all  over  the  world — it  is  not  peculiar  to 
this  country  alone ;  and  parenthetically,  I  might  say  I  believe  it  is  a 
condition  more  or  less  permanent — due  to  this,  the  New  York  Rail- 
ways Co.  was  unable  to  earn  the  interest  on  the  real-estate  and  re- 
funding 4  per  cent  bonds,  which,  in  1912,  we  thought  were  proof 
against  anything  that  could  happen  to  the  street  railway  business  in 
New  York. 

I  think  that  is  a  fairly  complete  story,  except  something  might  bo 
said  regarding  the  leased  lines. 

The  New  York  railway  system  is  to-day  composed  of  perhaps  8  or 
10  different  corporations,  their  control  over  them  being  through  the 
medium  of  leases.  Some  of  those  leases  bear  a  high  rate  of  dividend. 
I  think  there  is  one  that  is  as  high  as  17  per  cent.  The  others  average, 
I  believe,  about  9  per  cent,  but  the  capitali/aticTi  of  these  leased  lines 
is  comparatively  small.  They  were  leased  in  the  early  days  when  a 
comparatively  small  investment  had  been  made,  and  all  the  invest- 


150     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

ment  that  has  been  made  since  in  those  companies  has  been  made  out 
of  the  money  of  the  Metropolitan  system  or  the  New  York  Railways 
and  expended  on  the  property  of  these  leased  lines.  Therefore,  the 
lease  rentals  are  of  a  character  which  would  make  no  difference  what- 
ever in  the  result,  because  they  are,  in  amount  of  money,  a  very  small 
proportion  of  the  whole. 

Mr.  WARREN.  As  a  result  then,  of  the  increased  cost  of  street-rail- 
way operation,  all  the  securities  of  this  reorganized  .company  being 
capitalized  on  the  basis  that  you  have  stated,  that  is,  at  less  than  the 
physical  value  of  the  property  itself,  the  company  has  been  unable  to 
receive  recently  anything  upon  those  securities  in  the  way  of  return  ? 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  And  even  the  underlying  security  of  these  real- 
estate  bonds,  the  interest  on  those  has  been  defaulted  ? 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  And  that  is  what  precipitated  receivership? 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  Do  you  happen  to  know,  Gen.  Tripp,  whether  Judge 
Mayer  in  the  United  States  court  has  already  segregated  certain  of 
the  leased  lines  from  the  system  ? 

Gen.  TRIPP.  He  has  within  a  week  issued  an  order  dropping  the 
Eighth  Avenue  Railroad  out  of  the  system. 

Commissioner  GADSDEN.  What  is  going  to  be  the  effect  of  that, 
General  ? 

Gen.  TRIPP.  The  effect  on  whom,  Mr.  Commissioner? 

Commissioner  GADSDEN.  On  the  public. 

Gen.  TRIPP.  The  effect  on  the  public  will  not  be  so  serious,  in  view 
of  the  fact  that,  as  I  read  in  the  newspapers,  the  Eighth  Avenue 
line  was  dropped  with  the  provision  that  the  transfer  privilege  or 
exchange  of  transfers  between  it  and  the  remaining  connections  of 
the  system  should  still  exist  on  the  same  terms. 

Mr.  WARREN.  If,  however,  the  courts  should  hold  that  the  cancel- 
lation of  that  lease  left  the  Eighth  Avenue  Co.  free  to  make  its  own 
rates  up  to  5  cents,  then  the  car-riding  public  would  lose  the  ad- 
vantage of  the  uniform  system  ? 

Gen.  TRIPP.  Precisely. 

Mr.  WARREN.  So  far  as  that  line  is  concerned. 

Gen.  TRIPP.  Precisely.  It  would  cost  them  more,  and  everybody 
would  be  greatly  inconvenienced. 

Mr.  WARREN.  Yes. 

Commissioner  GADSDEN.  Is  the  Eighth  Avenue  line  equipped  to 
generate  its  own  current  and  operate  its  own  road  ? 

Gen.  TRIPP.  It  has  no  power-house  of  its  own. 

Commissioner  GADSDEN.  It  would  have  to  purchase  power,  then, 
from  the  Railways  Co.? 

Gen.  TRIPP.  It  could  either  do  that  or  purchase  it  from  the  Edison 
Co. 

Commissioner  GADSDEN.  Do  you  think  they  will  be  able  to  get  it  on 
just  as  advantageous  terms  as  they  have  been  getting  it  as  an  integral 
part  of  the  New  York  Railways  now  ? 

Gen.  TRIPP.  No. 

The  CHAIRMAN.  Does  that  company  have  its  own  equipment  ? 

Gen.  TRIPP.  It  has  no  equipment  left  of  the  original  equipment. 
My  recollection  is  that  the  lease  provides  that  the  equipment  shall 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     151 

be  returned  in  as  good  condition  as  when  leased — which  might  operate 
to  force  the  New  York  Railways  to  equip  the  line  to  a  certain  extent. 

The  CHAIRMAN.  How  many  miles  are  there  on  the  Eighth  Avenue 
system  ? 

Gen.  TRIPP.  How  many  what? 

The  CHAIRMAN.  How  many  miles. 

Gen.  TRIPP.  It  is  a  double-track  line,  extending  the  whole  length 
of  Eighth  Avenue,  and  running  down  to  one  of  the  ferries — the 
Christopher  Street  ferry.  I  should  judge  there  were  12  miles  of 
track. 

Commissioner  GADSDEN.  You  say  there  are  10  other  leases  of  that 
character— 8  or  10? 

Gen.  TRIPP.  To  the  best  of  my  recollection,  I  would  say  there  are 
10  other  leases — not  of  that  character;  not  of  that  same  character, 
but  10  other  leases. 

Mr.  WARREN.  1  presume,  Gen.  Tripp,  that  the  rental  on  those 
leased  lines  also  was  stopped,  was  it  not? 

Gen.  TRIPP.  No.  As  to  those  leased  lines  that  still  remain  in  the 
system,  the  rentals  are  being  paid  by  the  receiver. 

Mr.  WARREN.  And  on  this  line  which  has  been  abandoned  the 
rental  has  been  dropped? 

Gen.  TRIPP.  That  rental  ceases,  naturally. 

Mr.  WARREN.  Now,  under  an  order  of  the  public-service  commis- 
sion, a  2-cent  charge  was  permitted  on  transfers  recently,  was  it  not  I 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  On  the  system? 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  And  if  that  does  not  continue  as  respects  this  line 
which  has  been  separated,  then  the  transfer  passengers,  instead  of 
paying  7  cents,  will  be  obliged  to  pay  the  sum  of  the  two  independent 
fares,  which  at  the  present  time  would  be  10  cents? 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  Would  you  say  that  that  situation  had  resulted  en- 
tirely from  the  reduced  purchasing  value  of  the  nickel,  or,  to  state  it 
in  another  way.  from  the  increased  cost  of  labor  and  materials  and 
operating  expenses  generally? 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  And  which  was  something  which  was  entirely  un- 
foreseen when  the  reorganized  property  was  launched? 

Gen.  TRIPP.  Yes,  sir.  Of  course,  we  acted — and  we  were  all  living 
in  a  fool's  paradise  in  the  street-railway  business  and  we  suddenly 
woke  up,  when  the  war  woke  us  up,  to  find  that  no  business  which  can 
not  increase  its  revenue  under  any  conditions  can  live  or  is  sound. 
The  street-railway  credit,  in  my  opinion,  can  never  be  restored  under 
the  present  system  of  relationship  between  the  municipalities  and 
the  companies.  It  is  necessary  to  have  a  credit  on  a  basis  that  is  good 
not  for  two  years  or  three  years,  but  for  long  periods.  Capital  stock 
never  falls  due.  Bonds  usually  run  for  from  20  to  30  years,  and  in 
order  to  attract  private  capital  into  that  class  of  securities  herea-fter, 
there  must  be  a  basis  of  relationship  which  will  reasonably  assure 
the  investor  that  for  the  period  for  which  they  are  to  use  his  money, 
there  is  a  reasonable  assurance  that  he  will  receive  a  return,  and  that 
he  will  l>e  protected  against  unforeseen  and  unusual  things,  such  as 
this  war  has  brought  about. 


152      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Would  you  say  that  the  experience  of  this  company 
which  you  have  given  as  an  illustration  of  your  general  statement  is 
fairly  illustrative  of  the  probable  fate  of  all  conservatively  capital- 
ized street  railways,  limited  by  a  fixed  maximum  rate  of  fare,  or,  we 
will  say,  a  fixed  maximum  rate  of  5  cents? 

Gen.  TRIPP.  I  would  say  that  while  there  may  be  exceptions  to  that 
rule,  practically  all.  I  believe  that  while  this  commission  is  sitting 
here,  there  will  be  other  large  systems  in  large  cities  of  this  country 
•going  into  the  hands  of  receivers. 

I  was  familiar  with  the  Brooklyn  Rapid  Transit  situation.  As  a 
matter  of  fact,  I  made  the  application  for  the  receiver  on  behalf  of 
the  Brooklyn  Rapid  Transit  Co. 

Mr.  WARREN.  That  is  an  elevated  company,  is  it  not? 

Gen.  TRIPP.  Yes. 

There  was  a  company  which  had,  as  I  recollect  it,  $5,000,000  net 
surplus  for  its  stock  only  a  year  or  two  ago.  It  has  entirely  disap- 
peared. 

Mr.  WARREN.  By  "  disappeared  " — these  increased  costs  have  ab- 
sorbed it,  you  mean? 

Gen.  TRIPP.  Yes. 

The  rapidity  with  which  net  profits  on  electric-railway  companies 
have  gone  during  the  last  year  is  the  most  astounding  thing  that  I 
have  ever  seen  in  my  business  experience.  They  have  melted  like 
snow  in  a  hot  sun,  and  the  process  is  still  going  on. 

As  the  witnesses  have  told  you  yesterday,  the  full  effect  of  the 
raise  of  wage  by  the  War  Labor  Board — and  I  entirely  subscribe  to 
the  raise  of  wage  by  the  War  Labor  Board.  It  was  unavoidable; 
labor  must  get  more  wages ;  it  can  not  be  avoided ;  the  depreciation 
of  currency  has  made  it  necessary  that  those  who  have  no  margin 
upon  which  to  go,  like  labor,  at  once  receive  relief,  and  the  situation 
is  here  to  stay  so  long  as  the  present  condition  of  depreciated  cur- 
rency exists — therefore  the  War  Labor  Board  acted  properly  in 
raising  these  wages,  and  the  unfortunate  situation  of  the  street  rail- 
way, which  is  unique  in  itself — probably  it  may  be  the  only  indus- 
try in  the  United  States  that  is  in  that  situation,  where  they  could 
not  get  an  additional  cent  of  income  to  compensate  them  for  these 
increased  expenses — is  a  condition  for  which  no  one  is  to  blame  ex- 
cept, perhaps,  the  investors  or  early  promoters  of  these  companies, 
who  could  not  look  far  enough  into  the  future  to  see  that  it  was  a 
fallacy  and  a  fundamental  error  to  invest  money  in  a  project  where 
it  was  impossible  to  increase  your  income.  However,  that  was  uni- 
versally done,  and  we  can  only  regret  it  now. 

Nor  can  the  public  utility  commissions  be  blamed  for  not  acting 
immediately.  They  require  evidence;  they  move  slowly.  In  some 
cases,  they  have  afforded  relief. 

Therefore  the  street-railway  industry  stands  to-day  unique  in  the 
United  States.  There  is  nothing  comparable  with  it. 

To  illustrate  how  I  regard  the  value  of  street-railway  securities, 
Westinghouse,  Church,  Kerr  &  Co.,  a  company  of  which  I  am  the 
president,  owned  practically  all  of  the  securities  of  a  certain  com- 
pany in  Colorado,  and  I  sold  that  company,  or  rather,  gave  the  stock 
away,  without  the  payment  of  one  cent,  if  the  purchaser  would  pay 
the  notes  which  the  company  owed  Westinghouse,  Church,  Kerr  & 
Co.  for  borrowed  money. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     153 

Now,  when  you  consider  that  the  stock  represented  in  that  transac- 
tion physical  value,  you  can  see  that  we  had  reached  the  stage  where 
we  were  willing  to  charge  it  off  our  books.  I,  for  one,  did  not  care 
to  go  into  the  fight  of  abandoning  street-railway  service  in  a  com- 
munity which  had  had  it  for  many  years;  nor  did  we  have  the  or- 
ganization to  handle  it.  We  were  not  street-railway  operators.  We 
acquired  it  because  we  had  to  acquire  it  for  a  debt.  This  was  a  com- 
bined company — electric  light  and  power  and  street  railway — and  if 
the  purchaser  of  those  securities,  or  if  the  man  who  accepted  the  gift 
of  that  stock  will  cut  out  the  street-railway  system  and  abandon  the 
service,  he  will  have  a  profitable  property  on  his  hands,  and  will 
have  made  a  good  trade. 

Mr.  WARREN.  Through  retaining  the  lighting  end  of  it? 

Gen.  TRIPP.  Through  retaining  the  lighting  end  and  power  end 
of  it. 

Mr.  WARREN.  Reverting  to  the  question  of  credit.  Gen.  Tripp,  do 
you  think  that  the  investing  public  is  now  aware  of  the  effect  of  this 
limitation  upon  income  to  such  an  extent  that  it  will  be  impossible 
in  the  future,  with  a  fixed  limit  substantially  higher  perhaps  than 
5  cents,  to  rehabilitate  the  credit  of  the  companies? 

Gen.  TRIPP.  It  is  not,  to  my  mind,  so  much  a  question  of  what  the 
individual  investor  feels  about  it.  The  individual  investor  usually 
invests  upon  the  advice  of  his  bankers,  but  there  is  no  doubt  but  what 
the  bankers  of  the  country  are  thoroughly  familiar  with  and  thor- 
oughly alarmed  over  the  situation. 

Mr.  WARREN.  And  any  remedy  aught  to  involve  the  elimination  of 
the  fixed  maximum? 

Gen.  TRIPP.  No  other  solution,  in  my  opinion,  would  be  adequate, 
even  if  cities  should  remit  all  taxes,  and  releve  the  street-railway 
companies  of  the  burdens  of  paving  and  all  charges  of  that  character. 
It  would  not  affect  the  real  situation.  In  the  first  place,  the  amount 
involved  is  not  sufficient  to  make  up  the  difference  and,  in  the  next 
place,  it  is  attacking  the  symptoms.  Even  permission  to  increase  the 
fare  on  the  basis  of  the  present  relationship  is  entirely  inadequate. 
That  does  not  solve  the  problem.  The  problem  is  one  which  requires 
a  sound  basis  upon  which  to  rest,  but  which  permits  of  different  solu- 
tions in  different  localities.  Some  communities  may  require  a  street- 
railway  service  that  the  population  in  itself  would  not  warrant,  and 
perhaps  it  would  be  impossible  to  assess  a  fare  high  enough  to  pro- 
duce sufficient  net.  In  those  particular  localities,  if  they  desire  such 
service,  the  remedy  is  through  taxation  to  support  it,  or  some  other 
methods.  Zone  systems  may  be  desirable  in  some  cases.  And  so. 
I  think,  the  basis  must  be  fixed  upon  which  these  various  solutions 
sriay  rest. 

Mr.  WARREN.  So  it  is  not  only  a  matter  of  possibly  higher  fares, 
but  a  matter  of  relations  between  the  company  and  the  car-riding 
public  that  it  serves? 

Gen.  TRIPP.  I  think  a  new  scheme  of  relationship  must  first  bo 
devised. 

Mr.  WARREN.  Do  you  happen  to  know.  Gen.  Tripp,  whether  what  I 
have  heard  this  morning  that  surface  lines  have  gone  into  the  hands 
of  a  receiver,  is  correct? 

Gen.  TRIPP.  Yes,  sir;  but  as  I  understand  it.  there  are  some  linos 
that  have  not  gone  in.  I  have  forgotten  just  the  make-up  of  those 
100643°— 20 11 


151      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

corporations  over  there.  The  Brooklyn  Rapid  Transit  is  in  the  hands 
of  a  receiver. 

Mr.  WARREN.  That  does  not  involve  surface  lines? 

Gen.  TKIPP.  That  involves  some  surface  lines. 

Air.  WARREN.  I  understood  that  some  more  surface  lines  had, 
within  a  day  or  two,  gone  into  receivership. 

Gen.  TRIPP.  Well,  that  may  be.    I  have  not  heard  of  it. 

Mr.  WARREN.  I  think  that  is  all  I  want  to  ask  Gen.  Tripp.  If  any 
of  the  commissioners  wish  to  ask  him  any  questions.  I  hope  they  will, 
because,  if  I  do  not  undertake  to  cover  all  the  matters  that  may  in- 
terest different  members  of  the  commission,  I  hope  they  will  feel  free 
to  ask  the  witness  any  questions  which  will  help  them  to  study  this 
very  difficult  problem. 

Commissioner  SAVEET.  Gen.  Tripp,  it  has  been  said  that  there  are 
three  parties  interested  very  deeply  in  this  question — the  public,  the 
employees,  and  the  company. 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET,  Do  you  see  any  valid  reason  why  there 
should  be  any  antagonism  among  these  three  elements? 

Gen.  TRIPP.  Not  if  a  proper  relationship  has  been  established. 

Commissioner  SWEET.  In  order  to  bring  about  the  condition  that 
you  think  is  the  only  one  that  will  guarantee  the  successful  operation 
of  the  roads  hereafter,  can  you  see  any  other  possible  solution  of  this 
question  than  the  bringing  together  of  these  three  interested  elements 
in  a  full  spirit  of  cooperation? 

Gen.  TRIPP.  There  is  no  other  solution. 

Commissioner  SWEET.  How  do  you  account  for  the  prejudice  in  the 
public  mind  against  these  railway  corporations?  There  is  such  a 
prejudice,  is  there  not? 

Gen.  TRIPP.  Yes;  and  it  is  perfectly  clear  why  it  should  exist.  The 
Metropolitan  Street  Eailway  Co.  was  largely  overcapitalized. 

Commissioner  SWEET.  And  overcapitalization  is  one  of  the  reasons 
why  the  public  is  prejudiced  against  these  companies? 

Gen.  TRIPP.  Yes.    Large  fortunes  were  made. 

Commissioner  SAVEET.  Yes? 

Gen.  TRIPP.  They  were  made,  however,  out  of  capitalizing  the  fu- 
ture and  selling  the  securities,  and  not  out  of  the  5-cent-fare  rider. 
The  5-cent  fare  never  produced  more  than  a  fair  return  upon  the  fair 
investment  of  the  property.  But  hopes  were  capitalized,  and  hopes 
were  sold,  and  the  investors  have  lost  money.  But  the  car  riders 
have  not  paid  for  it. 

Commissioner  SWEET.  As  another  element  of  prejudice  and  feel- 
ing on  the  part  of  the  general  public  against  the  corporations,  has 
there  not  in  the  past  been  a  great  deal  of  dishonest  manipulation  of 
common  councils  and  public  officials  on  the  part  of  the  companies? 

Gen.  TRIPP.  There  was  no  doubt  about  that,  in  the  early  days.  I 
think  of  late  years  that  has  not  been  so. 

Commissioner  SWEET.  But  that  created  a  feeling  in  the  public 
mind  that  has  to  some  extent  remained  up  to  the  present  time;  did 
it  not? 

Gen.  TRIPP.  Precisely. 

Commissioner  SWEET.  With  regard  to  the  discounting  of  the 
future  that  you  have  spoken  of,  the  overcapitalization,  that  is  what 
the  people  generally  speak  of  as  "  watered  stock";  is  it  not 2 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     155 

Gen.  TRIPP.  Precisely. 

Commissioner  SWEET.  The  individuals  who  were  chiefly  respon- 
sible for  that,  and  who  made  money  out  of  it — are  they  still-in  the 
business;  or,  for  the  most  part,  are  they  out  of  it;  and  have  they 
turned  over  the  capital  to  innocent  purchasers? 

Gen.  TRIPP.  Of  course,  that  question  is  a  general  question,  and 
there  may  be  exceptions. 

Commissioner  SWEET.  Oh,  undoubtedly. 

Gen.  TRIPP.  I  should  say  it  would  be  found  that  very  few  of  these 
electric-railway  securities  will  be  found  in  the  strong  boxes  of  the 
estates  of  the  men  who  originally  promoted  them. 

Commissioner  SWEET.  Who  are  the  present  owners  of  street-rail- 
way stocks? 

Gen.  TRIPP.  The  public,  the  small  investor,  the  insurance  com- 
pany; in  Massachusetts,  to  some  extent,  the  savings  banks. 

Commissioner  SWEET.  You  are  speaking  now  of  stocks  exclusively, 
or  stocks  and  bonds  \ 

Gen.  TRIPP.  No;  I  was  speaking  of  bonds,  principally. 

Commissioner  SWEET.  Of  bonds? 

Gen.  TRIPP.  The  public  also  owns  the  stock. 

At  the  time  of  the  reorganization  of  the  Metropolitan  Co.,  I  met 
many  of  the  smaller  security  holders  and,  as  an  example  of  the 
deplorable  situation  that  has  been  brought  about  by  receiverships, 
I  remember  the  case  of  an  old  lady,  about  70  years  of  age,  who  came 
into  my  office,  having  $10,000  of  the  5  per  cent  bonds  of  the  Metro- 
politan Street  Railway,  which  were  in  default,  and,  of  course,  she 
had  received  no  interest. 

She  told  me  that  her  husband,  who  was  about  her  age,  had  been 
an  invalid  for  many  years.  They  had  lived  together  in  a  little  house 
out  in  the  country,  and  they  had  their  money  in  a  savings  bank,  on 
which  they  were  getting  $350  or  $400  a  year  income.  It  was  pretty 
close  manipulating  for  the  old  couple  to  get  along,  and  she  con- 
cluded that  she  would  invest  in  these  5  per  cent  bonds.  Her  hus- 
band was  an  invalid,  and  she  did  not  want  him  to  have  the  worry 
of  a  change  of  investment,  but  she  felt  sure  herself.  So  she  drew 
the  money  out  without  his  knowledge,  and  invested  in  these  bonds 
and  they  had  nothing  whatever  to  live  on. 

That  was  the  most  affecting  case  that  came  to  my  attention,  but 
I  met  many  people  who  could  not  afford  to  lose  the  money. 

Commissioner  SWEET.  Do  you  think,  General,  that  that  fact  is 
quite  commonly  understood  by  the  general  public? 

Gen.  TRIPP.  No;  I  do  not  think  it  is. 

Commissioner  SWEET.  Now,  the  employees,  you  said  in  your  direct 
testimony,  were  entitled  to  the  raise  given  by  the  War  Labor  Board, 
in  your  judgmeitt. 

Gen.  TRIPP.  In  my  judgment  they  were. 

Commissioner  SWEET.  And  tlie  wages  can  not  reasonably  be 
reduced  ? 

Gen.  TRIPP.  No,  sir. 

Commissioner  SWEET.  So  that,  as  far  as  the  employees  are  con- 
cerned, no  relief  can  be  expected  from  the  situation  that  exists  by 
reason  of  reducing  their  compensation  i 

Gen.  TRIPP.  No,  sir. 


156      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  And  it  would  not  be  right,  in  your  judg- 
ment, to  consider  it  from  that  standpoint  ? 

Gerr.  TRIPP.  No,  sir. 

Commissioner  SWEET.  That,  then,  would  leave  the  problem  one  to 
be  solved  between  the  general  public  and  the  corporation,  would  it 
not? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  And  there  would  possibly  be  two  solutions 
there— one  that  the  corporation  should  lay  down  entirely  and  go  out 
of  business,  and  let  the  general  public  do  what  it  saw  fit,  or  else  make 
some  arrangement  with  the  general  public,  the  municipalities,  by 
which  municipal  ownership  and  operation  might  take  place  ? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  Or,  if  preferred  by  the  general  public,  to 
have  private  ownership  and  operation,  then  arrangement  would  have 
to  be  made  between  the  corporation  and  the  general  public  that  would 
be  mutually  satisfactory;  and  that  would  contain  in  it  the  elements 
that  you  have  stated  as  essential  to  the  continued  success  of  private 
operation  of  these  companies.  Is  not  that  right  ? 

Gen.  TRIPP.  That  is  exactly  as  I  believe,  sir. 

Commissioner  SWEET.  Now,  upon  what  basis  do  you  think  the  gen- 
eral public  and  the  corporation  can  meet  in  order  to  bring  about  the 
condition  that  would  permit  of  continued  private  ownership  and 
operation  of  these  companies  ? 

Gen.  TRIPP.  I  believe  that  some  form  of  cost-of -service  plan — 

Commissioner  SWEET.  Will  you  explain  that  term  "  cost  of  serv- 
ice?" It  is  often  used. 

Gen.  TRIPP.  Well,  Mr.  Commissioner,  I  am  not  an  expert  in  the 
various  plans  of  cost  of  service  which  have  been  submitted  but  it  is 
based  upon  this  theory,  as  I  understand  it,  at  least,  that  is  the  kind  of 
cost  of  service  that  I  mean ;  I  do  not  know  whether  it  is  what  the  ex- 
perts call  "  cost  of  service."  It  is  that  the  income  of  electric  railways 
shall  be  sufficient  to  pay  a  proper  wage  to  the  workmen  and  the  cost 
of  operation,  properly  provide  for  depreciation  and  obsolescence,  and 
to  pay  for  the  money  actually  and  honestly  invested  in  the  property  a 
fair  and  just  return.  If  the  fare  is  fixed  so  that  a  larger  return  than 
that  is  received,  then  the  surplus  may  be  treated  in  various  ways.  I 
believe  that  in  order  to  get  efficient  operation,  to  have  personal  initia- 
tive and  to  have  proper  economy  in  operation,  it  will  be  necessary  to 
say  to  private  capital,  "  If  there  is  a  surplus,  you  shall  receive  a  por- 
tion of  it  for  an  incentive  to  do  good  work."  The  remainder  could  go 
to  the  public. 

Commissioner  SWEET.  In  the  shape  of  reduced  fares? 

Gen.  TRIPP.  Yes;  but  that  would  not  operate  immediately  each 
year.  As  the  surplus  was  accumulated  over  a  period  of  years,  it 
could  operate  to  reduce  fares.  Some  cost-of-service  plans,  as  I  un- 
derstand it,  make  the  participation  of  the  company  in  the  surplus 
larger  as  the  fare  is  decreased,  furnishing  an  incentive  to  them  to 
work  toward  decreasing  the  fare. 

Commissioner  SAVEET.  Yes. 

Gen.  TRIPP.  I  do  not  myself  feel  that  it  would  be  wise  to  make  a 
direct  participation  for  labor  in  this  surplus,  because  it  is  too  uncer- 
tain. Labor  should  be  paid  for  it  all  that  can  fairly  be  paid  for  it. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      157 

The  return  should  be  steady  and  fixed,  and  if  a  surplus  is  accumu- 
lated that  permits  an  increase  of  wages,  well  and  good ;  but  to  have 
them  participate  in  an  uncertain  amount,  I  believe  would  prove 
unsatisfactory. 

Commissioner  SWEET.  By  what  method  could  this  arrangement 
that  you  speak  of  be  affected — by  legislation,  State  laws,  or  some 
sort  of  agreement  between  the  companies  and  the  municipalities,  or 
in  what  practical  way  ? 

Gen.  TRIPP.  Well,  I  have  believed  that  if  this  commission  should 
make  a  strong  and  unequivocal  recommendation  that,  in  their  opin- 
ion, for  example — if  they  did  believe  it — some  fundamental  plan  of 
that  kind  was  necessary  to  save  the  industry,  that  with  that,  each 
company  could  go  before  their  properly  constituted  authorities — • 
before  the  municipalities  in  some  States,  where  they  have  not  com- 
missions, or  before  the  commissions  where  they  have  commissions — 
and  a  satisfactory  arrangement  could  be  made.  The  municipalities 
and  the  public-service  commissions  would  be  glad  to  do  this  if  they 
felt  that  public  opinion  was  behind  such  a  plan. 

Commissioner  SWEET.  So,  in  your  judgment,  the  real  solution  of 
the  whole  problem  goes  back  to  the  matter  of  creating  a  sound  and 
correct  public  sentiment  on  the  subject? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  And  that  means  the  eradication  of  a  number 
of  ideas  that  have  come  down  from  the  past  in  the  way  of  prejudices 
that  might  be  removed  if  the  facts  were  fully  understood.  Is  that 
your  opinion  ? 

Gen.  TRIPP.  Yes,  sir ;  that  is  my  opinion. 

Commissioner  SWEET.  I  think  you  said  in  your  direct  testimony 
that,  in  your  judgment,  the  elimination  of  taxes,  direct  and  indirect, 
we  will  say,  would  not  afford  a  proper  and  perpetual  solution  of  the 
problem. 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  In  your  opinion,  would  it  be  just  that  the 
custom  in  regard  to  paving  between  the  tracks  and  little  outside 
should  be  changed  ?  Do  you  think  that  is  a 

Gen.  TRIPP.  I  think  that  is  an  unjust  burden,  per  se. 

Commissioner  SWEET.  An  unjust  burden? 

Gen.  TRIPP.  On  the  properties ;  yes,  sir. 

Commissioner  SWEET.  How  did  that  originate  ?  When  was  the  be- 
ginning of  that  as  a  custom  ? 

Gen.  TRIPP.  It  was  a  part  of  the  inducement  which  the  earty  pro- 
moters, in  some  cases,  held  out,  and  it  was  also,  in  some  cases,  a 
requirement  on  the  part  of  the  municipalities,  until  it  gradually, 
perhaps — no  one  can  say — became  an  established  policy. 

Commissioner  SWEET.  Was  there  not  a  certain  element  of  justice  in 
it  in  the  old  horse-car  days? 

Gen.  TRIPP.  Yes;  there  was  to  that  extent,  and  it  was  to  some 
extent  a  relic  of  the  old  horse-car  days. 

Commissioner  SWEET.  Have  you  not  found,  General,  that  offieo 
seekers — candidates  for  official  positions  in  cities — have  made  it  quite 
a  point  in  the  past  to  decry  the  public-service  corporations — the  pub- 
lic-utilities corporations — and  found  it  a  very  good  way  to  get  votes. 

Gen.  TRIPP.  Oh,  yes;  undoubtedly. 


158      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  And,  as  a  corporation  man,  you  think  that 
is  all  wrong? 

Gen.  TRIPP.  I  do,  yes,  sir;  decidedly. 

Commissioner  SWEET.  That  situation,  however,  has  taken  into  ac- 
count the  prejudice  that  we  spoke  of  a  few  minutes  ago ;  has  it  not? 

Gen.  TRIPP.  Exactly. 

Commissioner  SWEET.  Against  these  corporations? 

Gen.  TRIPP.  Yes,  sir;  exactly. 

Commissioner  SWEET.  Created  to  some  extent  by  their  own  dis- 
honest conduct  in  trying  to  influence  officials  to  do  what  is  wrong? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  That  is  true:  is  it  not? 

Gen.  TRIPP.  In  some  cases.     I  do  not  state 

Commissioner  SWEET.  And  overcapitalization  in  other  cases  ? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  If  the  general  public  and  the  corporations 
are  to  get  together,  there  is  no  doubt,  in  your  mind,  I  presume,  but 
that  every  single  fact  known  to  the  corporations  must  be  honestly 
and  squarely  presented  to  the  public? 

Gen.  TRIPP.  Oh,  it  must  be.     There  is  no  other  course. 

Commissioner  SWEET.  And  on  this  cost  proposition  there  would 
be  perpetual  need,  would  there  not,  for  public  inspection  of  the  books 
of  the  corporation? 

Gen.  TRIPP.  That  follows  naturally. 

Commissioner  SWEET.  The  public  would  have  to  know  exactly 
what  was  being  done? 

Gen.  TRIPP.  They  would  have  to  know. 

Commissioner  SWEET.  By  way  of  receipts  and  expenditures? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  And  you  would  have  a  representative  or 
representatives  of  the  public  on  the  board  of  directors  of  the  com- 
pany ? 

Gen.  TRIPP.  I  have  not  thought  that  far.  They  certainly  must 
know.  My  only  hesitancy  on  that  point  is  whether  a  representative 
of  the  public  on  the  board  would  perform  the  duties  in  such  a 
manner  as  to  expedite  and  encourage  the  efforts  of  the  management 
in  bringing  about  efficient  operation  and  economies,  or  whether  he 
would  regard  his  presence  on  the  board  as  representing  an  antago- 
nistic element.  But  there  must  be,  whether  it  is  a  representative  on 
the  board  of  directors  or  brought  about  in  some  other  way,  a  full 
knowledge  of  the  affairs  of  the  company,  full  control  and  regula- 
tion, and  it  may  easily  be  that  a  careful  consideration  would  show 
that  in  this  new  relation  it  would  be  necessary  to  have  a  representa- 
tive of  the  public  on  the  board.  But,  as  I  say,  I  approached  that 
particular  thing  with  some  hesitancy.  Boards  which  are  divided 
among  themselves  and  do  not  arrive  at  a  unanimous  and  har- 
monious conclusion  upon  everything  that  is  brought  before  them 
certainly  harm  a  company  and  its  prosperity. 

Commissioner  SWEET.  Going  back  to  the  paving  proposition — in 
your  judgment  do  the  owners  of  automobiles  now,  under  the  present 
system,  pay  for  any  part,  directly  or  indirectly,  of  the  paving  be- 
tween the  street-railway  tracks? 

Gen.  TRIPP.  No,  sir;  except  so  far  as  the  State  automobile  license 
tax  would  apply  to  that,  in  some  cases. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     159 

Commissioner  SWEET.  How  is  it  with  regard  to  paving  with  the 
street-railway  companies?  Do  they  pay  for  it? 

Gen.  TRIPP.  Do  they  pay  for  the  paving? 

Commissioner  SWEET.  Yes,  sir.  In  other  words,  does  it  come  out 
of  their  nickels  ? 

Gen.  TRIPP.  Yes;  it  comes  out  of  their  nickels. 

Commissioner  SWEET.  Is  it  a  fact,  then,  that  under  the  present 
system  one  part  of  the  community — the  part  least  able  to  bear  it — 
pays  for  that  paving  of  the  streets,  and  the  automobile  owners — the 
part  presumably  the  best  able  to  bear  it — are  relieved  of  that  burden  ? 

Gen.  TRIPP.  Absolutely. 

Commissioner  SWEET.  Do  the  automobile  owners  get  any  benefit 
of  that  paving? 

Gen.  TRIPP.  Yes;  they  do. 

Here  is  a  very  amusing  incident,  if  I  may  be  permitted  to  refer 
to  it.  I  am  told  that  in  Boston  the  automobile  owners  complained 
because  there  was  no  place  to  park  their  automobiles  on  Charles 
Street,  and  the  city  authorities  took  a  portion  of  the  common,  or 
of  the  public  ground — I  have  forgotten  which,  as  I  have  not  seen 
it — and  widened  the  street  at  that  point  to  about  20  feet — paving 
the  street — and  paid  for  it,  and  turned  it  into  a  place  where  auto- 
mobiles might  be  parked,  when  running  right  in  front  of  them 
along  the  same  street  is  the  street-railway  company,  which  is  paying 
for  the  maintenance  *>f  the  paving  over  which  it  runs. 

Commissioner  SWEET.  Do  you  regard  the  automobile  and  the  j  itney 
as  responsible  to  some  extent  for  the  present  situation? 

Gen.  TRIPP.  Yes. 

Commissioner  SWEET.  But,  if  I  understood  you  right  in  your  direct 
examination,  you  do  not  regard  them,  by  any  means,  the  sole  culprits  ? 

Gen.  TRIPP.  No. 

Commissioner  SWEET.  Now,  with  regard  to  the  increase  of  fare, 
if  I  understood  you  correctly,  you  think  that  that  would  not  be  a 
panacea  for  the  trouble? 

Gen.  TRIPP.  It  would  be  temporizing,  Mr.  Commissioner.  It  might 
solve  the  question  for  to-day  in  a  particular  case,  but  if  it  is  fixed, 
and  there  is  no  provision  for  prompt  readjustment  of  it  to  meet 
changed  conditions  of  finance  or  operation,  you  may  in  another 
year,  be  just  where  you  are  to-day,  with  a  new  rate  of  fare. 

Commissioner  STVEET.  In  other  words,  do  you  think  there  should 
be  greater  elasticity  in  the  system? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  To  adapt  itself  to  changing  conditions? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  Would  this  be  a  further  reason  why  the 
raise  of  fares  might  not  afford  the  necessary  remedy,  that  sometimes 
the  raising  of  fares  diminishes  the  patronage  to  such  an  extent  that 
the  income  received  is  not  really  increased? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  Is  not  that  true? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  Would  not  that  be  particularly  true  with  re- 
gard to  the  distances,  the  short  runs? 

Gen.  TRIPP.  Yes,  sir. 


1  30     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Where  people  could  walk  readily  if  they  de- 
sired to  do  so? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  And  perhaps  would,  rather  than  pay  the 
increased  fare? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  Do  you  regard  the  present  prevailing  system 
of  charging  the  same  amount  for  short  hauls  and  long  hauls  as  just? 

Gen.  TRIPP.  No;  I  do  not  regard  it  as  just. 

Commissioner  SWEET.  Is  it  good  business? 

Gen.  TRIPP.  It  is  not  good  business. 

Commissioner  SWEET.  Well,  how  would  you  change  it? 

Gen.  TRIPP.  Of  course,  the  only  change  that  I  know  about  would  be 
a  zone  system,  such  as  is  universally  used  almost  all  over  England 
and  the  Continent. 

Commissioner  SWEET.  How  is  it  working  there? 

Gen.  TRIPP.  Working  perfectly  well. 

Commissioner  SWEET.  Will  you  describe  that  zone  system,  so  we 
will  understand  more  fully  what  it  is? 

Gen.  TRIPP.  A  zone  system  simply  consists  in  certain  zones.  After 
you  pass  out  of  one  zone  into  another  you  pay  an  additional  fare. 
The  fare  in  England,  in  the  shorter  zone,  is  low.  I  just  do  not  recall 
what  it  is,  but  it  is  less  than  5  cents,  or  its  equivalent. 

Commissioner  SWEET.  Yes. 

Gen.  TRIPP.  But  it  increases  as  you  go  out  into  the  suburbs. 

Commissioner  SWEET.  Would  not  that  necessitate  a  great  deal  of 
bother  and  annoyance  that  Americans  would  object  to  ? 

Gen.  TRIPP.  That  is  the  objection.  It  is  not  based  on  sound  eco- 
nomics and  it  is  not  just,  but  it  is  the  custom  in  this  country. 

Commissioner  SWEET.  You  mean  the  present  system  ? 

Gen.  TRIPP.  Yes;  the  present  system. 

Commissioner  SWEET.  But  I  am  speaking  of  the  zone  system,  and 
I  am  asking  you  whether  Americans  would  not  rather  object  to 
paying  these  small  amounts  as  they  pass  from  one  zone  into  another. 

Gen.  TRIPP.  Well,  I  don't  know.  They  are  becoming  more  or  less 
educated  to  do  it  on  interurban  lines  and,  I  have  heard,  some  cities 
have  recently  adopted  it.  I  do  not  know  how  it  is  working.  My 
impression  has  always  been  that  they  would  object,  but  I  have  never 
known  of  its  being  tried  in  a  large  community;  so  I  do  not  know 
that  it  has  ever  been  proved  that  they  would  object. 

Commissioner  SWEET.  But  you  think  that  that  is  a  just  and  a  busi- 
ness way  of  handling  it? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  How  about  general  taxes?  -Do  you  think 
that  the  street-railway  companies  ought  to  be  taxed  on  their  physical 
property  ? 

Gen.  TRIPP.  Under  the  present  theory  of  relationships,  there  is  no 
reason  why  they  should  be  taxed. 

Commissioner  SWEET.  Is  there  any  consideration,  do  you  think,, 
which  should  be  taken  of  the  value  of  their  franchises? 

Gen.  TRIPP.  For  purposes  of  taxation? 

Commissioner  SWEET.  Yes. 

Gen.  TRIPP.  No,  sir. 

Commissioner  SWEET.  Merely  the  physical  properties? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     161 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  That  should  be  assessed  on  the  same  gen- 
eral basis  as  other  properties  owned  by  private  individuals? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  GADSDEX.  General,  on  the  present  basis  do  you 
think  the  persent  franchises  have  any  value  on  which  to  base 
taxation  ? 

Gen.  TRIPP.  No,  sir. 

Commissioner  SWEET.  They  are  rather  negative,  are  they  not? 

Gen.  TRIPP.  Precisely.    They  are  decidedly  negative. 

Commissioner  SWEET.  Do  you  see  any  practical  way  of  diminish- 
ing the  expense  of  operation  of  the  street  railways? 

Gen.  TRIPP.  No,  sir;  I  can  not. 

Commissioner  SWEET.  Do  you  think  that  the  last  word  has  been 
said  on  that  subject,  practically? 

Gen.  TRIPP.  So  far  as  I  can  see ;  yes,  sir. 

Commissioner  SWEET.  The  charts  that  have  been  shown  us  have 
brought  out  a  rather  interesting  point  in  regard  to  the  peak  of  the 
load,  that  where  there  are  great  variations  at  different  times  of  the 
day,  a  problem  arises  that  is  hard  to  solve  and  results  in  less  profit 
to  the  company.  That  is  true,  is  it  not  ? 

Gen.  TRIPP.  That  is  true;  yes,  sir. 

Commissioner  SWEET.  Can  you  think  of  any  way  that  might  be 
met  that  would  be  just  to  the  general  public  and  bring  about  better 
results  ? 

Gen.  TRIPP.  No;  I  can  not  think  of  any  way.  Experiments  have 
been  tried  of  low  fares  during  nonrush  hours  to  fill  up  the  valleys 
but,  so  far  as  I  have  observed,  they  have  only  demonstrated  that 
people  won't  ride  unless  they  want  to.  They  won't  go  down  town 
unless  they  have  business  down  town,  and  those  experiments  have  been 
unsatisfactory ;  at  least  all  that  have  come  under  my  notice. 

Commissioner  SWEET.  So  it  is  necessary  for  the  companies  to 
haA'e  the  equipment  required  by  the  highest  point,  and  then  at  other 
times  of  the  day  to  leave  that  practically  idle. 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  What  is  the  custom  in  regard  to  employees 
in  cases  of  that  kind?  Are  the  conductors  and  motormen  on  these 
cars  that  are  not  used  in  the  quiet  part  of  the  day  idle,  too  ? 

Gen.  TRIPP.  No ;  there  is  a  great  deal  of  lost  time  that  is  paid  for. 
In  other  words,  time  that  is  not  represented  by  platform  service.  At- 
tempts are  made,  of  course,  to  put  in  swing  runs,  as  they  call  them, 
and  so  they  utilize  to  the  greatest  extent  possible  the  time  of  the  men. 

Commissioner  SWEET.  In  trying  to  show  the  general  public  that 
the  companies  were  doing  what  was  right  and  fair,  would  you  con- 
sider that  the  capital  stock  of  the  companies  as  it  now  stands  through- 
out the  country  should  be  the  basis  for  earnings  or  that  the  value  of 
the  physical  properties  should  be  the  basis  for  earnings? 

Gen.  TRIPP.  I  do  not  think  you  can  take  the  stock  as  it  now  stands 
as  a  basis  for  earnings  allowed  under  a  new  relationship,  if  that  is 
what  you  mean. 

Commissioner  SWEET.  Yes. 

Gen.  TRIPP.  However  obnoxious  it  may  be  to  some  of  us  who  aie 
in  the  business,  I  see  no  other  method  than  to  base  it  on  the  in- 


162      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

vestment  of  the  property,  regardless  almost  of  the  securities  that 
are  outstanding. 

Commissioner  SWEET.  Would  you  mean  the  original  honest  in- 
vestment or  the  present  value  of  the  property  ? 

Gen.  TRIPP.  I  believe — and  here  I  am  expressing  only  my  own 
personal  belief;  I  do  not  wish  to  commit  the  Committee  of  One 
Hundred  on  this  point — I  believe  that  the  fair  method  is  to  take  the 
money  that  has  been  honestly  invested  in  the  property. 

Commissioner  SWEET.  Going  back  in  many  cases  to  the  horse-car 
days,  and  then  through  the  various  systems  up  to  the  present  time, 
do  you  mean? 

Gen.  TRIPP.  Well,  it  is  not  such  a  tremendous  job  as  that.  I  do 
not  believe  that  in  these  days  you  would  find  the  investment  in  the 
horse-car  lines  ever  put  forward  as  a  part  of  the  cost  of  the  present 
system. 

Commissioner  SWEET.  Some  of  these  roads,  however,  that  are 
operating  to-day  started  as  horse-car  systems. 

Gen.  TRIPP.  Yes;  that  investment  has  probably  been  written  off 
and  disappeared  in  the  tremendous  increase  in  investment  that  has 
come  since  those  days.  I  could  determine  to  my  own  satisfaction  in 
any  property,  I  believe,  the  amount  of  investment  that  was  honestly 
made  in  the  property. 

Commissioner  SWEET.  Would  you  arrive  at  that  by  an  examination 
of  the  property  itself,  and  take  your  own  knowledge  of  the  transitions 
that  have  been  gone  through,  and  perhaps  add  a  little  something  to  it, 
and  fix  the  amount  in  that  manner? 

Gen.  TRIPP.  No;  I  would  not  do  it  that  way,  Mr.  Commissioner. 
I  would  take  the  different  classes  of  securities  that  have  been  issued 
on  a  given  property,  however  many  there  might  be,  and  it  would  be 
easily  determined  how  much  money  was  received  for  an  issue  of 
bonds  and  what  became  of  the  money.  These  men  in  the  early  days 
did  not  steal  the  money.  That  is  a  popular  fallacy.  There  was  no 
money  taken.  The  money  went  into  the  property.  Securities  were 
issued,  however,  on  "general  hopes".  They  issued  "general  hopes  5's", 
if  you  please,  for  which  no  cash  was  received.  Now,  it  is  easy  to 
segregate  that  class  of  security  from  the  class  of  security  that  was 
honestly  sold  for  cash,  and  it  does  not  require  a  valuation  of  the 
property  in  minute  detail  to  arrive  in  any  given  case  at  a  fair  in- 
vestment in  a  given  property  upon  which  to  rest  a  new  relationship 
between  the  public  and  the  company. 

Commissioner  SWEET.  Do  you  think  it  would  be  easy  to  demon- 
strate to  the  average  citizen  that  an  arrangement  ought  to  be  made 
with  these  companies  that  would  enable  them  to  make  profits  upon 
property  that  was  not  liable  to  taxation? 

Gen.  TRIPP.  I  do  not  quite  follow  that  question,  Mr.  Commissioner. 

Commissioner  SWEET.  I  assume  from  what  you  have  just  said  that 
your  method  of  arriving  at  the  value  of  a  street-railway  property 
would  bring  about  the  result  that  something  more  than  the  physical 
value  of  the  property  would  be  allowed  to  the  company  upon  which, 
under  the  plan  that  you  have  suggested,  the  company  would  be  per- 
mitted to  pay  dividends. 

Gen.  TRIPP.  I  have  not  intended  to  convey  the  impression  that  I 
meant  anything  more  than  the  physical  value  of  the  property,  or 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     163 

rather,  the  cost  of  this  property;  it  may  not  be  the  physical  value 
today,  it  may  be  more  or  less. 

Commissioner  SWEET.  I  see.  I  got  the  idea  from  what  you  said 
that,  figuring  the  actual  amount  that  went  in  to  the  property 

Gen.  TKIPP.  Yes. 

Commissioner  SWEET.  Would  be  something  more  than  the  physical 
valuation  of  the  properties  at  the  present  time. 

Gen.  TRIPP.  No,  I  did  not  intend  to — I  do  not  think  so. 

Commissioner  SWEET.  It  might  just  at  the  present  time,  based 
upon  higher  priced  material  and  lauor;  perhaps  the  physical  value 
of  the  properties  would  exceed  the  cost,  figuring  on  the  basis  you 
have  in  mind. 

Gen.  TRIPP.  Yes,  it  might. 

Commissioner  SWEET.  In  some  cases. 

Mr.  TRIPP.  Yes,  it  probably  would,  on  the  cost  of  reproduction  at 
present  prices. 

Commissioner  SWEET.  Of  course  it  would  be  necessary  for  the  gen- 
eral public  to  be  satisfied  as  to  the  amount  upon  which  dividends 
were  to  be  paid,  would  it  not  ? 

Mr.  TRIPP.  Yes,  absolutely. 

Commissioner  SWEET.  What  plan  would  you  suggest  as  being  the 
most  satisfactory  for  the  determination  of  that  amolmt? 

Mr.  TRIPP.  From  the  standpoint  of  the  general  public? 

Commissioner  SWEET.  You  have  to  satisfy  the  general  public  be- 
fore you  can  do  anything,  have  you  not? 

Gen.  TRIPP.  Well,  I  believe  the  general  public  will  understand  the 
simple  proposition  that  the  amount  we  are  allowing  here  upon  which 
money  shall  be  earned  is  the  money  that  has  actually  gone  into  the 
property,  better  than  they  will  if  you  undertake  to  explain  that 
this  valuation  has  been  made  upon  a  complicated  cost-to-reproduce 
plan.  You  have  then  to  go  into  explanations:  What  prices  are  you 
using  in  your  value,  cost  to  reproduce,  existing  prices,  average 
prices,  prices  before  the  war;  and  you  get  into  such  a  maze  of  theories 
and  testimony  that  the  general  public  throAv  up  their  hands  at  and 
say  we  do  not  understand  anything  about  it.  But  they  do  under- 
stand they  are  entitled  to  a  return  upon  the  money  they  put  into 
the  property. 

Commissioner  SWEET.  You  think,  then,  the  public  would  be  satis- 
fied with  the  report  of  an  expert  accountant  who  might  examine 
the  books  of  the  company  ? 

Gen.  TRIPP.  It  is  hard  to  say  what  the  public  would  be  satis- 
fied with.  They  do  not  bplieve  very  much  that  the  street-railway 
interests  tell  them,  unfortunately.  I  think — 

Commissioner  SWEET.  How  would  it  do  for  the  municipal  authori- 
ties to  name  a  committee  either  of  their  own  members  or  of  citizens, 
or  both,  to  investigate  that  subject  ?  Because  it  is  one  that  would 
have  to  be  settled  before  any  basis  could  be  reached. 

Gen.  TRIPP.  Well,  that  might  be  a  way  to  do  it. 

Commissioner  SWEET.  You  said  you  thought  the  lower  purchasing 
power  of  money  was  a  somewhat  permanent  condition  not  only 
in  this  country  but  throughout  the  world,  did  you  not? 

Gen.  TRIPP.  Yes;  I  do  think  so. 

Commissioner  SWEET.  Consequently  you  think  that  the  price  of 
material  as  well  as  higher  wages  is  rather  permanent  ? 


164     PROCEEDINGS  OF  FEDEEAL  ELECTRIC  RAILWAYS  COMMISSION. 

Gen.  TRIPP.  I  do;  yes  sir.  I  think  that  until  these  tremendous 
war  debts  are  very  largely  liquidated  there  can  be  no  marked  re- 
duction in  prices,  or  rather  a  resumption  and  a  return  to  the  old 
value  of  currency.  The  war  debts  are  half  paid  to-day  by  a  de- 
preciated dollar.  In  the  very  depreciation  of  the  dollar  it  pays 
50  per  cent  of  the  war  debts,  and  it  may  be  a  very  wise  economic 
law  and  prevent  great  national  disaster  that  that  should  happen. 
And  until  these  debts  have  been  reasonably  well  liquidated  and  taken 
care  of  I  see  no  hope  for  lower  prices  to  any  particular  extent. 

Commissioner  SWEET.  So  that  the  street-railway  fares,  if  based 
upon  the  actual  purchasing  power  of  money,  would  to-day  be  con- 
siderably more  than  a  nickel;  would  they  not? 

Gen.  TRIPP.  Oh,  yes,  they  would  be  10  cents. 

Commissioner  SWEET.  But  if  I  understand  you  right,  that  would 
not  solve  the  problem  entirely,  because  it  would  still  lack  the  ele- 
ment of  elasticity  ? 

Gen.  TRIPP.  Precisely. 

Commissioner  SWEET.  How  would  you  introduce  that  element? 
How  would  the  various  changes  be  made  under  your  plan  to  meet 
the  varying  conditions  that  might  arise? 

Gen.  TRIPP.  You  would  have  to  increase  fares  as  the  first  step, 
and  then 

Commissioner  SWEET.  That  would  be  tentative,  I  suppose. 

Gen.  TRIPP.  Tentative.  And  then  the  surplus  account  of  the 
companies — the  accumulated  net  profits  of  the  companies — would  be 
the  governing 

Commissioner  SWEET.    The  barometer? 

Gen.  TRIPP.  The  barometer.  As  we  reached  a  higher  or  lower 
point  your  fares  would  be  adjusted,  not  at  frequent  periods  but 
often  enough  to  keep  the  thing  in  a  stable  equilibrium. 

Commissioner  SWEET.  So  that  whatever  arrangement  is  made 
would  in  your  judgment  need  to  include  the  ability  to  adjust  and 
readjust  and  then  readjust? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  As  might  be  demanded  by  changing  condi- 
tions ? 

Gen.  TRIPP.  Yes.  We  must  put  the  street-railway  industry  in  the 
position  that  every  other  business  is  in — that  it  can  adjust  the  price 
of  its  product  to  the  cost  of  the  product. 

Commissioner  MEEKER.  You  were  on  the  subject"  of  investment  as 
the  proper  basis  for  determining  the  amount  upon  which  earnings 
should  be  calculated.  Will  you  elucidate  that  a  little  more  fully? 
How  is  it  possible  to  get  at  the  actual  money  put  into  a  property? 

Gen.  TRIPP.  I  think  the  most  feasible  method  would  be  an  examina- 
tion into  the  various  classes  of  securities  that  have  been  issued  upon 
an  electric-railway  property  from  its  beginning  as  an  electric-railway 
property,  and  not  go  back  into  the  horse-car  days — that  examination 
to  develop  what  disposition  was  made  of  the  securities,  whether  they 
were  sold  for  cash,  and  if  so,  at  what  price;  or,  to  state  it  in  another 
way,  at  what  discount.  I  think  the  history  of  each  company,  as  re- 
gards its  security  issues,  would  be  readily  available  and  that  that 
method  would  be  more  feasible  than  an  examination  of  the  books. 
The  books  of  a  street-railway  company  show  on  its  asset  side  certain 
arbitrary  items  which  are  simply  used  to  offset  items  upon  the  credit 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     165 

side  and  do  not  in  themselves  represent  in  all  cases  investment  in 
the  property.  And  since  these  systems  are  thirty  to  thirty-five  years 
old  and  many  of  them  have  been  through  receivers'  hands  and  have 
changed  hands,  it  would  be  almost  an  impossibility  to  trace  through 
the  books  of  account  the  investment  in  the  property.  While,  on  the 
other  hand,  as  I  have  just  stated,  evidence  regarding  the  different  is- 
sues of  securities  is  always  available. 

Commissioner  MEEKER.  Would  it  not  be  necessary  to  take  account 
of  the  money  investment  in  the  original  horse-car  lines,  or  would  you 
write  that  off  as  a  loss  ? 

Gen.  TRIPP.  Those  electric  railways  which  began  as  horse  railways 
and  were  equipped  and  developed  as  a  system  starting  with  horse 
railways,  like  the  West  End  of  Boston  for  example,  probably  have  as 
clear  a  record  in  regard  to  their  securities  issued  in  the  horse-car  days 
as  they  have  in  the  electric  days.  I  know  that  to  be  so  in  the  case  of 
the  West  End  Street  Eailwa}r,  at  least  as  far  back  as  1860,  because 
in  some  litigation  that  was  had  in  Massachusetts,  the  issue  being 
something  I  have  now  forgotten,  I  was  employed  to  report  upon  the 
security  issues  and  what  became  of  them — how  they  were  disposed 
of — from  1860.  That  went  back  into  the  Middlesex  Railway  time. 
And  I  had  no  difficulty  in  securing  information  and  getting  a  state- 
ment which  satisfied  the  court  as  to  the  disposition  of  all  of  those  se- 
curities back  to  1860. 

Commissioner  MEEKER.  Then  your  answer  would  be  that  in  the 
horse-car  line  it  will  be  necessary  to  take  account  of  all  investments, 
even  in  the  horse-car  days  ? 

Gen  TRIPP.  I  then  would  like  to  go  on  a  little  further  with  my 
answer.  There  are  some  companies,  however,  that  started  by  buying 
up  the  horse-railroad  system.  That  made  a  clean  start.  They  usu- 
ally bought  the  horse-railroad  system  for  less  than  it  cost.  And  I 
do  not  believe  that  in  those  cases  the  public  would  be  endangered  if 
they  started  at  that  point.  So  where  an  electric  railway  started  by 
buying  up  an  existing  horse  railway  and  made  a  clean  start  I  would 
make  a  clean  start  there  also. 

Commissioner  MEEKER.  You  think  it  is  easier  and  better  policy  to 
get  at  the  investment  in  the  way  that  you  have  indicated  rather  than 
to  make  a  physical  valuation  of  the  properties  now  existing? 

Gen.  TRIPP.  A  physical  valuation  of  the  property,  Mr.  Commis- 
sioner, would  not  determine  the  investment.  It  would  determine  the 
value,  and  that  value  would  be  figured  on  some  basis  of  prices.  An 
arbitrary  assumption  would  have  to  be  made  as  to  what  period  they 
would  take  for  the  purpose  of  establishing  prices  on  such  a  valua- 
tion. It  would  be  impossible  to  take  each  item  of  an  electric  railway 
and  ascertain  what  the  original  price  paid  for  that  particular  piece 
of  apparatus'  was,  because  in  the  first  place  it  does  not  represent 
the  whole  investment;  it  may  haVe  been  replacement  of  an  original 
piece  of  apparatus  and  the  difference  between  the  cost  of  the  original 
piece  and  the  new  piece  charged  to  plant  account,  while  the  value 
of  the  old  piece  would  be  charged  to  operating  expense.  So  that 
there  is  no  method  of  valuation  which  will  determine  the  investment 
in  the  property. 

Commissioner  MEEKER.  Will  it  not  be  necessary  to  make  assump- 
tions and  hypotheses  in  getting  at  actual  investment  in  the  way  you 
have  indicated? 


166     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Gen.  TRIPP.  No;  I  distinguish  between  investment  and  valuation. 
By  investment  I  mean  the  money  that  was  spent  on  the  property. 

Commissioner  MEEKER.  By  that  you  mean  the  money  that  was 
turned  back  into  the  improvement  and  extension  of  the  road  out  of 
earnings? 

Gen.  TRIPP.  That  would  be  part  of  it.  The  other  part  would  be 
the  money  received  from  the  sale  of  bonds  and  expended  on  the 
property;  the  money  received  from  the  sale  of  stock  and  expended 
on  the  property. 

Commissioner  MEEKER.  And  the  accounts  of  the  railways  will  show 
all  of  these  additions  to  investment,  whether  they  are  additions  in 
the  purchase  of  bonds  and  stocks  or  whether  they  are  additions  made 
out  of  earnings? 

Gen.  TRIPP.  No,  I  do  not  think  that  the  books  of  account  of  the 
companies,  generally  speaking,  are  in  such  a  condition  as  to  show 
that.  And  for  that  reason  I  have  suggested  that  the  books  of  ac- 
count be  ignored ;  that  evidence  be  taken  as  to  the  securities  that  have 
been  issued  from  the  beginning  on  this  property — what  they  were 
sold  for  and  what  became  of  the  money.  The  mere  fact  only  would 
be  established — did  the  money  go  into  the  property  ?  Having  estab- 
lished that  the  money  went  into  the  property,  that  would  be  suffi- 
cient evidence  to  call  it  investment  upon  which  a  return  is  fair  and 
just. 

Commissioner  MEEKER.  Pardon  me  for  my  persistence,  but  I  want 
to  get  this  perfectly  clear.  There  would  be  some  record  somewhere, 
would  there  not,  whether  it  be  on  the  books  of  the  company  or  where- 
soever, showing  property  extensions  or  improvements  made  out  of 
earnings  ? 

Gen.  TRIPP.  Yes,  the  books  of  these  companies  would  probably 
show  that,  but 

Commissioner  MEEKER.  You  would  include  all  of  such  increases 
in  the  value  of  the  property  of  the  company  made  from  earnings 
in  the  investment — capital  investment? 

Gen.  TRIPP.  Yes. 

Commissioner  MEEKER.  I  would  like  to  ask  you  about  the  economic 
justification  for  including  as  part  of  the  investment,  upon  which 
stockholders  and  bondholders  are  entitled  to  receive  income,  invest- 
ments that  are  made  not  by  stockholders  and  bondholders  but  by  the 
riding  public. 

Gen.  TRIPP.  Well,  if  you  refer,  Mr.  Commissioner,  to  the  money 
that  has  been  turned  back  into  the  property  from  the  earnings,  I 
can  not  quite  subscribe  to  your  theory  that  that  is  an  invesment. 

Commissioner  MEEKER.  I  have  not  expressed  any  theory.  I  beg 
your  pardon. 

Gen.  TRIPP.  Well,  I  can  not  quite  subscribe  to  the 'idea,  I  will 
amend  that — I  can  not  quite  subscribe  to  the  idea  that  that  is  an 
investment  by  the  rider.  The  earnings  that  have  been  turned  back 
into  the  property  were  net  profits  that  the  stockholders  were  entitled 
to.  They  chose,  instead  of  taking  those  in  cash,  to  put  them  back 
into  the  property.  There  is  no  difference  between  that  method  and  a 
method  where  they  had  collected  the  dividends,  put  them  in  their 
pockets,  taken  the  money  out  of  their  pocket  again  and  purchased 
additional  securities  of  the  street  railway  in  order  to  furnish  it  funds 
for  the  necessary  development. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     167 

Commissioner  MEEKER.  Are  there  any  limitations  in  any  of  the 
municipalities  with  which  you  are  acquainted  upon  the  dividends 
that  may  be  paid  upon  stock? 

Gen.  TRIPP.  There  are  some  of  the  recent  arrangements  of  cost-of- 
service  plans  which  have  such  limitations. 

Commissioner  MEEKER.  You  see  the  drift  of  my  question.  If 
there  were  a  limitation,  say  of  8  per  cent,  upon  stock  it  would  be 
possible  for  the  company  to  earn  16  per  cent,  let  us  say,  and  still  pay 
8  per  cent  dividend.  This  is  merely  a  hypothetical  question,  under- 
stand. 

Gen.  TRIPP.  Yes. 

Commissioner  MEEKER.  And  put  back  into  the  property  of  the 
company  8  per  cent.  And  I  do  not  think  I  need  to  explain  any 
further  how  that  would  be  a  subtle  way  of  doing  just  wrhat  I  have 
suggested  might  be  done,  making  improvements  in  the  property  of 
the  street-railway  company  out  of  the  fares  paid  by  the  riding  puolic. 
Is  not  that  true? 

Gen.  TRIPP.  "Well,  Mr.  Commissioner,  where  such  a  limitation 
exists  provisions  are  also  made  as  to  what  shall  be  done  with  the 
surplus  over  the  8  per  cent.  And  in  the  city  of  Chicago,  the  city 
entered  into  a  contract  with  the  Chicago  railways  by  which  a  surplus 
over  a  certain  dividend — I  do  not  remember  the  amount — should  be 
divided  between  the  city  and  the  company,  the  city  taking  55  per 
cent  and  the  company  taking  45  per  cent.  Now,  if  the  company  chose 
to  reinvest  its  45  per  cent,  I  think  it  fairly  belongs  to  the  company. 

Commissioner  MEEKER.  Do  you  think  it  might  be  a  fair  way  of 
getting  at  the  property  upon  which  income  is  to  be  allocated  to  the 
bondholders  and  stockholders  by  taking  account  of  either  apprecia- 
tion or  depreciation  in  the  physical  properties  of  the  companies? 

Gen.  TRIPP.  No,  sir.  My  theory  excludes  the  question  of  deprecia- 
tion or  appreciation. 

Commissioner  MEEKER.  I  want  to  get  that  clear.  You  spoke  of 
the  New  York  Street  Railway  Co.  As  I  understood  you,  you  said 
there  were  11  leased  lines,  or  is  it  12  lines  leased? 

Gen.  TRIPP.  Approximately  10,  I  think  I  stated,  at  the  present 
time. 

Commissioner  MEEKER.  Ten,  all  told? 

Gen.  TRIPP.  I  think  so. 

Commissioner  MEEKER.  Including  the  Eighth  Avenue  line? 

Gen.  TRIPP.  I  would  like  to  say  I  would  not  like  to  be  held  too 
closely  to  those  figures.  I  am  testifying  from  memory  and  I  am 
only  approximating  the  figures. 

Commissioner  MEEKER.  Yes.  What  I  wished  to  get  at  was  ap- 
proximately the  proportion  of  the  lines  operated  b}^  the  New  York 
Street  Railway  Co.  that  are  leased  lines. 

Gen.  TRIPP.  In  mileage  of  tracks? 

Commissioner  MEEKER.  Yes,  that  would  be  sufficient,  I  think. 

Gen.  TRIPP.  My  estimate  is  but  little  better  than  a  guess,  but  my 
guess  is  25  per  cent. 

Commissioner  MEEKER.  Seventy-five  per  cent  are  owned  outright 
by  the  company? 

Gen.  TRIPP.  Yes. 

Commissioner  MEEKER.  And  as  I  understand  your  statement,  somo 
of  these  leased  lines  draw  high  dividends? 


168     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Gen.  TRIPP.  Yes. 

Commissioner  MEEKER.  Is  not  that  rather  a  high  interest  upon 
bonded  debt? 

Gen.  TRIPP.  You  mean  does  not  that  produce 

Commissioner  MEEKER.  Is  it  not  a  fixed  charge  on  the  New  York 
Street  Kaihvay  Co.  in  the  shape  of  a  bonded  debt? 

Gen.  TRIPP.  In  so  far  as  those  high  rentals  exist,  standing  by  them- 
selves, they  are  high.  There  are  only  two  or  three  which  are  high. 
Those  two  or  three  constitute  such  a  small  proportion  of  the  total 
aggregate  fixed  charges  upon  the  whole  system  that  its  effect  is 
almost  negligible  in  the  whole.  But  viewed  as  a  property  standing 
by  itself,  the  return  is  high. 

Commissioner  MEEKER.  Could  you  submit  for  our  information  a 
statement  or  some  printed  document  that  would  give  us  more  infor- 
mation about  this  particular  street-railway  line,  the  percentage  of 
leased  lines  and  what  that  obligates  the  company  to  ? 

Gen.  TRIPP.  I  will,  with  the  permission  of  the  receiver  of  the  New 
York  Railways.  I  am  not  an  officer,  I  am  not  now  a  director,  and  I 
think  I  should  have  to  get  his  permisison,  but  I  will  do  that ;  I  will 
ask  him. 

Commissioner  MEEKER.  You  also  made  the  statement,  as  I  under- 
stood it  that,  the  5-cent  fare,  generally  speaking,  was  only  sufficient 
to  pay  a  reasonable  return  upon  investment. 

Gen.  TRIPP.  Yes. 

Commissioner  MEEKER.  So  that  as  a  matter  of  fact  there  has  been 
very  little  extension  and  improvement  work  done  out  of  the  earnings 
of  the  street-railway  companies  so  far  as  you  know  ? 

Gen.  TRIPP.  Well,  the  stockholders  of  street  railways  have  fore- 
gone the  collection  of  dividends  to  quite  a  large  extent  and  that 
money  has  gone  back  into  the  property  and  constitutes,  in  my  judg- 
ment, a  large  sum.  But  that  is  not  inconsistent  with  my  statement 
that  a  5-cent  fare  has  yielded  only  a  fair  return,  because  they  have 
not  taken  the  return. 

Commissioner  MEEKER.  The  return  reinvested  in  property  was 
not  what  could  be  called  an  excessive  return  in  any  case  ? 

Gen.  TRIPP.  No,  sir. 

Commissioner  MEEKER.  In  regard  to  the  zone  system,  you  said,  as 
I  understood,  that  you  were  not  aware  of  its  being  put  in  operation 
on  any  large  system. 

Gen.  TRIPP.  No ;  I  am  not  aware  of  it,  Mr.  Commissioner. 

Commissioner  MEEKER.  Is  it  not  the  same  thing,  however — the 
extra  fares  that  are  charged  on  the  Massachusetts  interurban  lines 

Gen.  TRIPP.  Oh,  yes. 

Commissioner  MEEKER.  Lines  that  extend  beyond  city  or  township 
limits? 

Gen.  TRIPP.  Oh,  yes ;  that  is  in  universal  operation  throughout  the 
United  States — the  zone  system  on  interurban  lines. 

Commissioner  MEEKER.  Is  not  the  evidence  then  pretty  conclusive 
that  the  American  peopde  have  paid  zone  fares  and  would  probably 
continue  to  pay  them  even  on  a  different  principle,  if  they  were 
obliged  to? 

Gen.  TRIPP.  Yes,  they  might.  As  I  stated,  it  has  been  the  general 
opinion  of  street-railway  men  that  the  public  would  not  stand  for  it, 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      169 

as  they  say,  but  I  do  not  know  how  they  arrived  at  that  opinion, 
because  it  never  has  been  tried. 

Commissioner  BEALL.  You  mean  within  the  limits  of  a  city  ? 

Gen.  TRIPP.  Within  the  limits  of  a  city;  yes. 

Commissioner  MEEKER.  I  presume  that  they  argue  that  we  are 
different  from  Europe  and  because  they  do  it  in  Europe  we  can  not 
do  it  in  this  country. 

Gen.  TRIPP.  That  may  be  so. 

Commissioner  MEEKER.  I  have  been  very  greatly  puzzled  by  the 
very  great  difference  between  the  cities  in  the  earning  capacity  of  the 
street-railway  lines.  The  New  York  Street  Railway  Co.  is  in  bank- 
ruptcy. It  seems  to  me  that  there  is  a  company  that  should  make 
money,  if  any*ompany  could  make  money,  as  it  appears  to  me,  and 
I  have  read  in  the  newspapers'  recently — I  do  not  know  that  that  can 
be  taken  as  evidence — but  I  have  read  in  the  newspapers  that  the 
street  railways  of  San  Francisco  are  very  prosperous.  Now  the 
traffic  conditions  are  somewhat  different,  as  I  conceive,  as  between 
New  York  City  and  San  Francisco,  yet  not  sufficiently  different  to 
account  in  my  mind  for  the  enormous  difference.  Can  you  give  us 
any  explanation  of  these  differences,  if  they  exist;  and  if  they  do  not 
exist,  will  you  tell  us  that  they  do  not? 

Commissioner  BEALL.  Did  you  mean,  Commissioner  Meeker,  the 
lines  that  the  city  owns  in  San  Francisco  or  the  lines  that  the  private 
company  owns? 

Commissioner  MEEKER.  I  am  not  prepared  to  say,  because  the 
newspaper  articles  I  read  did  not  state — 

Commissioner  BEALL.  The  lines  that  the  private  company  owns 
are  not  prosperous  but  the  lines  that  the  city  owns  are  short  lines 
with  heavy  density  of  traffic  and  have  a  high  fare  and  are  prosperous. 

Gen.  TRIPP.  Different  conditions  do  exist  in  different  cities.  There 
are  many  factors  that  enter  into  it.  In  New  York  City  the  cost  of 
construction  was  tremendous.  They  have  an  underground  trolley 
system.  The  formation  of  the  island  is  largely  rock  foundation.  In 
some  cases  they  had  to  move  the  Croton  water  main.  It  cost  $500,000 
to  go  through  Union  Square  alone  on  that  account.  The  ground 
under  New  York  City  is  a  perfect  network  of  gas  pipes,  water  pipes, 
electric  conduits  and  everything  you  can  imagine;  so  the  construction 
of  an  underground  trolley  all  over  Manhattan  Island  was  a  tre- 
mendously expensive  proposition,  and  the  capitalization  in  that  case 
was  honestly  very  much  more  than  in  most  other  cities.  That  made  a 
large -capitalization.  Then  they  were  confronted  with  the  congestion 
in  those  narrow  streets  which  reduced  the  car-mile  speed;  I  have 
not  the  figures  now,  but  a  very  marked  reduction  in  speed  over  what 
we  were  able  to  get  in  other  cities.  So  the  service  that  you  got  out 
of  a  car  was  much  less;  the  service  that  you  got  out  of  the  platform 
men  was  much  less.  Then  we  have  the  competition,  of  course,  in  that 
longitudinal  island — avenues  running  up  and  down  the  island,  the 
competition  of  the  subway  and  elevated  lines,  which  was  more  intense 
there  than  anywhere  else. 

The  street  railway  would  never  have  lived  in  New  York  except  for 
the  tremendous  earning  power  per  car-mile:  and  that  offset  these  dis- 
advantages, but  it  left  it  with  a  narrow  margin.  As  a  matter  of  fact, 
the  street-railway  business  has  existed  on  a  narrow  margin  for  15 
years,  and  it  did  not  take  much  to  wipe  out  that  margin. 

1GOG4.'{°— 20 12 


170      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Now,  there  are  other  cities  where  the  lines  have  not  properly  cov- 
ered the  city,  where  the  people  are  not  getting  the  service  that  they 
ought  to  get  out  of  a  street-railway  system.  The  street-railway  sys- 
tem is  taking  the  cream.  And  those  lines,  wherever  they  exist,  may 
be  able  to  run  on  a  5-cent  fare. 

The  situation  in  Washington  here  is  a  splendid  illustration  of 
that  situation.  One  company  can  earn  a  return,  as  I  understand  it, 
on  a  5-cent  fare.  The  other  company,  which  gives  a  service  out  into 
the  suburbs,  which  serves  the  people,  which  appears  to  me  better 
than  the  prosperous  company,  is  penalized;  it  can  not  make  a  fair 
return  because  it  gives  a  different  kind  of-  service — it  sells  a  more 
expensive  product. 

So  the  factors  that  enter  into  any  given  locality  ar^numerous  and 
differ  in  each  locality.  But  even  the 'prosperous  ones,  if  there  are 
any  left,  are  operating  on  a  narrow  margin. 

Commissioner  MEEKER.  The  moral  for  the  commission  is  not  to 
indulge  in  too  broad  generalizations? 

Gen.  TRIPP.  Yes. 

Commissioner  MEEKER.  But  deal  with  each  community  according 
to  the  particular  conditions  in  that  community? 

Gen.  TRIPP.  Yes.  Generalizations  are  dangerous  in  this  inquiry, 
except  so  far  as  they  are  necessary  to  bring  out  a  condition  which 
can  be  shown  to  be  universal,  regardless  of  local  conditions.  The 
street  railways  in  general  are  bankrupt,  regardless  of  local  condi- 
tions. There  are  different  degrees  01  bankruptcy,  if  you  please. 
Some  are  worse  bankrupt  than  others;  some  are  just  skinning  along; 
some  will  be  bankrupt  within  a  week.  But  there  are  different  de- 
grees of  it. 

Commissioner  MEEKER.  As  I  understand  you,  in  answer  to  Com- 
missioner Sweet's  question  you  said  you  did  not  think  very  much 
improvement  in  street-car  equipment  and  organization  was  possible, 
at  least  it  is  not  at  present  in  sight,  so  that  we  can  not  look  for  the 
cutting  down  of  the  cost  of  the  service  to  any  great  extent,  so  far 
as  we  are  able  to  see  ahead  now. 

Gen.  TRIPP.  No,  sir;  you  can  not. 

Commissioner  MEEKER.  In  regard  to  the  New  York  City  situation, 
would  it  be  at  all  feasible,  do  you  think,  to  adopt  perhaps  the  one- 
man  car  for  the  surface  lines — some  of  the  surface  lines  that  are 
competing  with  the  long-haul  subway  and  elevated  lines? 

Gen.  TRIPP.  I  should  think  in  New  York  City  it  would  be  about 
the  worst  place  that  you  could  operate  a  one-man  car.  At  rush 
hours  a  one-man  car  simply  could  not  handle  some  of  the  traffic, 
particularly  on  the  downtown  cross-town  lines  leading  to  Brooklyn 
Bridge  and  to  the  various  ferries  and  Hudson  tubes. 

Commissioner  MEEKER.  Pardon  me,  may  I  interrupt  there?  I  was 
speaking  of  the  lines  that  are  running  in  competition  with  the  ele- 
vated and  the  subway  lines — the  north  and  south  lines  in  general— 
and  may  I  add  here,  would  it  be  possible  to  run  them  at  frequent 
enough  intervals  merely  for  local  traffic  under  a  zone  system,  so  that 
it  might  relieve  the  elevated  and'  subway  lines  and  might  perhaps 
contribute  toward  the  solution  of  the  transportation  problem  ? 

Gen.  TRIPP.  My  judgment  would  be  that  it  would  not,  generally 
speaking.  The  cars  are  already  operated  on  the  principal  longitudi- 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      171 

nal  lines  about  as  closely  as  they  ought  to  run  in  rush  hours  and 
they  could  not  get  them  any  closer.  And  of  course  a  car  that  seats 
40  or  50  people  will  carry  more  than  a  one-man  car. 

Commissioner  GADSDEN.  You  mean  on  account  of  the  vehicular 
travel,  do  you  not? 

Gen.  TRIPP.  Well,  they  operate  all  the  cars  they  can  and  the 
vehicular  traffic  results  in  cutting  down  the  schedule,  which,  as  I 
have  already  stated,  prevents  their  getting  the  greatest  use  out  of 
their  equipment. 

Commissioner  MEEKER.  Before  I  go  any  further  I  would  like  to  ask 
for  your  solution  of  the  New  York  situation. 

Gen.  TRIPP.  Oh,  cost-of-service  plan,  as  I  have  just  outlined. 

Commissioner  MEEKER.  Well,  would  that  involve  something  like 
a  10-cent  fare? 

Gen.  TRIPP.  That  of  course  I  can  not  state.  That  would  require 
an  analysis  of  how  much  the  deficit  really  is,  and  I  am  not  familiar 
with  it.  I  have  heard  it  stated  that  a  7^-cent  fare  might  do  it,  but 
it  was  doubtful.  I  do  not  know  that  of  my  own  knowledge. 

Commissioner  MEEKER.  So  far  as  the  physical  matter  of  conduct- 
ing transportation  is  concerned,  you  do  not  see  much  chance  for 
improvement  over  the  present  situation  in  New  York? 

Gen.  TRIPP.  No,  sir. 

Commissioner  MEEKER.  According  to  your  present  knowledge? 

Gen.  TRIPP.  No,  sir;  I  do  not  see  much  chance  for  improvement. 

Commissioner  MEEKER.  It  is  a  rather  hopeless  situation  for  New 
York  then.  Now  just  one  more  question.  Do  you  think  that  the 
one-man  car  may  aid  in  the  solution  of  the  transportation  problems 
of  cities  other  than  New  York?  Do  you  think  it  has  possibilities? 

Gen.  TRIPP.  A  one-man  car,  under  my  theory,  should  be  consid- 
ered only  from  the  standpoint  of  its  economy,  looked  at  from  the 
standpoint  of  the  public.  Will  it  properly  serve  the  public.  Is  it 
all  they  require?  And  if  it  is  a  satisfactory  service,  it  is  a  cheaper 
service;  and  the  public  ought  to  get  its  service  as  cheap  as  it  can. 
But  it  is  not  a  cure,  nor  is  it  fundamentally  proper  to  attempt  as  a 
step  in  the  solution  of  this  problem  to  force  a  one-man  car  into  a 
situation  that  economcially  requires  a  larger  car.  It  is  forcing  an 
economy  at  the  expense  of  the  public,  because  the  whole  situation  is 
set  up  on  an  erroneous  foundation. 

Commissioner  MEEKER.  I  think  that  is  all,  Mr.  Chairman. 

Commissioner  BEAU,.  When  you  were  talking  of  investment  did 
you  bring  out  the  point  that  the  street-railway  company  sells  say 
a  million  dollars  of  bonds  for  $900,000  and  it  has  really  made, 
nevertheless  a  million-dollar  investment,  because  that  is  what  it  has 
eventually  to  pay. 

Gen.  TUIPP.  I  agree  to  that  entirely. 

Commissioner  BEALI,.  Did  you  bring  that  out? 

Gen.  TRIPP.  I  did  not. 

Commissioner  BEALL.  I  wanted  the  commission  to  understand 
that  there  are  a  good  many  things  that  go  to  make  up  the  cost  of 
this  stivet-railway  property  that  we  are  apt  to  lose  sight  of. 

Gen.  TRIPP.  Yes. 

Commissioner  MEKKKR.  Will  you  make  that  statement  so  it  will 
appear  in  the  record  as  your  statement? 


172      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Gen.  TRIPP.  In  arriving  at  the  investment  in  a  property  there 
should  be  included  as  a  part  of  the  legitimate  investment  the  dis- 
count on  securities:  that  is  to  say,  securities  are  not  always  salable 
at  par,  and  they  are  sold  at  the  best  price  obtainable,  and  the  differ- 
ence between  the  price  so  obtained  and  par  represents  a  discount 
which  is  a  proper  investment  in  these  properties  upon  which  a 
return  should  be  allowed. 

Commissioner  MEEKER.  Would  that  apply  to  stocks  as  well  as 
bonds  ? 

Gen.  TRIPP.  Stocks  are  usually  issued  at  par.  I  think  in  most 
oases,  and  perhaps  all,  stock  when  it  is  issued  is  fully  paid  at  100 
cents  on  the  dollar.  Now  it  may  be  paid  either  in  cash,  100  cents 
.m  the  dollar,  or  it  may  be  paid  in  promotion  service  at  100  cents 
on  the  dollar,  and  between  those  two  classes  I  would  distinguish. 
Where  the  stock  is  sold  for  cash,  even  if  it  was  not  sold  at  100  cents 
-on  the  dollar,  if  some  law  permits  it,  but  if  it  was  the  best  price 
#;hat  could  be  received  for  that  stock,  the  discount  there  should  go 
'jito  the  cost  of  the  property. 

Commissioner  MEEKER.  Then  what  would  be  the  difference  be- 
tween taking  the  total  bonded  debt  and  all  the  stock  outstanding,  ex- 
cept such  as  was  issued  for  promotion  services,  sum  them,  and  take 
that  sum  as  the  investment  upon  which  returns  must  be  paid  to  bond- 
holders and  stockholders? 

Gen.  TRIPP.  That  is  precisely  what  happens.  Segregate  the  se- 
curities that  are  watered  securities,  so  called,  prove  that  the  rest  of 
the  securities  were  not  watered,  and  if  the  rest  of  the  securities  were 
not,  they  were  honestly  issued  for  value.  That  is  the  investment 
in  the  property. 

Commissioner  MEEKER.  If  that  were  done — turning  to  the  question 
Mr.  Sweet  asked — would  that  in  general  give  the  total  capitalization 
above  or  below  a  reasonable  physical  valuation?  I  use  reasonable 
physical  valuation  because  physical  valuations  are  made  and  they 
are  alleged  to  be  reasonable. 

Gen.  TRIPP.  I  do  not  think  that  question  can  be  answered  by  say- 
ing yes  or  no.  About  10  years  ago.  or  perhaps  a  little  earlier,  there 
came  a  period  of  readjustment  of  some  of  the  principal  railroad  prop- 
erties in  the  United  States — reorganizations.  At  that  time  I  was 
familiar  with  what  was  going  on  generally  over  the  United  States, 
and  as  to  those  properties  with  which  I  was  familiar  the  securities 
were  so  reduced  that  the  physical  valuation  of  the  property  in  al- 
most all  cases  exceeded,  and  in  all  cases  equaled  and  more  than 
equaled,  the  new  securities  that  were  issued — stocks,  bonds,  and  secu- 
rities of  every  character.  Now,  then,  the  statement  regarding  those 
properties  would  be  that  the  investment  in  the  property — determined 
by  the  methods  which  I  have  indicated,  perhaps,  are  the  more  feasi- 
ble methods — would  be  less  than  the  physical  valuation  of  the  prop- 
erty. There  are  undoubtedly  some  properties  where  this  operation 
has  not  gone  through  yet  that  such  a  method  would  determine  the 
amount  in  excess  of  the  physical  valuation. 

Commissioner  MEEKER.  That  is  by  the  method  that  you  have  sug- 
gested ? 

Gen.  TRIPP.  Yes,  that  is  to  say  this:  The  physical  valuation  of 
the  property  taken  at  prewar  prices  might  not  in  all  cases  equal  the 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     173 

investment  in  the  property  as  determined  by  the  method  I  have  sug- 
gested. But  even  if  it  did  not,  the  money  actually  went  into  the 
properties  for  the  service  of  the  people — that  is  the  test.  If,  in  order 
to  produce  that  service,  there  has  been  scrapped  an  overhead  trolley 
system,  and  an  underground  system  substituted  for  the  beautification 
of  the  city,  if  expensive  tunnels  have  been  built  and  the  company 
participated  in  them — if  many  of  those  things  which  you  might 
imagine  had  occurred,  that  would  form  a  part  of  the  legitimate  in- 
vestment in  the  property  for  the  service  of  the  public,  but  might  not 
be  reflected  in  the  physical  value  of  the  property  as  it  exists  to-day. 
I  say  there  might  be  cases  of  that  kind.  I  doubt  if  there  would  be 
many,  and  perhaps  none;  and  I  would  say  further  that  I  do  not 
know  of  any  case  where  I  think  that  would  happen. 

Commissioner  MEEKER.  Do  you  think  that  it  would  be  easier  to 
arrive  at  an  approximation  of  a  proper  valuation  through  the  method 
you  have  suggested  of  getting  at  investment  rather  than  by  the 
method  of  physical  valuation? 

Gen.  TRIPP.  Yes;  I  think  so.  I  think  that  is  the  most  feasible 
method,  as  I  have  suggested. 

Commissioner. MEEKER.  It  would  be  easier  and  less  costly  to  arrive 
at? 

Gen  TRIPP.  Yes. 

Commissioner  MEEKER.  And  you  think  that  the  public  would  be 
satisfied  by  your  method  quite  as  much  as  by  any  method  of  arriving 
at  physical  valuation? 

Gen.  TRIPP.  Yes,  sir.  I  think  it  would  depend  upon  the  confidence 
that  the  public  placed  in  the  commission  or  individual  that  made  the 
inquiry  along  the  lines  I  have  suggested. 

Commissioner  MEEKER.  That  is  all,  Mr.  Chairman. 

Commissioner  GADSDEN.  General,  in  this  method  of  arriving  at 
values  you  have  been  talking  about,  is  it  not  true,  referring  to  the  de- 
preciation in  the  purchasing  price  of  money  that  you  have  referred 
to,  that  under  that  system  all  the  loss  wo'uld  fall  on  the  investor? 
In  other  words,  suppose  that  a  property  worth  a  million  dollars, 
costing  a  million  dollars  under  your  system  20  years  ago,  is  covered 
by  bonds  at  5  per  cent;  under  your  plan  that  property  to-day  would 
be,  we  will  say,  valued  at  a  million  dollars  and  the  return  is  still 
5  per  cent.  Now,  admitting  that  the  value  of  money  has  depreciated 
50  per  cent,  the  investor  is  getting  one-half  return  on  his  property, 
is  he  not  ? 

Gen.  TRIPP.  Yes. 

Commissioner  GADSDEN.  Therefore  is  it  not  necessary,  in  view  of 
this  extraordinary  depreciation  in  the  purchasing  price  of  money, 
in  order  to  equalize  that  situation  either  to  increase  the  rate  of  re- 
turn or  to  give  the  current  value  of  the  property  in  the  value  of 
money  to-day? 

Gen.  TRIPP.  I  do  not  believe  so,  Mr.  Commissioner.  It  would  be 
lifting  yourself  by  your  boot  straps.  Currency  has  depreciated.  It 
was  the  operation  in  my  opinion  of  a  natural  law  brought  about  by 
the  tremendous  war  debts  all  over  the  world.  Those  war  debts  have 
got  to  1)€  paid.  Now,  in  order  to  do  that,  the  natural  law  depre- 
ciated currency  by  about  50  per  cent  and  paid  off  half  this  debt. 
The  people  who  had  to  have  immediate  assistance  because  they  had 
no  margin  of  safety  to  go  on  were  labor.  Next  we  find  the  landlord 


174     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

who  had  less  margin  of  safety  to  go  on,  and  he  searched  for  greater 
income,  and  he  got  part  of  it,  but  he  had  trouble  in  doing  it.  Labor 
particularly,  then,  is  not  in  a  position  to  pay  any  portion  of  this 
war  debt.  It  had  no  margin  to  pay  it  with.  It  has  got  to  be  paid. 
The  people  who  have  got  to  pay  it  are  the  fund  owners,  the  owners 
of  fixed-income  securities.  And  if  you  adjust  their  incomes  by  the 
method  you  have  suggested  so  they  are  relieved,  you  have  not  done 
anything — you  have  just  lifted  yourself  up  by.  your  boot  straps  and 
you  are  right  where  you  were  when  you  started. 

Commissioner  GADSDEN.  Is  it  not  true  that  the  people  by  your  plan 
would  be  confined  solely  to  public  utilities r- 

Gen.  TRIPP.  No. 

Commissioner  GADSDEN.  Would  it  not  be  true  with  investors  in 
every  line  of  business,  that  their  property  would  be  appreciated  ? 

Gen.  TRIPP.  No;  I  think  you  are  mistaken,  Mr.  Commissioner. 
There  are  billions  of  fixed  income  bonds  held  by  investors  through- 
out the  United  States  on  which  they  can  not  get  relief — railroad 
bonds.  Now,  your  theory  is  that  the  street  railway  company  could 
get  relief  if  it  had  a  5  per  cent  bond ;  it  ought  to  have  an  increase  in 
return  because  of  the  decreased  purchasing  power,  of  the  dollar. 
Under  my  theory,  they  are  exactly  in  the  same  position :  the  owner 
of  a  railroad  bond  is  just  in  the  same  position 

Commissioner  GADSDEN.  Unquestionably,  but  getting  outside  of 
regulated  properties,  getting  to  textile  properties  and  the  value  of 
steel  properties — is  not  the  value  of  a  steel  mill  to-day  based  upon 
current  prices  and  not  what  it  cost? 

Gen.  TRIPP.  Yes ;  but  when  you  get  into  the  question  of  return  on 
stock  in  industrials,  the  industrials  are  reaping  a  harvest  in  this  case. 

Commissioner  GADSDEN.  But  if  you  were  asked  a  similar  question 
— What  is  the  value  of  a  shoe  factory  in  Massachusetts  or  Connecti- 
cut to-day  ? — you  would  give  its  current  value,  would  you  not  ?  You 
would  not  say  its  value  was  what  the  investors  put  into  it  in  the. 
history  of  the  plant? 

Gen.  TRIPP.  Well,  I  would  not  buy  a  shoe  factory  on  the  basis  of 
present  earnings,  on  the  same  theory  that  I  would  have  purchased  it 
before  the  war.  I  would  have  to  have  a  wider  margin.  There  is  a 
distinction  between  regulated  and  unregulated  industries.  My 
theory  asks  the  public  to  guarantee  a  return  upon  our  investment  in 
electric  railways.  The  industrials  ask  no  one  to  guarantee  their  re- 
turn. When  hard  times  come  they  must  take  their  medicine.  Now, 
you  can  not  regard  the  investment  in  a  public  utility  which  is  prac- 
tically guaranteed  by  the  public  on  the  same  basis — 

Commissioner  GADSDEN.  Do  you  think  the  history  of  the  industry 
as  you  have  shown  it  to-day  has  shown  a  guaranty  of  return  ? 

Gen.  TRIPP.  No ;  but  I  am  directing  all  my  testimony  here  toward 
the  theory  which  I  have  promulgated 

Commissioner  GADSDEN.  Toward  the  future? 

Gen.  TRIPP.  That  there  should  be  a  different  relation  in  the  future. 

Commissioner  GADSDEN.  Exactly.  Therefore  is  it  not  necessary  to 
bring  the  situation  up  to  date  to  rectify  the  values  of  these  properties 
from  now  on  up  to  date  and  then  keep  the  account? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     175 

Gen.  TRIPP.  No ;  I  do  not  think  so. 

Commissioner  SWEET.  Gen.  Tripp,  to  put  your  idea  into  language, 
which  the  average  man  would  clearly  understand,  let  me  ask  you 
this  question :  Take  for  illustration  the  country  merchant  who  erects 
a  small  frame  building  in  which  to  conduct  his  business ;  he  prospers 
and  later  on  finds  that  building  insufficient  for  his  needs  and  tears  it 
down  and  puts  up  a  fine  brick  structure  in  its  place.  The  original 
cost  to  the  frame  building  would  be  a  part  of  the  legitimate  invest- 
ment, according  to  your  theory? 

Gen.  TRIPP.  Yes. 

Commissioner  SWEET.  And  should  be  added  to  the  subsequent  cost 
of  the  brick  structure  and  together  with  other  moneys  actually  in- 
vested should  constitute  the  capital  upon  which  he  ought  to  make  a 
legitimate  profit.  Is  that  correct? 

Gen.  TRIPP.  Yes;  I  think  he 

Commissioner  SWEET.  Let  me  ask  one  thing  further.  I  am  present- 
ing this  now  in  order  to  bring  down  your  theory  to  the  individual — • 
not  saying  or  asking  you  to  express  an  opinion  as  to  whether  individ- 
uals would  or  ought  to  figure  their  profits  on  that  basis,  but  whether 
that  would  be  an  illustration  which  you  think  would  be  proper  for 
regulated  public  utilities. 

Gen.  TRIPP.  If  I  understood  your  question  correctly,  I  should  not 
think  it  was  quite  that  way.  I  understood  you  to  say  that  the  cost  of 
the  wooden  building  would  be  added  in  its  entirety  to  the  cost  of  the 
brick  building  and  that  the  sum  of  those  two  constituted  an  invest- 
ment on  which  he  is  entitled  to  a  return.  Was  that  your  question  ? 

Commissioner  SWEET.  Yes;  the  entire  investment. 

Gen.  TRIPP.  Now,  however,  in  the  street-railway  field,  the  cost  of 
the  old  wooden  building  would  be  charged  off  against  the  properties 
and  the  cost  of  the  new  building  would  be  the  amount  that  it  would 
be  entitled  to  a  return  on  under  the  system  of  bookkeeping  which  has 
been  adopted  by  the  Interstate  Commerce  Commission,  ii  I  am  cor- 
rect. 

Commissioner  SWEET.  Then  if  money  had  been  expended  by  a 
street-railroad  company  for  the  purchase  of  a  horse-car  system  or  for 
changing  over  from  the  horse-car  system  to  the  cable  system  or  the 
cable  to  electricity — do  you  mean  to  say  all  that  money  should  be 
crossed  off  entirely  and  only  the  value  of  the  electric  system  taken  as 
representing  the  capital  upon  which  dividends  are  to  be  paid  ? 

Gen.  TRIPP.  Yes,  speaking  generally;  because  a  depreciation  item 
has  or  ought  to  have  been  set  up  to  care  for  depreciation  and  obso- 
lescence. Now  I  would  not  say  that  that  rvde  ought  to  be  applied 
arbitrarily  and  unjustly.  But  apparatus  that  has  disappeared  will 
generally  be  found  to  have  been  taken  care  of  out  of  the  earnings  of 
the  company  and  it  is  an  item  called  depreciation  or  obsolescence. 

Commissioner  SWEET.  In  answer  to  a  question  by  Dr.  Meeker,  did 
you  not  say  that  earnings  legitimately  made  that  might  be  distrib- 
uted as  dividends,  if  not  so  distributed,  but  put  into  the  property  it- 
sol  f,  constituted  a  legitimate  basis  for  future  dividends? 

(Jon.  TRIPP.  Yes;  but  earnings  legitimately  made,  as  I  meant  it 
in  that  sense,  was  after  providing  a  reasonable  amount  for  deprecia- 
tion which  covers  the  item  which  I  have  been  talking  about. 

Commissioner  SWEET.  In  other  words,  if  my  merchant  in  our  conn- 
try  village  had  a  delivery  wagon  and  a  horse,  and  the  horse  died  and 


176      PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

he  replaced  that  with  another  horse,  that  would  not  be  treated  as  a 
part  of  the  investment  but  merely  as  a  replacement  of  something  that 
is  liable  to  happen  in  the  regular  course  of  bilsiness. 

Gen.  TRIPP.  Yes. 

Commissioner  SWEET.  I  get  your  idea  now  a  little  better.  One 
thing  further :  In  answer  to  a  question  by  Dr.  Meeker,  you  said  there 
were  differences  in  the  problem  involving  street  railways  in  different 
cities. 

Gen.  TRIPP.  Yes. 

Commissioner  SWEET.  Of  course  there  are.  Every  one  differs  from 
every  other  one — there  are  no  two  exactly  alike  any  more  than  there 
are  two  people  exactly  alike ;  is  not  that  true  ? 

Gen.  TRIPP.  That  is  true. 

Commissioner  SWEET.  But  is  there  not  running  through  all  of  them 
a  series  of  questions  or  propositions,  so  to  speak,  that  are  almost  ex- 
actly similar? 

Gen.  TRIPP.  If  I  understand  your  question,  I  think  I  would  answer 
it  yes.  Now,  would  you  illustrate  for  example  what  you  have  in 
mind  ? 

Commissioner  SWEET.  I  mean  to  say,  in  taking  the  situation 
throughout  the  country  at  large  we  find  practically  all  of  the  street 
railways  in  a  distressed  condition,  do  we  not  ? 

Gen.  TRIPP.  We  do;  yes. 

Commissioner  SWEET.  If  there  are  any  that  are  not,  they  are  ex- 
ceptions. 

Gen.  TRIPP.  Yes. 

Commissioner  SWEET.  And  only  very  few  of  them. 

Gen.  TRIPP.  Only  very  few. 

Commissioner  SWEET.  Now  then  it  would  naturally  seem  as  if  there 
are  certain  general  causes  that  were  bringing  about  this  general  re- 
sult. One  of  those  that  you  have  mentioned,  and  a  very  important 
one  undoubtedly,  is  the  lessened  purchasing  power  of  money? 

Gen.  TRIPP.    Yes. 

Commissioner  SWEET.  That  goes  through  all  of  them.  Do  you  not 
consider,  then,  that  it  is  one  of  the  proper  functions  of  this  commis- 
sion to  endeavor  to  find  what  is  the  trouble  that  applies  to  all  of  them 
and  devote  its  efforts  to-  recommending  remedies  for  those  general 
evils  rather  than  to  pry  into  separate  city  difficulties  with  a  view  of 
directly  applying  its  efforts  to  each  separate  case  ? 

Gen.  TRIPP.  Oh,  by  all  means,  I  think  that  is  your  function  abso- 
lutely. 

Commissioner  SWEET.  Of  course  our  work  would  be  interminable  if 
we  took  up  the  cases  of  Buffalo,  Detroit,  Cleveland,  and  different 
cities. 

Gen.  TRIPP!  Yes.  Those  are  only  valuable  as  they  illustrate  the 
general  condition. 

Commissioner  SWEET.  That  is  exactly  it.  Now  then,  our  knowl- 
edge of  the  general  condition  must  be  based  upon  as  much  and  as 
accurate  information  as  possible  from  the  various  localities. 

Gen.  TRIPP.  Precisely. 

Commissioner  SWEET.  Then  is  it  not  our  function,  in  your  judg- 
ment, to  sift  and  analyze  and  finally  determine  what  are  the  general 
factors  that  are  practically  applicable  to  all  or  nearly  all  of  the  com- 
munities and  make  our  recommendations  in  accordance  with  what  our 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     177 

conclusions  may  be  as  to  those  common,  general,  all-pervading  fac- 
tors? 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  SWEET.  Right  on  that  point.  General,  considering 
your  familiarity  with  the  whole  subject  and  the  general  situation, 
will  you  tell  us  what  in  your  judgment  is  the  best  line  of  inquiry  and 
work  for  this  commission,  and  whether  you  think  we  can  do  any 
good  or  not  ? 

Gen.  TRIPP.  I  think  you  can  do — 

Commissioner  SWEET.  I  do  not  mean  now  good  for  the  companies 
or  good  for  the  employees  or  good  for  the  communities  alone,  but  good 
for  all,  upon  the  theory  that  you  expressed  here  a  little  while  ago,  that 
their  interests  were  in  comm'on  and  not  in  conflict. 

Gen.  TRIPP.  I  could  not  express  so  well  as  you  have,  Mr.  Commis- 
sioner, the  course  which  your  inquiry  ought  to  take.  It  exactly  coin- 
cides with  my  view.  The  fundamental  difficulty  should  be  inquired 
into  by  your  commission.  And  I  hope  that  you  will  find  a  funda- 
mental basis  upon  which  should  rest  all  local  arrangements  between 
municipality  and  company.  And  if  you  should  do  that,  I  think, 
speaking  from  the  standpoint  of  the  electric  railways,  that  you  are 
the  only  hope  that  the  industry  has  to  save  it  from  complete  bank- 
ruptcy. I  think  the  general  bankruptcy  of  the  electric  railways 
would  have  an  effect  upon  the  public,  their  service  rendered  would  be 
reduced,  the  cost  of  service  would  bound  to  be  increased,  there  would 
be  tremendous  losses  to  small  individual  investors,  fiduciary  institu- 
tions would  find  the  assets  which  they  have  protecting  their  life  in- 
surance policies,  and  their  savings  bank  deposits  seriously  encroached 
on ;  and  all  this  is  unnecessary. 

Commissioner  SWEET.  Would  it  have  any  tendency  to  disturb  labor 
conditions? 

Gen.  TRIPP.  Yes;  I  think  the  proper  solution  of  this  problem 
makes  for  industrial  peace. 

Commissioner  SWEET.  And  stability? 

Gen.  TRIPP.  And  stability.     It  makes  for  more  satisfied  employees. 

Commissioner  SWEET.  And  regular  employment,  I  suppose  ? 

Gen.  TRIPP.  Yes,  and  more  regular  employment,  because  reduction 
of  service  means  unemployment  to  somebody. 

Now  there  is  no  other  hope,  there  is  no  other  avenue  that  this  mat- 
ter can  be  put  before  the  public  as  a  national  problem  except  your 
commission.  And  I  have  great  hopes  that  when  you  have  made  your 
recommendation,  the  press  in  the  interval  will  have  treated  this  case 
liberally  and  fairly  and  that  the  public  will  be  ready  to  receive  your 
recommendation  and  will  be  interested  in  what  it  is,  and  when  that 
is  done  you  will  have  paved  the  way  for  us  to  approach  the  parties 
to  the  other  side  of  the  contract  for  a  new  deal  which  will  be  bene- 
ficial to  everybody  concerned. 

Commissioner  MEEKER.  May  I  ask  a  question?  It  seemed  to  me 
there  was  a  little  bit  of  confusion  involved  in  your  answer  to  my  ques- 
tion as  to  what  was  the  proper  method  of  arriving  at  the  capital  in- 
vestment upon  which  the  companies  were  entitled  to  receive  earnings 
and  the  answer  you  made  to  Mr.  Sweet's  question.  As  I  recall,  you 
said  in  reply  to  my  question  that  all  outstanding  bonds  and  all  stocks 
not  issued  in  payment  of  promotion  services  would  constitute  the  sum 


178     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

total  of  capital  fund  upon  which  income  should  be  paid  to  the  com- 
pany. 

Gen.  TRIPP.  Yes,  sir. 

Commissioner  MEEKER.  Now  if  a  company  purchases  an  old  horse- 
car  line  or  any  superannuated  line — and  it  purchases  it  usually 
through  the  issuance  of  bonds  or  may  do  so  through  the  issuance  of 
stock — now,  how  can  you  write  off  the  cost  or  investment  in  the  old 
horse-car  line  or  the  other  superannuated  line  in  such  a  case  as  that  ? 
How  can  you  write  it  off  in  any  case  if  you  are  going  to  take  into  ac- 
count the  bonds  and  stocks  that  represent  the  original  investment  ? 

Gen.  TRIPP.  Well,  as  I  stated,  you  would  not  write  it  off  under  my 
method  except  that  it  would  be  found — I  understood  Commissioner 
Sweet's  question  to  be  based  on  this :  Would  the  physical  valuation  of 
the  property  be  found  to  equal  or  exceed  the  securities  outside  of  pro- 
motion securities  which  you  have  just  mentioned;  and  my  answer  was 
that  in  most  cases  they  would  and  I  knew  of  no  case  where  they 
would  not.  Then  the  question  came  as  to  what  had  been  done  with 
the  old  properties  in  its  bearing  upon  the  physical  valuation,  and  I 
think  there  I  stated  that  there  had  been  or  ought  to  have  been  set  up 
for  depreciation  an  amount  to  amortize  this  old  horse  railroad  that 
you  speak  of. 

Commissioner  MEEKER.  But  it  is  not  clear  in  my  mind  yet.  Say 
$100.000  worth  of  bonds  have  been  issued  to  purchase  an  old  horse- 
car  line.  The  $100,000  bonds,  let  us  say,  are  not  amortized.  They 
do  make  up  a  part  of  the  outstanding  securities. 

Gen.  TRIPP.  Well,  of  course  in  the  great  aggregate  of  capital  on  an 
electric  railway  you  have  sinking  funds  operating  all  the  time  to  re- 
duce your  funded  indebtedness.  During  the  last  30  years  issues  of 
bonds  have  fallen  due,  generally  speaking,  and  have  been  paid  or  re- 
funded. I  suppose  there  are  very  few  bonds  outstanding  which  were 
dated  as  long  ago  as  the  eighties.  Now  when  you  come  to  the  re- 
funding operation  of  those  bonds,  the  matter,  of  taking  care  of  the 
depreciation  and  the  obsolescence  of  those  old  horse-railroad  proper- 
ties all  adjusts  itself  because  the  question  that  presents  itself  then  to 
the  company  is  how  much  money  do  we  need ;  and  they  get  what  they 
need. 

Commissioner  MEEKER.  So  that  the  process  is  not  a  cumulative 
process  of  adding  the  brick  building  to  the  old  wooden  building 

Gen.  TRIPP.  No. 

Commissioner  MEEKER.  An  a  granite  building  to  the  brick  build- 
ing and  a  marble  building  to  the  granite  building  ? 

Gen.  TRIPP.  Not  at  all. 

Commissioner  MEEKER.  It  is  merely  the  marble  building  that  is 
getting  the  return  ? 

Gen.  TRIPP.  Yes.  In  other  words,  a  properly  managed  company 
when  it  comes  to  renew  its  bonded  obligations  which  are  falling  due 
only  issues  sufficient  new  bonds  to  take  of  its  then  requirements.  Its 
then  requirements  reflect,  if  its  books  have  been  kept  properly,  the 
effect  of  depreciation  charges  and  charging  off  this  obsolent  property. 

Commissioner  GADSDEN.  Can  I  ask  a  question  right  there? — be- 
cause I  think  there  is  probably  a  little  misapprehension  about  it. 
You  are  discussing  this  on  the  basis  of  a  company  whose  income  has 
been  sufficient  to  set  up  these  reserves. 

Gen.  TRIPP.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     179 

Commissioner  GADSDEN.  That  is  true,  is  it  not  ? 

Gen.  TRIPP.  Yes. 

Commissioner  Gadsden.  As  a  matter  of  fact  in  the  history  of  the 
industry  have  these  companies  set  up  these  reserves  to  do  that  ? 

Gen.  TRIPP.  Some  have  and  some  have  not  and  those  that  have  not 
are  to-day  on  the  verge  of  bankruptcy,  and  you  will  have  no  difficulty 
in  dealing  with  those. 

Commissioner  BEALL.  Let  me  ask  a  question  which  I  think  will 
clarify  it.  Is  not  the  general  fact  this?  Take  in  New  York  for  in- 
stance, where  the  roads  have  changed  from  cable  to  electricity.  They 
did  not  do  it  because  the  cable  was  no  longer  able  to  take  care  of  the 
traffic  or  because  it  was  absolutely  obsolent  because  it  was  so  old  it 
was  worn  out.  They  thought  they  had  a  better  method,  a  more  eco- 
nomical method  to  the  public — cheaper  service  and  better  service  and 
more  carrying  capacity. 

Gen.  TRIPP.  Yes. 

Commissioner  BEAIX.  They  made  those  changes  from  the  cable 
roads  and  did  the  same  thing  in  Seattle  and  numerous  other  cities, 
when  those  cable  roads  still  had  a  life  of  a  good  many  years. 

Gen.  TRIPP.  Yes. 

Commissioner  BEALL.  Some  of  them  had  only  run  for  a  few  years. 
If  they  had  run  for  20  years,  they  could  not  have  built  up  enough 
reserve  to  charge  it  off  at  once.  The  method  generally  pursued,  I 
understand,  was  this :  They  did  not  charge  them  off  in  one  fell  swoop, 
but  amortized  it  over  a  number  of  years.  For  instance,  if  the  change 
cost  $3,000,000  and  they  lost  $3,000,000  for  the  junk  in  the  old  cable, 
they  amortized  that  over  20  or  30  years,  so  much  a  year.  Xow  the 
fares  proved  insufficient  from  year  to  year  on  account  of  the  depreci- 
ated purchasing  power  of  the  nickel,  and  they  were  not  able  to  carry 
it  through  that  amortization ;  and  the  result  to-day  is  that  the  com- 
panies in  the  great  cities  are  carding  a  big  investment  which  they 
have  not  been  able  to  amortize  and  wipe  out  and  that  came  about 
through  their  desire  to  give  better  service  to  the  public,  and  they 
junked  some  things  that  were  only  5  years  old.  Is  not  that  true 
in  a  great  many  cases? 

Gen.  TRIPP.  Well 

Commissioner  BEALL.  Let  me  follow  that  up.  I  do  not  under- 
stand you  to  say,  do  I,  that  until  they  have  had  an  opportunity  to 
properly  take  care  of  that  amortization  of  past  investment  that  they 
junked  in  order  to  give  better  service — until  they  are  able  to  get 
that  out  of  the  way  ought  not  they  be  allowed  to  earn  on  it? 

Gen.  TRIPP.  Certainly. 

Commissioner  BEALL,  I  do  not  think  that  was  clear  from  }'our 
statement. 

Gen.  TRIPP.  But,  generally  speaking,  my  method  of  valuing  securi- 
ties would  result  in  that  very  thing. 

Commissioner  BEALL,  I  think  it  would,  but  I  do  not  think  the 
commission  quite  got  that  point — that  nearly  all  these  companies  in 
the  big  cities  are  still  carrying  a  great  big  investment  which  repre- 
sents things  which  they  junked,  which  still  had  a  long,  useful  life 
before  them,  in  order  to  give  better  service  to  the  public. 

Commissioner  SWEET.  There  is  just  one  question.  You  do  not 
moan  to  say,  General,  that  the  change  from  the  cable  to  electricity 
was  done  solely  to  render  better  service  to  the  public,  do  you? 


180      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Gen.  TRIPP.  Not  at  all. 

Commissioner  SWEET.  Was  not  the  element  of  greater  economy  and 
greater  profit  to  the  companies  a  large  element? 

Gen.  TRIPP.  Oh,  yes;  the  larger  element,  of  course. 

Commissioner  BEALL,.  It  was  a  combination  of  both.  They  were 
able  to  give  better  and  faster  service  and  carry  more  people. 

Commissioner  SWEET.  Yes. 

Commissioner  MEEKER.  Then,  in  answer  to  my  question,  the  com- 
panies are,  in  some  instances,  carrying  stock  issues  or  bond  issues 
that  represent  the  obsolete  brick  building.  They  have  not  yet  had 
time  to  amortize  them? 

Gen.  TRIPP.  I  am  glad  you  asked  that  question,  because  I  had 
almost  forgotten  to  add  to  my  reply  to  Commissioner  Beall.  All  those 
companies  that  have  come  under  my  observation  that  have  changed 
from  cable  to  electricity  have  been  through  the  hands  of  a  receiver 
and  the  whole  thing  has  been  wiped  out. 

The  CHAIRMAN.  We  will  resume  at  2  o'clock,  gentlemen. 

Mr.  WARREN.  May  I  excuse  Gen.  Tripp? 

The  CHAIRMAN.  I  understand  Commissioner  Wehle  desires  to  re- 
sume the  cross-examination.  Is  it  convenient  for  you  to  be  here  this 
afternoon  ? 

Gen.  TRIPP.  If  I  could  be  permitted  to  leave  as  early  as  a  quarter 
of  3  it  will  suit  my  purposes. 

The  CHAIRMAN.  That  will  be  all  right. 

(At  12.30  o'clock  p.  in.  a  recess  was  taken  to  2  o'clock  p.  m.) 

AFTER  RECESS. 

The  hearing  was  resumed  at  2  o'clock  p.  m. 

STATEMENT  OF  GEN.  G.  E.  TRIPP— Continued. 

The  CHAIRMAN.  Have  you  any  further  statement  to  make,  Mr. 
Tripp? 

Gen.  TRIPP.  No,  Mr.  Commissioner;  I  have  nothing  more. 

The  CHAIRMAN.  You  had  been  discussing  the  question  of  capital- 
ization and  value  this  morning.  Do  you  believe  it  to  be  the  function 
of  this  committee  to  make  a  finding  as  to  the  existing  capitalization 
of  railroad  companies? 

Gen.  TRIPP.  No,  sir. 

The  CHAIRMAN.  Do  you  think  that  the  commission  should  investi- 
gate the  capitalization  of  independent  or  individual  companies,  so 
that  it  could  reach  some  determination  upon  the  question  as  to 
whether  there  is  or  is  not  watered  stock  in  the  securities  of  these 
companies  ? 

Gen.  TRIPP.  No,  sirj  I  have  not  thought  that  that  would  be  a 
function  of  this  commission. 

The  CHAIRMAN.  HOAV  should  the  commission  proceed  to  make 
such  an  investigation,  if  it  thought  advisable  to  do  so  ? 

Gen.  TRIPP.  It  would  be  a  very  long  investigation  and  require 
a  minute  investigation  into  individual  companies. 

The  CHAIRMAN.  Could  you  outline  the  procedure?  If  we  tried 
to  find  out  the  amount  of  money  that  was  taken  from  the  sale  of 
stocks  and  bonds  and  invested  in  the  property,  and  if  we  undertook 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      181 

to  reach  the  original  cost  in  that  way,  how  long  would  it  take  to 
complete  that  investigation  for  the  New  York  system  ? 

Gen.  TRIPP.  You  cited  the  most  difficult  one,  I  think.  It  would 
take  some  months. 

The  CHAIRMAN.  How  long  would  it  take  to  clean  up  the  Chicago 
situation  ? 

Gen.  TRIPP.  It  would  take  some  months. 

The  CHAIRMAN.  Would  such  an  investigation  be  of  any  value, 
unless  a  sufficient  number  of  companies  were  looked  into,  so  that  the 
findings  would  be  regarded  as  reliable? 

Gen.  TRIPP.  Will  you  please  ask  the  question  again  ? 

The  CHAIRMAN.  Will  the  reporter  please  read  the  question? 

(The  reporter  read  the  question  as  above  recorded.) 

Gen.  TRIPP.  No. 

The  CHAIRMAN.  Is  it  your  opinion  that  a  value  based  upon  cash 
securities  and  stocks  and  bonds  put  into  the  property  would  be 
regarded  as  a  safe  value  for  purchase? 

Gen.  TRIPP.  For  purchase? 

The  CHAIRMAN.  Yes. 

Gen.  TRIPP.  By  the  municipality? 

The  CHAIRMAN.  Yes,  sir. 

Gen.  TRIPP.  I  should  have  to  give  considerable  thought  to  that 
question.  Mr.  Commissioner,  before  I  answered  it.  I  would  say  that 
there  should  be  added  to  the  items  you  have  mentioned  the  invest- 
ment in  property  out  of  the  net  earnings,  which  net  earnings  be- 
longed theoretically  to  the  stockholders. 

The  CHAIRMAN.  Would  the  companies  be  willing  to  sell  upon  that 
basis  ? 

Gen.  TRIPP.  Sir? 

The  CHAIRMAN.  I  say,  would  the  companies  be  willing  to  sell 
upon  that  basis? 

Gen.  TRIPP.  I  don't  know. 

The  CHAIRMAN.  What  is  that? 

Gen.  TRIPP.  I  don't  know  whether  they  would  or  not. 

The  CHAIRMAN.  You  spoke  this  morning  about  establishing  a  new 
relationship  between  the  utilities  and  the  public  and  investors.  Of 
course,  that  presumes  a  proper  form  of  regulation  ? 

Gen.  TRIPP.  Yes,  sir. 

The  CHAIRMAN.  What  should  that  be  ? 

Gen.  TRIPP.  Do  you  ask  whether  it  should  be  State  regulation  or 
local  regulation? 

The  CHAIRMAN.  I  am  asking  you  what  should  be  the  proper  form 
of  regulation. 

Gen.  TRIPP.  If  the  new  contract  between  the  municipality  and  the 
company  were  of  such  a  nature — and  I  think  it  should  be — that  it 
amounted  to  a  practical  guaranty  of  a  fair  return  upon  a  fair  in- 
vestment in  the  property,  then  it  would  seem  safe  to  leave  the  regu- 
lation of  the  local  utility  to  the  local  authorities  who  have  made  the 
guaranty. 

The  CHAIRMAN.  In  your  judgment,  will  the  service-at-cost  plan 
result  in  excluding  the  States  from  the  regulation  of  these  utilities? 

Gen.  TRIPP.  It  is  difficult  for  me  to  say,  without  giving  the  matter 
much  consideration,  what  place  the  State  commissions  would  have  in 
such  a  relationship. 


182      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

The  CHAIRMAN.  Under  a  proper  service-at-cost  plan  the  rates 
rise  or  fall  automatically,  according  to  the  earnings,  do  they  not? 

Gen.  TRIPP.  Yes,  sir. 

The  CHAIRMAN.  Is  there  any  rule  for  a  regulating  commission  to 
exercise  judgment  in  determining  the  reasonableness  of  the  rate 
under  such  plan? 

Gen.  TRIPP.  No ;  I  should  think  not. 

The  CHAIRMAN.  That  being  so,  can  you  see  a  good  reason  for 
having  the  State  commissions  given  any  control  over  the  service  of 
these  utilities  where  the  cost-of -service  plan  has  been  adopted? 

Gen.  TRIPP.  I  can  not  see  any  reason  now.  - 

The  CHAIRMAN.  Do  you  see  that  they  should  exercise  any  control 
over  extensions  of  the  properties? 

Gen.  TRIPP.  I  do  not  see  any  reason  why  they  should. 

The  CHAIRMAN.  Or  the  capitalization? 

Gen.  TRIPP.  No;  the  capitalization  in  that  case  would  be  a  matter 
of  no  moment  to  anyone  except  the  company. 

The  CHAIRMAN.  Do  you  believe  that  the  highest  quality  of  service 
and  best  form  of  protection  to  the  public,  as  well  as  to  the  utilities, 
would  be  secured  through  local  regulation  rather  than  State  regu- 
lation? 

Gen.  TRIPP.  Provided  always  that  there  is  a  relationship  which 
imposes  an  obligation  upon  the  municipality,  which  amounts  to  a 
guaranty  of  a  fair  return  on  the  fair  investment,  I  think  a  better 
administration  of  that  relationship  would  probably  lie  in  the  hands 
of  the  municipality. 

The  CHAIRMAN.  But  it  presupposes,  does  it  not,  the  fact  that  the 
municipality  has  the  intelligence  to  properly  examine  the  operating 
sheet  of  a  railroad  to  see  that  the  accounts  are  properly  kept  and  to 
clearly  understand  how  to  regulate  such  a  utility? 

Gen.  TRIPP.  It  presupposes  that,  but  the  test  comes  in  the  cash 
in  the  cash  drawer  to  pay  this  fair  return. 

The  CHAIRMAN.  Well,  from  the  experience  you  have  had  in  this 
work,  is  it  your  opinion  that  municipalities,  generally  speaking,  give 
close  attention  to  the  operation  of  these  utilities  and  the  control  of 
their  securities  and  expenses  in  such  a  way  that  the  public  can 
safely  trust  them  with  that  responsibility? 

Gen.  TRIPP.  I  should  answer  that  by  saying  that  my  observation 
is  that  probably  not,  under  the  form  of  contract,  at  least,  which 
has  been  in  common  use. 

The  CHAIRMAN.  If  the  service-at-cost  plan  is  adopted,  is  it  not  pos- 
sible that  there  will  be  a  good  deal  of  irritation  between  the  utili- 
ties and  the  public  growing  out  of  a  shifting  charge  for  the  service  ? 

Gen.  TRIPP.  Yes,  that  might  be  possible. 

The  CHAIRMAN.  What  will  that  lead  to? 

Gen.  TRIPP.  It  will  probably  lead  to  municipal  ownership,  if  such 
an  irritation  did  arise  that  was  severe  enough. 

The  CHAIRMAN.  You  have  recently  gone  through  an  experience 
down  in  Cleveland.  Was  the  recent  settlement  there  satisfactory  to 
the  public  as  well  as  to  the  utility  ? 

Gen.  TRIPP.  I  am  not  familiar  enough  with  that  settlement  to 
state,  Mr.  Commissioner. 

Mr.  WARREN.  Where  was  that,  Mr.  Chairman  ? 

The  CHAIRMAN.  In  Cleveland. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      183 

Gen.  TRIPP.  I  heard  it  stated  by  my  Cleveland  friends  that  it  is 
satisfactory  neither  to  the  company  nor  to  the  public. 

The  CHAIRMAN.  Should  this  commission  undertake  to  outline  a 
proper  form  of  franchise  to  be  used  by  utilities? 

Gen.  TRIPP.  I  do  not  think  your  commission  should,  sir. 

The  CHAIRMAN.  Should  it  outline  or  indicate  the  general  prin- 
ciples which  should  be  incorporated  in  such  a  franchise? 

Gen.  TRIPP.  Only  the  most  basic  principles. 

The  CHAIRMAN.  At  the  present  time,  there  is  no  common  basis 
upon  which  franchises  are  made,  is  there? 

Gen.  TRIPP.  No. 

The  CHAIRMAN.  They  usually  depend  upon  bargain  and  trade? 

Gen.  TRIPP.  Yes. 

The  CHAIRMAN.  Therefore  there  is  no  relationship  between  them. 
Would  not  the  utilities,  as  well  as  the  public,  be  better  off  if  there 
was  some  standard  form  of  a  franchise  used  ? 

Gen.  TRIPP.  There  might  be  a  few  standard  fundamentals,  as,  for 
example,  that  the  franchise  should  be  without  date  of  expiration,  or 
some  general  principle  of  that  kind. 

The  CHAIRMAN.  But  you  do  not  think  the  commission  should  at- 
tempt to  prepare  a  form  of  franchise  and  submit  it  to  the  public  ? 

Gen.  TRIPP.  I  think  the  conditions  are  too  varied,  probably,  to 
permit  such  a  standard  form  being  of  great  value. 

The  CHAIRMAN.  Would  it  not  be  helpful  as  a  guide? 

Gen.  TRIPP.  I  should  rather  see  more  danger  in  it  than  possible 
help. 

The  CHAIRMAN.  What  would  be  the  element  of  danger  to  be  found 
in  such  a  standard  form? 

Gen.  TRIPP.  That  any  standard  form  of  franchise  must  go  into 
considerable  detail,  and  those  details  would  be  rarely  found  to  fit 
in  with  completeness  the  local  situation. 

The  CHAIRMAN.  But  you  would  feel  satisfied  if  all  of  the  mu- 
nicipalities in  the  country  would  adopt  the  service-at-cost  plan? 

Gen.  TRIPP.  I  feel  that  is  about  the  only  hope  to  work  out  the 
situation. 

The  CHAIRMAN.  Well,  if  that  is  the  aim  which  you  have  in  mind, 
would  it  not  be  well  to  outline  the  kind  of  a  franchise  which  should 
be  entered  into  when  such  a  plan  is  adopted? 

Gen.  TRIPP.  I  do  not  think  so,  Mr.  Commissioner,  because  the 
service-at-cost  plan  does  not  necessarily  mean  an  increase  of  fare, 
although  probaoly  it  would.  It  might  mean  a  zone  system  in  some 
particular  places.  It  does  not  always  mean  relief  from  paving  taxes, 
although  it  might  be  desirable  in  some  places.  For  example,  a  com- 
munity which  require  street-railway  service  and  could  not  afford 
to  pay,  say,  a  6  or  7-cent  fare,  might  relieve  the  company  in  that 
community  from  taxes  in  the  whole,  including  their  real-estate  and 
real-property  taxes,  and  I  could  imagine  a  community  going  so  far 
as  to  suusidi/e  a  street  railway  in  order  to  retain  the  service  at  a 
price  which  would  make  it  useful  to  the  public.  Therefore,  I  think 
it  would  be  dangerous  to  outline  in  detail  the  kind  of  cost -of -service 
plan — that  is,  any  universal  cost-of-service  plan.  I  think  the  com- 
mission should  and  ought  to  lay  down  the  basic  principles  upon  which 
any  cost-of-service  plan  should  rest,  and  that  should  be  broad  enough 
to  permit  of  various  plans. 


184      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  CHAIRMAN.  Should  such  a  recommendation  suggest  the  wis- 
dom of  indeterminate  permit  franchises? 

Gen.  TRIPP.  Yes. 

The  CHAIRMAN.  That  is  one  of  the  principles  that  you  would  ap- 
prove ? 

Gen.  TRIPP.  That  is  one  of  the  principles  which  should  be  decided 
upon. 

The  CHAIRMAN.  Now,  assume  that  the  commission  should  not  bo 
willing  to  reach  the  conclusion  that  the  service-at-cost  plan  was  the 
proper  thing,  then  what  alternative  have  you  to  suggest? 

Gen.  TRIPP.  I  have  no  alternative,  Mr.  Commissioner,  except  to 
recommend  that  fares  be  increased  to  remedy  the  existing  situation, 
and  let  the  future  take  care  of  itself. 

The  CHAIRMAN.  Has  your  association,  or  will  your  association,  pre- 
sent a  witness  who  will  outline  just  what  the  result  of  increased  fares 
has  been  in  the  different  communities  ? 

Gen.  TRIPP.  Yes,  sir. 

The  CHAIRMAN.  That  will  be  gone  into  quite  completely? 

Gen.  TRIPP.  That  will  be  gone  into  quite  completely.     And  I  would  - 
also  say  it  is  intended  to  present  a  witness  who  is  thoroughly  familiar 
with  all  the  different  cost-of-service  plans  wrhich  have  been  put  into 
use,  or  even  contemplated. 

The  CHAIRMAN.  Will  there  be  a  witness  who  will  state  where  the 
money  comes  from  and  where  it  is  held  and  the  extent  of  it? 

Gen.  TRIPP.  Yes,  sir ;  there  will  be  a  witness  to  cover  that  point. 

The  CHAIRMAN.  I  have  no  other  questions. 

Mr.  WARREN.  Gen.  Tripp,  just  one  question :  In  reply  to  Mr.  Gads- 
den's  question  this  morning,  you  said  you  saw  no  reason  to  change 
the  rate  on  the  existing  securities  because  of  the  depreciated  purchas- 
ing value  of  the  nickel.  That,  of  course,  I  assume,  applied  only  to 
the  existing  securities. 

Gen.  TRIPP.  Yes. 

Mr.  WARREN.  As  regards  securities  issued  in  the  future,  to  meet 
future  requirements,  capital  requirements,  the  money  would  have  to 
be  obtained  at  the  market  rates,  I  presume? 

Gen.  TRIPP.  Yes,  sir. 

Mr.  WARREN.  That  is  all.     Thank  you  very  much,  General. 

Mr.  WARREN.  Mr.  Chairman,  I  a'm  going  to  call  next  Mr.  H.  A. 
Stuart,  of  the  firm  of  Halsey,  Stuart  &  Co.,  of  Chicago,  bankers. 
Mr.  Stuart  has  an  engagement  which  makes  it  necessary  for  him  to 
take  the  Congressional  Limited,  leaving  in  an  hour.  I  hope  I  can 
finish  with  him  in  that  time,  but  if  not,  I  shall  have  to  ask  the  in- 
dulgence of  the  commission,  in  case  it  is  necessary  for  him  to  come 
back  and  finish  his  examination. 

The  CHAIRMAN.  You  may  proceed  without  interruption. 

Mr.  WARREN.  Yes. 

STATEMENT  OF  MR.  HAROLD  L.  STUART. 

Mr.  WARREN.  Your  full  name,  Mr.  Stuart? 
Mr.  STUART.  Harold  L.  Stuart. 
Mr.  WARREN.  And  your  business? 

Mr.  STUART.  I  am  president  of  Halsey,  Stuart  &  Co.,  investment 
bankers,  whose  principal  office  is  in  Chicago. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     185 

Mr.  WARREN.  And  in  your  banking  business,  Mr.  Stuart,  have 
you  had  occasion  to  distribute  street-railway  securities  to  a  con- 
siderable extent? 

Mr.  STUART.  We  have  distributed  many  millions  of  street-railway 
securities.  In  one  case  alone,  in  Kansas  City,  I  think,  the  amount  is 
about  $15,000,000. 

Mr.  WARREN.  On  that  one? 

Mr.  STUART.  On  the  one  system. 

Mr.  WARREN.  On  the  one  system? 

Mr.  STUART.  Yes. 

Mr.  WARREN.  And  you  have  distributed  such  securities  very  gen- 
erally, have  you? 

Mr.  STUART.  Very  generally,  from  Maine  to  California. 

Mr.  WARREN.  And  on  corporations  operating  from  Maine  to  Cali- 
fornia also? 

Mr.  STUART.  Well,  a  great  many  different  corporations,  but  to  in- 
vestors of  all  kinds  residing  in  territory  from  Maine  to  California. 

Mr.  WARREN.  But  you  have  also  handled  securities  of  companies 
all  over  the  country? 

Mr.  STUART.  Pretty  generally,  yes;  throughout  the  country. 

Mr.  WARREN.  You  have  handled  some,  I  think,  in  Massachusetts? 

Mr.  STUART.  Yes. 

Mr.  WARREN.  Will  you  tell  the  commission  how.  in  your  judgment, 
those  securities  are  purchased  and  held — by  what  people,  by  what 
classes  of  investors,  and  in  what  amounts? 

Mr.  STUART.  They  are  held  by  all  classes  of  investors — insurance 
companies,  savings  banks,  trustees,  individual  investors,  insurance 
funds  of  all  kinds.  The  largest  holders  in  the  aggregate,  I  think, 
of  street-railway  securities  are  the  individual  investors  that  buy  not 
over  $5,000  at  a  time. 

Mr.  WARREN.  That  is  what  might  be  called  the  ultimate  investor? 

Mr.  STUART.  I  think  I  would  call  that  the  ultimate  investor  of 
street-railway  securities,  or  he  was  the  ultimate  investor  up  to  a 
couple  of  years  ago. 

Mr.  WARREN.  And  that  applied  generally,  you  say,  all  over  the 
country  two  years  ago,  that  investors  of  that  kind  were  the  pur- 
chasers and  holders  of  these  securities? 

Mr.  STUART.  Up  to  that  time  street-railway  bonds  were  generally 
considered  to  be  safe  investments. 

Mr.  WARREN.  How  are  street-railway  securities  regarded  now  in 
investment  circles? 

Mr.  STUART.  They  are  regarded  with  great  distrust  and  disfavor, 
to  such  an  extent  that  it  is  almost  impossible  to  distribute  street- 
railway  securities,  I  don't  care  how  good  they  are.  I  am  speaking 
now  about  bonds,  not  stocks. 

Mr.  WARREN.  Yes;  bonds. 

Mr.  STUART.  It  would  be  absolutely  impossible  to  distribute 
street-railway  stocks. 

Mr.  WARREN.  And  how  long  has  that  been  true? 

Mr.  STUART.  So  far  as  bonds  are  concerned,  as  I  say,  about  two 
years  ago.  For  some  time  back  of  that  street-railway  stocks  had  not 
been  sought  for,  I  believe. 

Mr.  WARREN.  But  the  market  for  bonds  disappeared  about  two 
years  ago? 

KJur>4.r— 20 13 


186     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  STUART.  Yes;  just  about. 

Mr.  WARREX.  The  distributing  banking  house,  I  suppose,  has  little 
or  no  control  over  the  earnings  of  the  companies? 

Mr.  STUART.  No;  the  distributing  banking  house  has  no  control 
over  the  earnings  of  the  company.  There  is  no  control  over  the 
management  of  the  company.  The  distributing  banking  house  makes 
n  very  careful  investigation  of  the  value  of  the  property,  the  com- 
munity, the  franchise  situation,  and  the  management,  and  then  buys 
outright  bonds,  and  sells  them  through  its  selling  organization  to  the 
class  of  people  that  I  have  stated. 

Mr.  WARREN.  And  to  what  extent  have  the  laws  of  any  particular 
jurisdiction  had  an  effect  upon  the  selling  quality  of  the  bonds  issued 
by  utilities  in  that  jurisdiction? 

Mr.  STUART.  They  have  quite  a  considerable  influence.  For  ex- 
ample, when  the  public-service  commissions  throughout  the  country 
]>egan  to  be  formed  a  great  interest  was  aroused  on  the  part  of  in- 
vestors, and  I  think  that  the  very  fact  of  those  public-utility  com- 
missions being  formed  influenced  a  great  many  people  to  buy  street 
railway  and  other  public-utilities  securities  that  theretofore  were 
not  interested.  They  believed  that  the  public-service  commission 
would  be  a  disinterested  party,  in  so  far  as  any  local  situation  was 
concerned,  whereas  the  local  authorities  would  be  very  much  inter- 
ested, and  the  investor  felt  that  he  would  receive  better  and  fairer 
treatment  from  the  disinterested  party  than  he  would  from  the 
interested  party. 

Mr.  WARREX.  If,  for  any  reason,  in  any  particular  State  or  other 
jurisdiction,  a  system  exists,  whether  of  law  or  franchise,  which  is 
antagonistic,  or  is  not  calculated  to  promote  the  development  and 
security  of  a  public  utility,  what  effect  has  that  on  the  bonds  ? 

Mr.  STUART.  It  has  the  effect  of  keeping  people  out  of  the  State 
entirely.  There  have  been  such  situations.  For  example,  I  recall 
a  few  years  ago,  in  both  Georgia  and  Texas,  the  sentiment  in  those 
States  was  such  that  it  was  very  difficult,  or  impossible,  to  sell  public- 
utility  securities  that  came  from  those  States.  The  investment 
bankers  have  no  control  over  what  their  client  does  with  the  money ; 
and  the  great  majority  of  clients  are  seekers  after  information,  and  if 
they  find  that  in  any  given  community  or  State,  or  in  any  given  in- 
dustry, conditions  are  not  very  favorable,  their  money  will  go  else- 
where. 

Mr.  WARREX.  That  may  apply  to  all  kinds  of  securities  in  the 
State  and  the  securities  of  a  particular  industry,  if  for  any  reason 
a  particular  industry  is  under  this  disadvantage? 

Mr.  STUART.  Yes,  sir. 

Mr.  WARREX.  As  the  result  of  your  having  placed  so  many  of  these 
street-railway  securities,  I  presume  you  have  followed  the  street- 
railway  situation  more  or  less  closely  in  the  last  fewr  years? 

Mr.  STUART.  Yes,  sir. 

Mr.  WARREX.  And  you  have  heard  Gen.  Tripp's  testimony  this 
morning  ? 

Mr.  STUART.  I  have. 

Mr.  WARREX.  Were  you  here  all  during  his  testimony  1 

Mr.  STUART.  I  heard  it  all. 

Mr.  WARREX.  Do  you  agree  in  general  with  what  he  said  about  the 
street-railway  situation  to-day  in  this  country? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     187 

Mr.  STUAKT.  I  do. 

Mr.  WARREN.  About  its  extreme  seriousness? 

Mr.  STUART.  Exactly. 

Mr.  WARREN.  Have  you  had  occasion  in  connection  with  any  par- 
ticular company  to  be  acquainted  with  such  a  situation  in  the  case  of 
that  company  as  would  illustrate  the  tendency  which  Gen.  Tripp 
referred  to?  You  mentioned  the  Kansas  City  company,  where  you 
had  distributed  some  $15,000,000  of  bonds.  Have  you  followed  that 
company  ? 

Mr.  STUART.  I  have  and  I  should  like  to  say  something  about  that. 

The  Kansas  City  Railway  &  Light  Co.  was  put  in  the  hands  of  a 
receiver  in  1910.  Up  to  that  time  I  knew  nothing  about  the  com- 
pany. The  reason  for  its  being  put  in  the  hands  of  a  receiver  was 
not  due  to  lack  of  earning  capacity,  but  the  company  had  an  expiring 
franchise  and  expiring  bonds,  and  it  was  impossible  to  refund  those 
maturing  obligations  without  either  an  extension  of  the  franchise  or 
a  new  franchise. 

After  three  or  four  years  in  the  hands  of  a  receiver,  Kansas  City, 
Mo.,  in  consideration  of  divorcing  the  properties — I  mean  by  that 
separating  the  electric  light  from  the  street  railway  property — gave 
to  the  street-railway  company  a  30-year  franchise,  and  at  the  time 
it  was  granted  it  was  considered  by  both  street  railway  experts  and 
investors  to  be  a  model  basis  for  investment.  The  property  was  re- 
organized, and  the  bondholders  received  new  securities  of  a  market 
value  of  substantially  equal  to  the  full  principal  of  their  securities. 

In  the  meanwhile  interest  had  been  paid  right  along  through  re- 
ceivership. 

This  reorganization  plan  was  made  by  Judge  William  C.  Hook,  who 
was  the  United  States  circuit  judge,  and  he  appointed  me  his  repre- 
sentative to  carry  out  his  financial  plan  of  reorganization. 

After  the  reorganization  was  completed,  then  my  firm  came  into 
the  situation  as  banker  for  the  railway  company,  and  it  is  since  that 
time  that  we  have  placed  and  sold  this  substantial  amount  of  securi- 
ties. The  people  who  took  those  securities  were  the  most  careful 
investors  in  the  country — savings  banks,  insurance  companies,  and 
other  investors.  There  were  thousands  of  individual  investors.  The 
securities  were  considered  to  be  so  good  that  one  of  the  largest  in- 
surance companies,  which  took  $500,000,  had  a  special  meeting  of 
their  finance  committee  to  decide  whether  or  not  they  should  take 
$1,000,000  instead  of  $500,000,  although  $500,000  was  their  full  quota 
of  anything. 

The  basis  of  the  Kansas  City  franchise  was  a  division  of  the  profits 
with  the  city.  There  was  a  valuation  there  in  the  franchise,  agreed 
to  by  the  city  through  their  own  experts,  and  afterwards  approved 
by  the  Public  Service  Commission  of  Missouri,  and  all  the  securities 
that  were  issued  were  approved  lx>th  by  the  city  and  the  Public  Serv- 
ice Commission  of  Missouri.  The  valuation  was  largely  in  excess 
of  the  bonded  indebtedness,  and  the  company  was  to  have  a  0  per 
cent  interest  return  after  all  depreciation  on  the  capital  investment. 
The  fare  was  fixed  at  5  cents. 

Time  went  on,  and  the  first  happening  was  the  passing  of  the  5  per 
cent  dividend  on  the  stock. 

Mr.  WARREN.  About  when  was  that,  do  you  remember? 


188      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  STUART.  As  I  recall  that,  it  was  about  in  June  or  July,  1917. 

The  costs  began  to  mount  until  what  we  considered — and  we  had 
our  judgment  backed  up  by  many,  many  people  who  know — on  July 
1  of  this  year,  the  railway  company  was  compelled  to  pass  its  inter- 
est. It  had  not  earned  operating  expenses  for  the  past  six  months. 

Mr.  WARREN.  Its  interest  on  these  bonds? 

Mr.  STUART.  The  interest  on  all  bonds,  the  interest  on  the  first- 
mortgage  and  the  second-mortgage  bonds. 

Mr.  WARREN.  Yes. 

Mr.  STUART.  I  stated  that  the  franchise  provided  for  a  5-cent  fare. 
The  situation  got  so  bad  that  there  was  a  great  deal  of  sentiment 
aroused  in  Kansas  City  by  the  public  themselves,  and  when  the  com- 
pany made  an  application  to  the  Public  Service  Commission  of 
Missouri  for  an  increase  in  fare  to  6  cents,  there  was  a  great  deal  of 
support  for  it  on  the  part  of  the  people  in  Kansas  City.  There  was 
some  newspaper — I  should  say  there  was  considerable  newspaper 
opposition.  The  public-service  commission,  however,  granted  the 
increase  in  fare  to  6  cents,  and  some  citizens  of  Kansas  City  ques- 
tioned the  right  of  the  commission  to  increase  this  rate  in  the  face 
of  the  5-cent  fare  in  the  franchise ;  and  this  matter  was  taken  to  the 
supreme  court,  and  last  fall  the  Supreme  Court  of  Missouri  decided 
that  the  public-service  commission  did  have  a  right  to  raise  the  fare. 

In  this  particular  case,  the  matter  is  now  in  the  hands  of  the 
public-service  commission  for  a  further  increase  in  fare,  and  the 
company  has  asked  for  a  10-cent  cash  fare,  or  2  tickets  for  15  cents. 
That  is  now  pending,  and  is  to  be  decided,  I  believe,  within  60  days. 

But  I  mention  this  as  showing  what  was  considered  to  be  a  mag- 
nificent investment,  which,  through  no  control  of  the  bankers,  no 
control  of  the  investors,  all  the  time  giving  first-class  service  to  the 
community,  has  fallen  into  disrepute,  with  very  poor  prospects  in- 
deed, unless  relief  is  given  by  the  public-service  commission. 

Mr.  WARREN.  Could  you  state  when  the  company  started  on  the 
new  organization? 

Mr.  STUART.  The  date  was  July  1,  1914. 

Mr.  WARREN.  And  it  was  at  that  time  that  the  prospects  looked  so 
good? 

Mr.  STUART.  Well,  even  later.  The  prospects  up  to  1916  were  ex- 
cellent. 

Mr.  WARREN.  Were  these  bonds  distributed  after  July  1,  1914? 

Mr.  STUART.  Yes;  these  bonds  were  distributed  after  July  1,  1914, 
or  really  after  July  1,  1915.  Some  of  them  before  that. 

Mr  WARREN.  So  this  complete  overturning  and  change  in  situation 
has  been  within  the  last  five  years? 

Mr.  STUART.  Exactly. 

Now,  our  interest  in  this  thing,  in  common  with  all  other  dealers 
in  public-service  securities,  is  that  we  want  to  protect  our  investors. 
The  investors  can  not  be  protected  unless  the  future  is  in  some  way 
taken  care  of,  for  a  public-service  corporation  in  a  growing  city 
needs  money  constantly ;  and  if  it  does  not  need  money,  it  is  not  in  a 
healthy  condition. 

Mr.  WARREN.  Do  you  mean  capital  money? 

Mr.  STUART.  I  mean  new  capital  money — it  is  not  in  a  healthy  con- 
dition, and  in  order  to  safeguard  and  protect  these  tens  of  thousands 
of  people  who  hold  public-utilities  securities,  it  is  necessary  to  not 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      189 

only  provide  for  their  investment  which  is  already  in,  but  to  further 
protect  it  by  making  it  safe  for  the  investors  of  to-morrow  wyho  have 
not  spent  their  money,  and  over  which  nobody  has  any  control,  to 
come  in. 

Mr.  WARREN.  Now,  did  I  understand  you  correctly — that  before 
the  new  securities  were  issued  of  which  you  distributed  such  a  large 
part,  the  property  was  valued  by  experts  on  behalf  of  the  city? 

Mr.  STUART.  The  property  was  valued  by  experts  in  behalf  of  the 
company,  by  a  number  of  experts  in  behalf  of  the  city,  and,  in  addi- 
tion to  that,  by  the  experts  of  the  Public  Utilities  Commission  of  the 
State  of  Missouri. 

Mr.  WARREN.  On  behalf  of  the  city,  and  the  commission  approved 
the  valuation? 

Mr.  STUART.  The  valuation — the  securities. 

Mr.  WARREN.  The  securities? 

Mr.  STUART.  Yes. 

Mr.  WARREN.  And  that  applied  to  all  the  securities  which  were 
issued  ? 

Mr.  STUART.  That  applied  to  all  of  the  securities  which  were 
issued. 

Mr.  WARREN.  And  the  valuation  was  equal  to  all  of  those  securi- 
ties ? 

Mr.  STUART.  The  valuation  was  in  excess  of  all  of  those  securities. 

Mr.  WARREN.  The  valuation  was  in  excess  of  all  of  those  securi- 
ties? 

Mr.  STUART.  Yes. 

Mr.  WARREN.  So  that  in  that  particular  case,  unless  the  valuation 
was  faulty,  although  made  by  many  different  interests,  there  was  no 
question  whatever  of  stock  watering  as  affecting  the  result  which  has 
now  overtaken  the  company  ? 

Mr.  STUART.  None  whatever. 

Mr.  WARREN.  I  suppose  you  have  not  any  data,  Mr.  Stuart,  which 
will  enable  you  to  give  even  an  approximate  idea  of  the  number  of 
street-railway  security  holders,  holders  of  bonds  in  the  country,  or 
any  part  of  it,  have  37ou? 

Mr.  STUART.  I  think  that  would  be  impossible  to  find  out,  except 
that  it  might  be  procured  from  the  street  railways  themselves,  all 
of  whom  get  income-tax  certificates  on  every  coupon  that  is  cashed. 
Collectively,  they  will  have  a  list  of  substantially  every  bondholder 
in  the  United  States.  I  believe  there  are  some  1,300  companies,  most 
of  whom,  I  assume,  have  a  bonded  indebtedness,  and  you  could  there- 
fore get  it  from  them.  But  the  average  distribution  of  street-rail- 
way securities  is  in  very  small  amounts. 

Mr.  WARREN.  That  would  include,  in  reaching  your  average,  the 
exceptionally  large  holder  like  the  insurance  company  that  you  men- 
tioned? 

Mr.  STUART.  If  I  am  not  mistaken,  the  average  holding  of  the 
Kansas  City  Railway  bonds,  including  some  very  large  amounts  held 
by  insurance  companies  and  banks,  is  about  $7,000. 

"  Mr.  WARREN.  I  think  that  is  all,  Mr.  Chairman,  I  want  to  ask  Mr. 
Stuart. 

Commissioner  SWEET.  Mr.  Stuart,  arc  many  of  these  bonds  held 
by  widows  and  orphans? 

Mr.  STUART.  Yes,  sir. 


190     PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Or  for  them  by  trustees  ? 

Mr.  STUART.  Yes,  sir;  both  ways. 

Commissioner  SWEET.  What  was  the  smallest  bond  issued  by  the. 
Kansas  City  Co.  ? 

Mr.  STUART.  A  hundred  dollars 

Commissioner  Sweet.  A  hundred  dollars? 

Mr.  STUART.  And  there  were  many,  many  thousands  of  those  sold 
to  widows,  orphans,  and  wage  earners. 

Commissioner  SWEET.  A  single  bond? 

Mr.  STUAKT.  Single  bonds. 

Commissioner  SWEET.  Of  a  hundred  dollars? 

Mr.  STUART.  Yes,  sir.  As  a  matter  of  fact,  we  considered  them 
so  good  that  to  the  people  who  bought  small  denomination  bonds,  we 
gave  a  wage  earner  a  chance  to  buy  a  hundred  dollar  bond  by  paying 
$10  down  and  $5  a  month. 

Commissioner  SWEET.  Did  many  take  advantage  of  that? 

Mr.  STUART.  Many. 

Commissioner  SWEET.  Would  the  exact  data  or  information  on  that 
subject  be  available  so  that  we  might  have  it  ? 

Mr.  STUART.  In  that  particular  case,  yes,  sir.  We  can  have  that 
analyzed  for  you  in  a  little  time. 

Commissioner  SWEET.  Yes. 

Mr.  STUART.  A  complete  list  of  the  bondholders,  giving  you  all 
the  different  classes  and  the  amounts — a  careful  analysis — so  that 
you  can  see  at  a  glance  the  class  of  people  who  hold  these  securities. 

Commissioner  SWEET.  Will  you  be  so  kind  as  to  do  that,  Mr. 
Stuart? 

Mr.  STUART.  I  should  be  very  glad  to,  but  it  will  take  a  little  time. 

Commissioner  SWEET.  Yes. 

Mr.  STUART.  It  will  probably  take,  I  should  say,  a  week  or  10  days. 

Commissioner  SWEET.  You  can  .send  it  to  the  chairman,  Mr.  Elni- 
quist. 

Mr.  STUART.  I  should  be  very  glad  to  do  that. 

Commissioner  SWEET.  And  that  will  be  available  for  the  commis- 
sion ? 

Mr.  STUART.  Yes,  sir. 

Commissioner  SWEET.  Upon  what  basis  did  the  expert  you  have 
mentioned  arrive  at  the  valuation  of  the  Kansas  City  properties  ? 

Mr.  STUART.  It  was  the  depreciated  physical  property,  plus  about 
15  per  cent  of  old  property  that  had  not  been  previously  amortized. 
A  part  of  the  trade  was  that  the  city  was  going  to  contribute  its 
share  of  earnings  toward  that  unamortized  part,  and,  as  a  matter 
of  fact,  under  the  franchise,  the  city  was  going  to  reinvest  its 
share  of  the  earnings  in  the  property  right  along  until,  in  some  20 
or  30  years,  they  would  have  controlled  the  property.  The  city  would 
have  had  more  money  in  it  than  the  individuals  or  than  the  companj'. 

Commissioner  SWEET.  That  is,  if  the  business  had  gone  along  as 
was  anticipated  in  1914  and  1915? 

Mr.  STUART.  Yes,  sir;  at  the  time  the  calculations  were  made.  It 
was  all  calculated  out  on  the  basis  of  the  earnings  as  they  were  at 
that  time. 

Commissioner  SWEET.  Do  you  know  whether  municipal  ownership 
and  operation  were  in  contemplation? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      191 

Mr.  STUART.  Municipal  ownership  and  operation  may  have  been 
in  contemplation  to  some  extent,  but  not  entirely,  because  by  the 
time  the  franchise  would  have  expired  the  city  would  have  owned 
substantially  half  of  the  property,  and  I  take  it  that  if  municipal 
ownership  had  been  in  contemplation  it  would  have  been  so  arranged 
that  they  would  have  controlled  the  property  or  owned  it  all  by  the 
expiration  of  the  franchise.  But  in  connection  with  this  arrange- 
ment about  the  city  reinvesting  in  the  property,  that  was  another 
reason  why  the  securities  of  the  company  were  considered  to  be 
so  good,  because  we  were  permitted  to  say  in  our  circular  by  the 
city  counselor  of  Kansas  Cit}-  at  that  time — although  he  would  not 
sign  the  circular — that  this  franchise  was  really  a  partnership  agree- 
ment between  the  city -of  Kansas  City  and  the  railway  company. 

Commissioner  SWEET.  In  one  sense  it  was;  was  it  not? 

Mr.  STUART.  It  was  a  partnership,  but.  it  was  a  one-sided  partner- 
ship, I  am  afraid. 

Commissioner  SWEET.  As  it  turned  out. 

Mr.  STUART.  As  it  turned  out. 

Commissioner  SWEET.  Because  the  profits  were  not  there? 

Mr.  STUART.  Yes,  sir;  exactly. 

Commissioner  SWEET.  And  the  city  at  the  present  time,  and  for 
the  last  two  or  three  years,  has  not  been  getting  any,  has  it  i 

Mr.  STUART.  The  city  has  not  gotten  anything  for  over  two  years. 

Commissioner  SWEET.  Xo. 

Mr.  WARREN.  The  company  has  not,  either,  has  it,  Mr.  Stuart? 

Mr.  STUART.  Xot  for  dividends.  They  have  paid  interest  up 
until  July  1  of  this  year. 

Mr.  WARREX.  But  they  defaulted  then? 

Mr.  STUART.  Oh,  they  defaulted  on  July  1  of  this  year. 

Commiasioner  SWEET.  Do  you  remember  whether  any  difficulty 
was  experienced  in  reaching  a  harmonious  decision  as  to  the  valua- 
tion of  the  property  as  between  the  experts  representing  the  city 
and  those  representing  the  company  ? 

Mr.  STUART.  My  recollection  is  that  there  was  very  little  difficulty 
in  reaching  an  agreement  on  the  valuation.  The  real  difficulty  was  in 
trading  on  the  other  points  of  the  franchise,  the  rate  of  interest 
that  was  to  be  allowed,  the  division  of  profits  with  the  city,  the 
amount  that  was  to  be  charged  for  depreciation,  the  fact  that  the 
city  had  o  directors  in  the  company  out  of  11,  and  points  of  that 
kind.  There  was  no  great  trade  in  the  valuation,  and  a  very  im- 
portant thing  in  connection  with  the  franchise,  really,  that  I  have 
not  mentioned,  was  the  fact  that  it  was  approved  by  referendum 
vote,  so  that  the  voters  all  had  a  chance  at  it ;  but  it  did  take,  from 
the  time  of  negotiations  of  this  franchise  began  up  until  the  final 
referendum  vote,  about  three  years.  In  the  meanwhile,  the  earn- 
ings of  the  property  were  good  enough,  so  that  the  receiver  jwid  in- 
terest on  everything  right  along,  and  kept  the  property  up  in  first- 
class  physical  condition. 

Commissioner  SWEET.  At  the  time  the  referendum  vote  was  taken. 
was  the  propertv  in  the  hands  of  a  receiver? 

Mr.  STUART.  It  was;  yes.  sir. 

Commissioner  SWEET.  And  still  the  people  voted  in  ffmir  of  if-? 

Mr.  STUART.  And  still  they  vote<l  in  favor  of  the  fvnnch's".  Th" 
property  was  not  taken  out  of  the  hands  of  the  receiver  until  about 


192      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

a  year  after  this  referendum  vote,  because,  after  the  franchise  on 
which  the  whole  reorganization  was  based,  then,  of  course,  it  took 
a  long  job  to  treat  with  all  the  different  security  holders  and  get  out 
the  new  securities  and  draw  the  mortgages  and  do  all  the  many 
other  things  that  had  to  be  done  in  a  situation  of  that  kind. 

Commissioner  SWEET.  That  was  all  done  during  the  receiver- 
ship ? 

Mr.  STUART.  That  was  all  done  during  the  receivership.  That 
was  done  in  the  year  between  the  time  of  the  referendum  vote  and 
the  ending  of  the  receivership. 

Commissioner  SWEET.  The  receivership  then  had  no  reference  to 
the  defaulting  or  failure  of  income. 

Mr.  STUART.  Not  failure  of  income;  but  the  receivership  was 
caused  by  a  default,  because  the  company  had  a  lot  of  securities,  sev- 
eral million  dollars'  worth  of  securities,  due  with  a  franchise  which 
ran  only  a  few  years. 

Commissioner  SWEET.  Yes* 

Mr.  STUART.  And  with  the  principal  due  ? 

Commissioner  SWEET.  Yes. 

Mr.  STUART.  Then  the  bankers  of  the  company  felt  that  they 
could  not  undertake  a  refund  with  this  expiring  franchise  in  sight. 

Commissioner  SWEET.  But  all  of  that  related  to  conditions  which 
had  existed  prior  to  the  making  of  this  new  arrangement  that  you 
have  been  telling  us  about. 

Mr.  STUART.  Yes,  sir. 

Commissioner  SWEET.  Did  the  experts  come  to  an  agreement  in 
regard, to  the  addition  of  the  15  per  cent  that  3^011  speak  of? 

Mr.  STUART.  The  experts  of  the  public-service  commission  came  to 
an  agreement  in  regard  to  the  items  that  made  up  that  15  per  cent. 

Commissioner  SWEET.  You  said  that  the  securities  issued  were  less 
than  the  value  placed  upon  the  property  by  the  experts. 

Mr.  STUART.  Yes,  sir. 

Commissioner  SWEET.  Do  you  remember  how  much  less? 

Mr.  STUART.  I  think  I  can  give  it  to  you  in  percentage.  I  should 
say  between  15  and  20  per  cent. 

Commissioner  SWEET.  It  was  slightly  less,  then,  than  the  physical 
valuation  of  the  property? 

Mr.  STUART.  As  to  bonds;  yes.  The  depreciated  physical  value 
was  in  excess  of  all  of  the  bonds  outstanding,  including  both  first 
and  second  mortgage  bonds.  It  was  at  least  40  per  cent  in  excess  of 
the  first-mortgage  bonds  outstanding;  and  that  is  depreciated  physi- 
cal value. 

Commissioner  SWEET.  Have  you  ever  had  any  experience  with  any 
company  conducted  upon  the  service-at-cost  plan  ? 

Mr.  STUART.  No,  sir. 

Commissioner  SWEET.  That  would  be  quite  different  from  the  Kan- 
sas City  plan,  would  it  not? 

Mr.  STUART.  Very  different;  yes,  sir. 

Commissioner  SWEET.  Have  you  any  views  on  that  sj-stem,  as  to 
whether  it  will  work  any  better  than  the  Kansas  City  plan  did  ? 

Mr.  STUART.  Yes,  sir;  I  think  it  would.  As  an  investment  banker 
my  idea  as  to  credit  on  which  a  street-railway  company  can  borrow 
money  in  the  future,  is  that  it  will  have  to  be  on  some  plan  where 
the  street-railway  company  will  be  permitted  to  earn  all  its  operating 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      193 

expenses,  proper  maintenance,  proper  depreciation,  and  a  rate  of  in- 
terest on  the  capital  invested  which  will  attract  capital. 

Commissioner  SWEET.  What  would  that  rate  be,  in  your  judgment, 
now? 

Mr.  STUART.  That  is  a  rather  difficult  question  to  answer,  because 
the  street  railways  are  in  such  bad  repute.  But  assuming  that  they 
were  brought  to  the  same  standard  in  public  estimation  that,  we  will 
say,  first-class  electric  companies  are  in — 

Commissioner  SWEET.  Do  you  mean  lighting  companies  now? 

Mr.  STUART.  I  mean  lighting  and  power  companies. 

Commissioner  SWEET.  Yes. 

Mr.  STUART.  The  rate,  I  should  say,  would  be  from  six  to  six  and  a 
half  per  cent  on  senior  securities.  By  "senior  securities"  I  mean 
first-mortgage  bonds. 

Commissioner  SWEET.  Yes. 

Mr.  STUART.  Further,  my  idea  of  the  financial  arrangement  of  the 
future,  assuming  street-railway  companies  are  going  to  be  privately 
owned  and  give  first-class  service  and  make  extensions  when  needed, 
is  that  the  relationship  between  the  municipality  and  the  railway 
company  will  have  to  be  such  as  that  it  will  be  attractive  for  a  stock- 
holder, or  for  a  man  who  buys  stock,  to  invest  in  stocks,  because  it 
is  bad  finance,  and  will  never  work  out  for  any  corporation  to  keep 
on  borrowing  money,  always  putting  out  senior  securities.  It  must 
have  a  senior  security,  which  will  necessarily  bear  a  comparatively 
low  rate  of  interest,  and  a  junior  securtiy  furnishing  the  margin, 
which  would  bear  a  higher  rate  of  interest.  In  other  words,  the 
first-mortgage  bonds  and  stock.  Unless  some  plan  for  safe  credit 
is  worked  out,  it  is  hopeless  for  street-railway  companies  to  expect 
to  get  money,  in  my  judgment. 

Commissioner  SWEET.  As  the  situation  is  to-day,  Mr.  Stuart,  if  I 
understand  you  right,  it  is  impossible  for  street-railway  companies 
to  get  any  new  capital,  practically. 

Mr.  STUART.  Practically;  yes. 

Commissioner  SWEET.  t)o  you  mean  taken  as  a  whole? 

Mr.  STUART.  Practically  so. 

If  you  will  let  me  interrupt  for  a  minute,  I  can  tell  you  just  what 
the  exceptions  are. 

Commissioner  SWEET.  Yes,  sir;  I  wish  you  would  do  that. 

Mr.  STUART.  The  exceptions  are  only  those  properties  that  have 
been  financed  by  strong  banking  houses,  who  have  to  refund  a 
maturing  obligation  in  order  to  make  the  rest  of  the  securities  they 
have  sold  good.  Generally  speaking,  there  is  no  market  for  street- 
railway  securities  to-day. 

Commissioner  SWEET.  In  the  case  that  you  speak  of,  would  it 
mean  that  the  companies  are  not  earning  enough  to  justify  investors 
in  putting  in  new  money,  but  that  they  are  being  held  up  by  bankers 
and  new  capital  that  comes  in  for  another  reason  than  that  of  invest- 
ment? 

Mr.  STUART.  For  both  reasons.  There  are  few  properties  that  are 
making  any  kind  of  a  showing  on  their  senior  securities.  I  refer  to 
Kansas  City  again.  We  have  taken  securities  of  that  company. 
My  firm  has  taken  securities  of  that  company  which  it  has  not  tried 
to  sell,  and  won't  try  to  sell,  in  the  effort  to  make  all  the  millions  that 


194     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

we  have  sold  good,  and  we  never  will  market  those  securities,  we 
never  will  ask  anybody  to  buy  any  of  them  until  we  can  go  to  them 
and  say,  "  These  securities  are  again  safe,  in  our  judgment." 

Commisisoner  SWEET.  You  are  doing  that  to  protect  your  patrons  ? 

Mr.  STUART.  We  are  doing  that  to  protect  our  patrons  and  the 
patrons,  the  widows  and  orphans,  the  insurance  companies,  and  the 
people  that  we  have  sold  these  securities  to. 

Commissioner  SWEET.  And  incidentally  to  protect  your  own  repu- 
tation? 

Mr.  STUART.  Yes,  sir ;  but  regardless  of  the  reputation,  every  bank- 
ing house  has  some  responsibility  in  connection  with  the  securities 
it  sells. 

Commissioner  SWEET.  Yes. 

Mr.  STUART.  And  we  propose  to  live  up  to  our  responsibility  to  the 
utmost. 

Commissioner  SWEET.  That  is  taking  what  I  would  call  a  moral 
stand. 

Mr.  STUART.  Yes,  sir. 

Commissioner  SWEET.  That  is  right  in  itself. 

Mr.  STUART.  Yes,  sir. 

Commissioner  SWEET.  And  perhaps  the  best  policy  in  the  long  run 
for  those  who  want  to  keep  on  doing  business. 

Xow,  Mr.  Stuart,  if  the  companies,  as  a  rule,  throughout  the  coun- 
try, can  not  get  new  capital,  they  can  not  make  extensions,  nor  keep 
up  repairs,  nor  really  continue  to  do  business  very  long,  can  they  ? 

Mr.  STUART.  They  can  not. 

Commissioner  SWEET.  So  that,  as  you  see  it,  as  I  got  it  from  what 
you  have  already  said,  the  general  public  has  got  to  sit  in,  in  some 
shape  or  other,  either  as  owners  or  owners  and  operators  of  these 
companies,  assuming  now  that  they  are  to  continue  to  operate,  and 
thereby  subject  the  general  taxpayer  to,  perhaps,  the  necessity  of 
making  up  for  losses,  or  else  in  some  other  way  the  general  public 
must  come  in  as  sort  of  guarantors  under  the  plan  that  has  been 
mentioned  here.  We  will  say  service  at  cost.  If  that  were  carried 
out  properly,  I  suppose  the  burden  would  fall  upon  the  patrons  of 
the  company,  would  it  not,  instead  of  upon  the  general  community  ? 

Mr.  STUART.  Yes,  sir. 

Commissioner  SWEET.  Which  would  seem  to  be  more  just  than  to 
have  it  fall  upon  the  whole  community,  would  it  not  ? 

Mr.  STUART.  That  has  always  been  my  opinion,  that  the  street  rail- 
way company  should  be  permitted  to  operate  so  that  its  patrons 
should  pay  the  cost. 

Commissioner  SWEET.  But  under  the  supervision  of  the  munici- 
pality or  State  commission  of  some  kind- 
Mr.  STUART.  I  am  thoroughly  in  favor,  from  an  investment  bank- 
er's standpoint,  of  supervision  of  public  utilities. 

Commissioner  SWEET.  Would  you  make  a  distinction  there  between 
its  being  done  by  the  municipality  itself  or  by  a  State  organization  ? 

Mr.  STUART.  Certainly,  I  would  much  rather  it  be  done  by  a  State 
public-utility  commission.  I  believe  that  is  freer  from  local  preju- 
dices, and  it  is  in  a  position  to  render  a  fairer  judgment  on  any  ques- 
tion than  local  authorities  would  be. 

Commissioner  SWEET.  Then  all  the  municipalities  of  the  State 
would  be  on  an  equal  basis,  and  under  the  supervision  of  the  State 
organization. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.  195 

I 

Mr.  STUART.  Yes.  sir. 

Commissioner  SWEET.  And  the  interest  of  the  general  public  would 
be  looked  after  by  that  State  organization  or  commission,  and  the 
users  of  the  street  railways  would  be  the  ones  who  would  pay  more  or 
less,  according  to  the  needs,  thereby  getting  at  actual  cost — or  as  near 
as  may  be  at  actual  cost — the  conveniences  of  street  railway  service. 

Mr.  STUART.  Yes,  sir;  I  think  that  is  just. 

Commissioner  SWEET.  Have  you  any  other  plan  than  that  to  sug- 
gest as  being  worthy  of  consideration  uy  this  commission  ? 

Mr.  STUART.  Xo,  sir.  My  general  idea  is  the  one  I  spoke  of  in  re- 
gard to  a  basis  of  credit.  As  to  just  what  in  detail  should  be  done 
generally.  I  have  no  definite  plan. 

Commissioner  SWEET.  In  regard  to  an  indeterminate  franchise, 
such  as  you  spoke  of,  would  there  be  any  means,  according  to  your 
plan — the  plan  which  is  in  your  mind — by  which  the  franchise  could 
be  terminated  at  all  ?  Would  the  public  have  any  control  over  it,  so 
that  on  the  happening  of  any  possible  event  the  public  might  step 
in  and  terminate  the  franchise,  or  would  it  be  absolutely  indeter- 
minate ? 

Mr.  STUART.  I  should  say  that  it  should  be  an  indeterminate  fran- 
chise, the  company  to  be  regulated  by  public  authority. 

Commissioner  BEALL.  May  I  ask  him  one  question  there,  Mr.  Com- 
missioner Sweet? 

Commissioner  SWEET.  Certainly. 

Commissioner  BEALL.  Mr.  Stuart,  in  the  States  that  now  operate 
under  indeterminate  permits,  like  Wisconsin,  for  instance — and  there 
are  a  number  of  States  tliat  have  that  plan  for  public  utilities — do 
not  all  of  those  permits  provide  that  the  continuance  of  the  permit  is 
subject  to  the  good  behavior  on  the  part  of  the  corporation  f 

Mr.  STUART.  They  do. 

('oiiiini.ssioiier  SWEET.  So  that  there  would  be  an  impossibility  of 
terminating  it  upon  the  happening  of  some  possible  event,  would 
there  ? 

Mr.  STUART.  Yes,  sir ;  as  a  basis  for  extending  credit,  I  should  say 
that  would  be  perfectly  proper,  because,  under  such  an  arrangement, 
practically  everything  would  be  agreed  to  in  advance  as  to  what 
could  be  done  and  what  could  not  be  done. 

Commissioner  SWEET.  Yes. 

Mr.  STUART.  And  it  would  be  some  very  flagrant  happening  under 
which  the  municipality  would  want  to  terminate  the  franchise.  I 
take  it  that  the  street  railway  corporation  is  a  necessity,  and  if  it  is 
not  operated  under  private  ownership,  then  it  must  be  operated  under 
public  ownership. 

Commissioner  SWEET.  Don't  you  think  it  would  be  possible  under 
that  sort  of  a  contract  to  provide  that  the  municipality  might  purchase 
it,  if  it  saw  fit,  at  a  future  period? 

Mr.  STUART.  Yes,  sir;  I  think  that  would  be  quite  proper. 

Commissioner  SWEET.  Is  not  that  ordinarily  put  into  such  a  fran- 
chise? Has  it  not  been  in  the  States  where  they  have  them? 

Mr.  STUART.  It  has  been  put  in  in  a  number  of  special  cases  that 
I  know  about.  And,  if  I  am  not  mistaken,  in  Wisconsin,  when  you 
take  out  an  indeterminate  permit,  the  municipality  has  the  right  to 
purchase  it  at  an  appraised  value. 


196     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Where  receivers  have  been  appointed,  as 
they  have  been  in  many  instances,  have  the  results  been  generally 
more  favorable  than  under  the  control  of  the  companies  themselves  ? 

Mr.  STUART.  Oh,  I  think  so. 

Commissioner  SWEET.  The  results  have  been 

Mr.  STUART.  From  every  standpoint. 

Commissioner  SWEET.  From  every  standpoint? 

Mr.  STUART.  From  every  standpoint.  In  the  first  place,  a  receiver 
is  not  appointed  unless  the  property  is  in  trouble. 

Commissioner  SWEET.  Yes. 

Mr.  STUART.  And  it  is  usually  in  trouble  on  account  of 'earnings. 

Commissioner  SWEET.  Yes. 

Mr.  STUART.  The  receiver  has  a  job  representing  the  court.  It  is 
usually  more  or  less  a  temporary  job. 

Commissioner  SAVEET.  Yes. 

Mr.  STUART.  And  one  of  the  first  things  he  seeks  to  do  is  to  cut 
down  service  and  cut  down  maintenance,  in  order  to  make  the  net 
earnings  larger  and  make  a  little  better  showing.  My  observation 
is  that  properties  in  receivers'  hands  are  not  nearly  so  efficiently 
operated  as  under  private  management. 

Commissioner  SWEET.  Not  as  efficiently  operated? 

Mr.  STUART.  Not  as  efficiently  operated. 

Commissioner  SWEET.  That  would  depend  somewhat  upon  the 
ability  and  experience  of  the  receiver,  I  suppose ;  would  it  not  ? 

Mr.  STUART.  It  would  undoubtedly  depend  upon  the  ability  of 
the  receiver ;  but  the  receiver  can  not  be  as  interested  to  operate  that 
property  for  the  benefit  of  the  community  and  for  the  future  as  the 
permanent  owners  of  the  property  would  be.  He  has  not  the  same 
interest. 

Commissioner  SWEET.  Under  the  service-at-cost  plan,  is  it  cus- 
tomary, or  do  you  think  it  would  be  right,  that  there  should  be  a 
limitation  as  to  the  salaries  drawn  by  the  managing  officers  of  the 
company  ? 

Mr.  STUART.  I  have  not  thought  about  that  phase  of  it;  but  the 
public,  in  the  interest  of  the  public,  would  naturally  want  to  allow 
enough  salary  to  attract  the  kind  of  talent  that  would  efficiently 
administer  the  property. 

Commissioner  SWEET.  That  would  seem  to  be  essential,  and  yet 
you  are  aware  of  the  fact,  are  you  not,  that  public  officials  in  most 
cities  are  not  very  well  compensated ;  in  other  words,  that  the  public 
is  rather  stingy  in  its  compensation  of  its  officers  ? 

Mr.  STUART*  Shamefully  so,  I  think. 

Commissioner  SWEET.  But  it  is  against  public  interest,  is  it  not? 
iWould  it  not  pay  the  public  to  be  more  generous  in  the  payment  of 
salaries  and  get  higher-grade  men? 

Mr.  STUART.  Undoubtedly.  For  instance,  take  the  public  commis- 
sioners of  States,  who  are  called  upon  to  pass  upon  enormous  in- 
vestments in  property,  and  to  use  their  time,  judgment,  and  experi- 
ence. I  have  always  thought  that  the  pay  that  they  got  was  nowhere 
near  commensurate  with  the  judgment  and  experience  required. 

Commissioner  SWEET.  Have  you  had  experience  with  commission 
form  of  government  in  cities? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     197 

Mr.  STUART.  Do  you  mean  have  we  handled  securities — — 

Commissioner  SWEET.  Has  your  business  brought  you  in  contact 
with  cities  that  are  governed  under  the  commission  form  of  govern- 
ment— the  newer  form  of  city  government?  The  city  of  Buffalo  is 
now  the  largest  city  in  the  United  States  governed  that  way,  I  think, 
but  there  are  Des  Moines,  Galveston,  and  a  great  many  other  cities 
that  are  governed  that  way. 

Mr.  STUART.  Yes ;  we  had  a  lot  of  experience  with  Galveston.  In 
fact,  my  firm  bought  the  first  bonds  that  Galveston  issued  after  their 
earthquake  down  there. 

Commissioner  SWEET.  Yes;  I  wanted  to  ask  you  as  a  matter  of 
information,  whether  you  are  familiar  with  cities  governed  in  that 
way  and  whether  you  have  noticed  any  disposition  to  be  more  liberal 
in  the  payment  of  salaries  of  officials,  especially  of  city  managers. 

Mr.  STUART.  I  am  afraid  I  am  not  sufficiently  familiar  with  that, 
except  that  I  have  had  enough  experience  in  Galveston  to  believe 
that  everything  in  that  city  is  done  on  the  most  businesslike  basis. 

Commissioner  SWEET.  You  made  the  remark  that  all  healthy  com- 
panies needed  a  continual  increase  of  capital,  and  if  a  company  was 
not  needing  more  money — more  capital — then  it  was  not  in  a  healthy 
condition.  Did  you  not  say  that? 

Mr.  STUART.  I  did ;  and  that  is  true,  in  my  opinion. 

Commissioner  SWEET.  Do  you  base  that  upon  the  ground  that  a 
healthy  company  is  continually  expanding — 

Mr.  STUART.  A  public-service  company,  like  an  individual  or  like 
any  private  business,  can  not  stand  still.  It  either  has  to  go  for- 
ward or  go  backward.  If  it  goes  ahead,  it  needs  more  money;  it 
needs  more  capital  all  the  time. 

Commissioner  SWEET.  And  that  could  not  be  properly  provided  for 
by  earnings? 

"Mr.  STUART.  Earnings  would  not  be  sufficient  to  provide,  in  my 
opinion,  for  the  additional  capital  required  by  any  growing  public- 
service  corporation. 

Commissioner  SWEET.  That  is  all. 

Mr.  WARREN.  Mr.  Stuart,  did  you  say  that  under  that  Kansas  City 
franchise  five  directors  were  named  bv  the  city  ? 

Mr.  STUART.  Five  by  the  city  and  six  by  the  company. 

Mr.  WARREN.  You  spoke  of  a  rate  from  G  to  6£  per  cent  on  senior 
securities  of  street  railways,  if  the  street  railways  were  now  enjoy- 
ing the  same  position  in  public  confidence  that  the  electric-lighting 
companies  enjoy,  and  of  a  higher  rate  for  the  junior  securities,  which 
I  suppose  is  ordinarily  stock. 

Mr.  STUART.  Ordinarily  I  assume  to  be  stock. 

Mr.  WARREN.  How  much  higher? 

Mr.  STUART.  Well,  I  should  say  from  1  to  2  per  cent. 

Mr.  WARREN.  Higher  than— 

Mr.  STUART.  Higher  than  the  senior  securities. 

Mr.  A\TARREN.  Is  there  any  general  rule  or  practice  in  investment 
banking  houses  respecting  the  earnings  which  a  utility  should  show 
in  excess  of  the  interest  required  on  the  bond  issues? 

Mr.  STUART.  There  is  not  any  general  rulo.  But,  as  I  said  in  the 
beginning,  the  investment  banker  has  no  control  over  money  of  his 
clients;  and  unless  you  present  a  street-railway  security,  or  any  other 
security  with  a  proper  value  and  proper  earning  restriction,  proper 


198     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

earnings  statement,  proper  depreciation  fund,  or  proper  sinking 
fund,  proper  escrow  provisions  in  the  mortgage,  the  investor  won't 
buy  it.  Unless  he  thinks  he  is  well  protected,  the  buyer  of  bonds 
would  not  buy  bonds.  He  is  conservative,  and  unless  he  thinks  he  is 
well  protected,  he  won't  buy  bonds. 

Mr.  WARREN.  As  far  as  the  earnings  are  concerned,  he  would  expect 
the  company  to  show  considerable  earnings  in  excess  of  the  money 
necessary  to  pay  the  interest  on  the  bonds  ? 

Mr.  STUART.  The  general  rule,  without,  however,  being  a  rule,  is 
that  the  senior  security,  the  first-mortgage  bond,  to  be  considered 
a  safe  security  and  to  be  in  good  standing,  should  earn  twice  its  in- 
terest charges,  or  more. 

Mr.  WARREN.  You  want  to  get  a  train,  and  I  think  you  will  just 
have  time  to  do  it. 

Mr.  STUART.  I  thank  you  very  much. 

Mr.  WARREN.  I  am  very  much  obliged  to  you. 

Commissioner  SWEET.  At  the  service-at-cost  plan,  would  not  the 
senior  securities,  the  stock  and  everything,  be  substantially  on  the 
same  basis,  and  all  practically  guaranteed  by  the  public? 

Mr.  STUART.  No.  They  would,  to  some  extent,  but  there  might  be 
conditions  that  would  come  up  in  any  one  year  that  would  make  the 
showing  for  the  junior  securities  a  little  less  favorable,  perhaps,  than 
it  should  be.  Then,  another  thing:  The  buyer  of  the  senior  securi- 
ties, if  he  has  a  big  equity  behind  him,  is  going  to  buy  those  securi- 
ties at  a  good  deal  less  rate  of  interest  than  he  would  were  he  furnish- 
ing all  the  money,  and  at  times  of  panic  or  times  of  stringent  money, 
when  the  street-railway  company  finds  it  necessary  to  borrow,  if  they 
have  a  senior  security  which  has  a  big  equity  behind  it  in  the  shape 
of  junior  securities,  they  can  always  raise  the  money  on  those  senior 
securities,  either  by  selling  the  securities,  or  by  hypothecation,  until 
such  time  as  money  conditions  ease  up.  For  instance,  the  average 
rate  of  interest — suppose  that  it 'should  be,  we  will  say,  7  per  cent. 
Now,  if  you  paid  8  on  your  junior  securities  and  6  on  your 
senior  securities,  the  average,  you  will  see,  would  be  7  per  cent,  a  very 
much  better  financial  set-up,  and  if  a  corporation  is  always  in  a  posi- 
tion to  borrow  money,  it  is  always  sure  of  serving  the  public  properly. 

I  would  like  to  say  a  word  just  from  an  investment  banker's  stand- 
point, and  I  know  most  of  the  investment  bankers  of  the  United 
States.  We  look  upon  this  commission  almost  as  the  court  of  last 
resort  in  this  matter.  We  feel  that  the  decision  of  this  commission 
is  going  to  have  the  same  effect  upon  the  public  as  the  War  Labor 
Board's  decisions  had  on  the  public ;  and  we  are,  therefore,  very,  very 
deeply  interested,  and  all  of  us  are  anxious  to  do  everything  we  can ; 
but  we  think  that  this  is  about  the  last  chance,  and  that  whatever  you 
gentlemen  decide  is  going  to  go  a  very  long  way  toward  molding 
public  sentiment,  out  of  which  we  hope  for  better  things. 

Commissioner  SWEET.  Do  you  think,  Mr.  Stuart,  that  the  employees 
of  street-railway  companies  and  the  general  public  are  equally  inter- 
ested with  the  investment  bankers  and  the  companies  themselves, 
substantially  ? 

Mr.  STUART.  Well,  I  may  not  have  the  correct  view  of  that,  but  I 
do  not  think  so.  I  think  the  solution  of  this  is  between  the  public 
and  the  railway  companies,  and  the  relations  between  the  employer 
and  employee  would  be  just  like  they  would  in  any  other  company. 


PROCEEDINGS  OF  1'EDEKAi,  ELECTRIC  RAILWAYS  COMMISSION.     199 

The  employee  must  be  well  paid.  He  should  be  well  paid.  Every- 
body wants  him  well  paid.  But  the  public  should  see  that  the  em- 
ployer gets  a  rate  with  which  he  can  afford  to  pay  those  wages. 

Commissioner  SWEET.  As  between  the  investor  and  the  general 
public,  the  advantages  of  settling  this  question  and  settling  it  right 
are  substantially  the  same. 

Mr.  STUART.  Yes ;  I  agree  with  you. 

The  CHAIRMAN.  You  will  be  excused,  Mr.  Stuart. 

Mr.  WARREX.  Mr.  Chairman,  at  this  point  I  should  like  to  read  a 
letter  which  Mr.  Tripp  received  from  Mr.  Hurley,  who  was  asked  to 
come  before  the  commission  but  was  unable  to  attend,  and  if  I  may, 
I  would  like  to  read  it  now  before  I  call  my  next  witness : 

UNITED  STATES  SHIPPING  BOARD, 

Washington,  July  15,  1919. 
Mr.  GUY  E.  TKIPP, 

Chairman  Federal  Electric  Railway  Commission, 

Washington,  D.  C. 

DEAR  MR.  TRIPP:  I  have  been  requested  to  appear  before  yoii  as  a  witness  in 
your  pending  investigation  of  the  problems  which  confront  electric  railways 
of  the  United  States.  It  is  impossible  for  me  to  appear  in  person  without 
neglecting  other  public  duties  to  which  I  am  committed,  and  I  trust  that  you 
will  permit  me  to  submit  and  record  for  your  consideration  the  following  facts 
in  written  form : 

The  United  States  has  been  developed  with  unparalleled  rapidity  through 
the  construction  of  transportation  facilities  by  men  of  vision  and  initiative. 
Thus  our  great  national  industry  has  been  built  up  by  transportation  which  has 
heretofore  preceded,  led,  ami  actually  made  possible  and  brought  about  the 
wonderful  development  of  the  natural  resources  of  this  country  and  our  na- 
tional prosperity. 

In  the  early  days  our  national,  State,  and  municipal  authorities  realized  the 
absolute  necessity  of  fostering  the  construction  of  transportation  facilities  as  an 
essential  factor  in  the  development  of  our  country,  and  subsidies  in  the  form  of 
land  and  money  were  granted,  thus  aiding  in  their  establishment. 

Adequate  and  efficient  electric  railway  facilities  are  just  as  essential  to  the 
proper  development,  welfare,  and  prosperity  of  our  cities  and  populous  com- 
munities as  the  transcontinental  trunk  lines  are  to  our  country  at  large.  They 
should  be  fostered  and  safeguarded  accordingly. 

Unfortunately  pioneers  who  promoted  the  construction  of  many  electric- 
railway  properties  pursued  practices  which  have  saddled  on  the  traveling 
public  excessive  charges  in  the  form  of  excessive  amount  for  promoters'  profits 
rather  than  for  construction  costs.  These  practices  naturally  brought  about 
public  antagonism. 

The  United  States  Shipping  Board  Emergency  Fleet  Corporation  had  oc- 
casion during  the  war  to  require  many  electric-railway  companies  to  enlarge 
their  facilities  sufficiently  to  carry  great  numbers  of  shipyard  workers  between 
their  homes  and  the  shipyards.  We  thus  wore  brought  intimately  In  touch  with 
tlw  electric  railway  industry  and  its  requirements  on  all  seaboards  of  the 
United  States. 

We  found  in  many  instances  that  the  companies  were  financially  impotent, 
owing  to  their  having  been  prevented  increasing  their  rates  to  a  sufficient  ox- 
tent  to  cover  the  increased  costs  of  operation  and  a  reasonable  return  on  the 
capital  already  invested. 

We  have  found  that  this  condition  applies  to  many  companies  throughout  the 
entire  country  and  is  mainly  responsible  for  tl»e  unsettled  condition  of  the 
electric- railway  industry  to-day. 

In  many  cases  the  War  Labor  Board  in  Washington,  In  endeavoring  to 
meet  war  conditions,  raised  the  wntres  of  the  street-railway  employees  with 
the  thought  in  mind  of  preventing  widespread  strikes,  they  being  fearful  that 
strikes  might  spread  and  develop  a  serious  situation.  But  in  their  anxiety 
to  settle  labor  difficulties  promptly  they  naturally  were  unable  in  the 
emergency  to  take  into  consideration  all  the  conditions,  as  it  was  their  task  t<» 
prevent  serious  labor  difficulties. 

Now  that  the  war  is  over  and  It  la  recognized  that  wages  are  not  likely  to 
be  reduced,  when  the  facts  show  that  certain  street  railways  can  not  be  op- 


200     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

crated  under  the  present  high  cost  of  materials  and  labor,  so  as  to  yield  a  just 
return  on  the  capital  invested,  it  appears  to  me  that  there  is  only  one  remedy 
and  that  is  authority  to  increase  the  fares.  The  public  interest  requires  first- 
class  service  and  the  public  is  willing  to  pay  additional  fare. 

With  the  whole  world  endeavoring  to  improve  its  transportation  services 
both  on  land  and  sea,  and  spending  millions  of  dollars  experimenting  on  trans- 
portation in  the  air,  it  is  most  important  to  the  future  prosperity  and  comfort 
of  our  people  that  the  street  railways  be  placed  in  a  position  where  first-class 
service  will  be  given  the  public  at  a  just  cost  under  the  supervision  of  broad 
minded,  sound  commissions.  If  State  and  National  Governments  are  to  deter- 
mine what  is  a  fair  street-railway  wage  scale,  then  they  should  also  assume 
the  responsibility  of  determining  and  establishing  what  is  an  adequate  street- 
railway  fare,  and  they  should  willingly,  when  the  facts  are  presented,  meet  the 
new  conditions  by  authorizing  street-railway  companies  to  increase  their  fares. 

It  is  clear  that  every  electric-railway  company  should  be  freely  accorded  the 
right  to  establish  such  rates  as  are  necessary  to  meet  operating  costs,  including 
maintenance  and  depreciation,  and  a  reasonable  return  on  the  capital  invested. 
If  they  are  to  be  denied  this  right,  it  is  perfectly  clear  that  no  additional 
capital  can  be  safely  invested  in  electric-railway  securities,  that  our  electric 
railways  will  be  unable  to  meet  their  obligations  to  the  public  and  their  se- 
curity holders. 

As  soon  as  the  American  public  and  the  street-railway  corporations  of  this 
country  are  brought  to  a  settled  understanding  of  what  constitutes  fairness  in 
their  mutual  relations,  your  problem  will  be  solved.  Capital  already  legiti- 
mately invested  in  public  service  will  be  safeguarded,  the  credit  of  our  legiti- 
mate electric-railway  companies  will  be  restored,  new  capital  will  be  available 
to  them  as  required  for  the  development  and  expansion  of  their  facilities  to 
meet  the  requirements  of  the  public,  and  the  public  will  enjoy  efficient,  safe 
service. 

The  true  value  of  an  electric-railway  property  is  the  legitimate  cost  incurred 
in  establishing  and  developing  its  business,  and  that  any  method  of  valuation 
which  disregards  this  principle  is  not  fair. 

The  capital  invested  in  an  electric-railway  property  is  certainly  entitled  to 
a  profitable  return  from  the  time  it  is  placed  at  risk  in  the  enterprise  and  the 
public  interest  is  best  served  when  a  fair  return  is  paid  on  capital. 

An  electric  railway  is  entitled  to  include  in  its  cost  of  service  not  only  its 
current  operating  expenses  but  due  allowance  for  renewals  and  depreciation. 

Therefore,  these  are  all  elements  which  must  be  included  in  valuing  an  elec- 
tric-railway property  for  rate-making  purposes. 

If  you  can  clearly  and  firmly  establish  these  fundamental  principles,  you  will 
save  an  important  industry  and  perform  a  great  service  to  the  American  public. 
Very  truly,  yours, 

EDWARD  N.  HURLEY,  Chairman. 

Mr.  WARREX.  I  think  I  mentioned  yesterday  morning  something 
about  Massachusetts  investments.  It  might  interest  the  commission 
at  this  point,  after  Mr.  Stuart's  testimony,  if  I  were  to  read  the 
figures  which  I  prepared  for  an  argument  before  the  Massachusetts 
commission  which  was  considering  this  same  general  question  that 
your  commission  is  considering  here  for  the  whole  country.  They 
were  considering  it  merely  for  Massachusetts.  These  figures,  I  be- 
lieve, were  authentic.  They  were  made  up  from  the  reports  of  the 
various  street-railway  companies  as  regards  to  stockholders  and 
from  the  saving  bank  and  insurance  commissioners'  reports  for 
Massachusetts  as  regards  those  two  classes  of  securities,  and  they 
relate  to  the  year  1915.  At  that  time  there  were  $102,493,675  of 
capital  stock  outstanding  which  under  Massachusetts  laws  is  all 
issued  at  100  cents  or  more  on  the  dollar.  There  was  represented 
in  addition  to  the  par  value  of  that  capital  stock  paid  into  the 
companies  under  the  laws  of  Massachusetts,  which  requires  stocks 
if  they  are  selling  at  over  par  to  be  issued  at  a  price  above  par,  the 
money  being  paid  into  the  corporation — there  were  in  premiums  so 
paid  to  the  corporations  $6,659,611,  or  in  round  numbers  about 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     201 

$109,000,000  of  capital  stock  or  what  amounted  to  the  same  thing, 
paid  in  premiums  on  capital  stock,  and  there  was  $91,834,700  of 
funded  debt. 

The  number  of  people  interested  in  the  stock  of  those  street- 
railway  companies  in  1915  was  26,000.  There  were  26,000  investors 
interested  in  the  stock.  In  the  bonds  there  was  nothing  available  at 
that  time  as  to  the  number  of  bondholders,  but  the  savings  bank 
and  insurance  reports  did  indicate  the  extent  to  which  the  bonds 
were  held  by  those  two  classes  of  corporations ;  and  it  appeared  that 
$31,414,100  of  street-railway  bonds,  which  was  a  little  more  than 
one-third  of  the  total,  were  held  by  Massachusetts  savings  banks  on 
October  30,  1915;  $5,758,000  of  the  bonds  were  held  by  Massachu- 
setts life  insurance  companies,  and  $1,138,000  by  other  Massachusetts 
insurance  companies.  The  total  held  by  savings  banks,  life  insur- 
ance, and  other  insurance  companies  was  $38,310,100,  or  about  two- 
fifths  of  all  the  bonds  which  those  street  railways  had  outstanding 
in  1915. 

The  CHAIRMAN.  Did  the  bonds  and  stocks  apply  to  railroads  oper- 
ating wholly  within  the  State  of  Massachusetts? 

Mr-  WARREN.  Yes;  substantially  so.  There  may  be  one  or  two 
which  operate  without  the  borders  to  a  neighboring  town.  There  is 
one,  I  think,  that  operates  a  little  way  over  into  Xew  Hampshire 
and  one  that  operates  a  little  way  into  Rhode  Island;  but  substan- 
tially they  are  corporations  operating  in  the  State  of  Massachusetts. 
As  far  as  the  savings  bank  law  is  concerned  that  is  confined  to  the 
Massachusetts  street-railway  companies. 

STATEMENT  OF  MR.  HENRY  G.  BRADLEE. 

Mr.  WARREN.  Your  full  name  is? 

Mr.  BRADLEE.  Henry  G.  Bradlee. 

Mr.  WARREN.  You  are  connected  with  the  Stone  &  Webster  organi- 
zation? 

Mr.  BRADLEE.  I  am  a  member  of  the  firm  of  Stone  &  Webster. 

Mr.  WARREN.  And  that  firm,  as  I  think  appeared  from  Gen. 
Tripp's  testimony  this  morning,  has  had  a  gi^at  deal  to  do  for  a  long 
period  of  time  with  street  railways  among  other  public  utilities,  has 
it  not? 

Mr.  BRADLEE.  We  have  been  interested  in  the  public-utility  busi- 
ness for  nearly  30  years.  We  have  under  our  charge  the  operation  of 
some  thirty-odd  public  utilities,  electric  light,  gas  and  street  rail- 
ways, of  which  about  25  are  either  street  railway  or  combined  rail- 
way and  electric-light  properties.  We  have  also  been  called  on  to 
examine  and  report  on  many  street  railways  in  which  we  are  not 
directly  interested,  to  advise  the  owners  as  to  methods  of  handling 
their  property,  also  to  help  out  certain  receivers  in  the  handling  of 
their  present  difficulties. 

Mr.  WARREN.  Have  you  personally  had  a  great  deal  to  do  with  the- 
street  railway  properties? 

Mr.  BRADLEE.  For  the  last  18  vears  I  have  been  the  executive  head 
of  the  so-called  management  division  of  our  firm  and  in  that  capacity 
have  had  general  charge  of  the  management  of  all  of  the  properties. 

Mr.  WARREN.  Mr.  Bradlee,  in  connection  with  the  street  railways 
over  which  you  have  had  charge,  what  is  your  experience  as  to  the 

100C430— 20 14 


202     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

need  of  additional  capital  by  such  companies  from  time  to  time,  and 
how  regularly  is  that  need  shown? 

Mr.  BRADLEE.  I  have  prepared  certain  figures  and  brought  them 
•with  me  covering  specific  cases,  with  the  idea  that  that  might  be 
more  valuable  to  the  commission  than  general  figures. 

Before  taking  up  the  matter  of  additions  to  capital,  I  would  like  to 
say  just  a  word  on  the  amount  of  capital,  as  a  whole,  required  in 
the  street-railway  business. 

About  three  years  ago  we  had  occasion  to  examine  for  our.  own 
information,  or  investigate  for  our  own  information,  the  amount  of 
capital  required  for  various  branches  of  industry.  That  investiga- 
tion extended  over  a  period  of  about  a  year.  We  obtained  da.ta 
from  many  different  industries  of  all  sorts  and  kinds,  and  while  the 
figures  which  we  obtained  are  of  course  not  accurate  as  applied  to  the 
industries  as  a  whole,  they  are  indicative  at  least  of  the  amount  of 
capital  required  to  carry  on  these  various  types  of  industry. 

When  our  figures  were  completed,  a  diagram  was  prepared  show- 
ing the  amount  of  capital  required  to  carry  on  a  business  of  $-100,000 
in  gross  earnings.  I  have  several  copies  of  this  diagram  here  which 
I  thought  might  be  of  interest  to  the  commission  [handing  papers]. 

The  CHAIRMAN.  Have  you  enough  to  supply  each  member? 

Mr.  BRADLEE.  Well,  I  will  send  some  more.    There  are  three  there. 

You  will  see  from  this  diagram  that  the  amount  of  capital  re- 
quired to  carry  on,  for  example,  the  construction  business,  that  is  a 
contract,  is  low.  A  capital  of  less  than  $50,000  will  do  $100,000  of 
business.  The  same  is  true  in  what  we  have  termed  the  trading — 
that  means  retail  and  wholesale  business.  In  manufacturing,  the 
capital  appears  to  just  about  equal  the  gross  annual  business  trans- 
acted. In  mining,  due  to  the  large  amount  of  investment  in  mining 
lands,  mineral  lands,  the  investment  materially  increases.  Then  we 
come  to  the  group  of  public  utilities — telephone,  gas,  electric  light, 
street  railway  and  steam  railway,  in  which  the  capital  required  is 
from  $400,000  to  $500,000,  at  least,  to  carry  on  $100,000  of  gross 
earnings.  Last  of  all  is  agriculture,  which  is  even  higher  than  pub- 
lic utilities. 

I  want  to  call  your  attention  particularly  to  the  part  of  the  dia- 
gram which  is  shown  in  red.  That  represents  the  operating  plant, 
the  investment  in  operating  plant.  You  will  see  in  that  case  that 
the  public  utility  stands  out  even  more  markedly  than  in  the  total 
capital.  There  is  no  other  industry  which  apparently  requires  an 
operating  plant  equal  to  its  annual  gross  earnings.  The  public  util- 
ity requires  a  plant  several  times  its  annual  gross  earnings,  from  four 
to  five  times. 

Now  this  has  a  direct  bearing  on  the  earnings  of  the  utility — the 
necessary  earnings.  If  a  retail  merchant  is  able  to  turn  over  his 
capital  three  times  a  year  and  in  turning  it  over  makes  3J  per  cent 
profit  on  each  turnover,  he  will  make  10  per  cent  a  year  on  his  entire 
investment.  A  public  utility,  on  the  other  hand,  will  turn  its  capital 
over  only  once  in  every  four  to  five  years,  and  in  order  to  make  a 
reasonable  return  on  that  capital,  or  rather  to  make  the  same  10  per 
cent — if  it  were  10  per  cent — it  would  be  necessary  to  pay  out  from 
40  to  50  per  cent  of  the  gross  earnings  as  a  return  on  the  investment. 
In  other  words,  the  trader  or  merchant  may  get  along  with  3^  per 
cent  profit  and  earn  10  per  cent  on  his  capital,  whereas  the  public 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAH. WAYS  COMMISSION.     203 


utility  must  pay  out  40  to  50  per  cent  of  its  gross  to  earn  an  equal 
return  on  the  public-utility  capital. 

The  capital  requirements  of  the  public  utility  are  not,  as  they  are 
sometimes  supposed,  paid  in  in  the  creation  of  a  property  at  the  start 
and  then  continued  at  a  more  or  less  uniform  rate.  On  the  contrary, 
there  must  be,  as  Mr.  Stuart  told  you,  a  continual  contribution  of 
capital  year  by  year  and  month  by  month.  The  public  utilities  in  all 
parts  of  this  country  are  growing  and  growing  steadily,  and  there  is 
continually  increased  demand  for  service  due  to  increased  population 
and  also  to  increased  demand  per  capita  in  a  given  population;  and 
to  meet  this  increase  in  service,  it  is  necessary  for  the  public  utility  to 
continually  add  to  its  investment. 

The  addition  of  capital  follows  very  closely  the  increase  in  business. 
I  have  brought  with  me  here  two  charts  of  one  of  our  street-railway 
companies;  they  are  identical.  And  on  those  charts  you  will  see  two 
lines.  The  black  line  shows  the  increased  investment  in  the  property, 
starting  at  the  beginning  of  the  period,  an<l  then  running  through  the 
long  series  of  years,  adding  each  year  the  new  capital  which  was 
invested  that  year,  in  that  way  producing  the  black  line  which  3^011 
see  on  the  curve.  The  green  line  is  four  times  the  increase  in  gross 
business,  and  those  two  curves,  as  you  will  see,  nm  very  closely  to- 
gether, showing  that  we  have  invested,  year  by  year,  four  dollars  of 
new  capital  for  each  dollar  of  increased  gross  business,  and  that  it 
has  been  necessary  to  do  that  in  order  to  adequately  carry  on  that 
business  and  serve  the  public. 

Similar  curves  covering  an  electric-light  company — a  company  in 
Lowell — will  show  very  similar  results.  For  instance  [handing 
chart  to  the  commission],  you  will  see  in  both  the  electric-light  and 
the  street-railway  property  the  investment  has  followed  very  close 
with  the  increase  in  business;  the  curves  are  not  identical,  but  they 
are  very  close  to  it;  and  in  each  case  the  additional  money,  the  capital 
required,  has  been  about  four  times  the  increase  in  gross  business. 

I  have  also  brought  with  me  a  statement  which  I  will  hand  you. 

The  statement  produced  by  the  witness  is  as  follows: 

Ai>i>ro.rimatc  grons  earnings  and  apj>ro.rimate  expenditures  for  construction  of 
d-  Webster  companies  for  the  years  1902  to  1918,  inclusive. 


Year. 

Gross  earnings. 

Construction 
expenditures. 

1902... 

$3,  5X5,  000.  00 
6,338,000.00 
8,4*2,000.00 
9,504,000.00 
12,212,000.00 
13.776,000.00 
16,357,000.00 
19,133,000.00 
20,747,000.00 
21,3^9,000.00 
23,925,000.00 
26,305,000.00 
2X.K81.000.  00 
27,044,000.00 
29,456,000.00 
31,029,000.00 
36,  322,  000.  00, 

$2,750,000.00 
3,623,000.00 
2,414,000.00 
2,  900,  000.  (X) 
5,000,000.00 
8,500,000.00 
6,962,000.00 
5,703,000.00 
7,286,000.00 
9,077,000.00 
5,467,000.00 
7,531,000.00 
6,840,000.00 
3,371,000.00 
3,  736,  000.  00 
5,001,000.00 
5,691,000.00 

1903  

1504  

loo.->  

1906  . 

1907  

1WW  

1909.         .   . 

1910  

1911  

1912.... 

1913  

1914.... 

1915  

1916. 

1917  

1918. 

Total  

334,485,000.00 

9i,s52,<»naoo 

204     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 


The  figures  from  1902  to  1907  cover  a  considerable  number  of  com- 
panies. The  cost  of  constructing  the  Puget  Sound  Railway,  tho 
Puget  Sound  power  development  and  the  Taylors  Falls  power  devel- 
opment are  eliminated. 

The  figures  from  1908  to  1918,  inclusive,  cover  all  Stone  &  Webster 
companies. 

The  cost  of  the  Verdi  power  plant,  the  Goat  Rock  development,  the 
Citizens'  Railway  Company  (Northern  Texas  Traction),  the  Gal- 
veston-Houston  Interurban,  Mississippi  River  power  initial  devel- 
opment, Falls  Village  development,  Dallas  Terminal  investment,  and 
all  intangibles  are  eliminated.  The  Minneapolis  figures  are  elimi- 
nated from  both  gross  and  construction  and  Connecticut  power  earn- 
ings from  1913. 

Comparison  of  rates  of  increase  of  gross  earnings  of  Stone  cC-  Webster  companies* 


Year. 

Percentage 
increase  in 
gross 
earnings. 

Year. 

Percentage 
increase  in 
gross 
earnings. 

1Q{)9                                

20.0 

1912... 

10  0> 

1003                      

16.0 

1913  

10  & 

1004                          

10.0 

1914  

2  1 

1905            

12.5 

1915  

6  $ 

1906                      

18.0 

1916  

8  9 

1007               

19.0 

1917  

13  4 

1908        

5.0 

1918  

18.7 

1°09 

16.0 

1910               

5.0 

Average  

10  7 

1911        

3.8 

Year. 

Percentage 
increase 
in  gross 
earnings. 

Amount 
spent  on 
construc- 
tion per 
$100  or 
gross 
earnings. 

Year. 

Percentage 
increase 
in  gross 
earnings. 

Amount 
spent  on 
construc- 
tion per 
$100  of 
gross 
earnings. 

1902       

20.0 

$76.00 

1909... 

16.0 

$30  00 

1903                                

16.0 

57.00 

1910  

5  0 

35  00 

1904              

10.0 

28.00 

1911  

3.8 

42  00 

1905  

12.5 

31.00 

1912  

10.0 

23  00 

10Q6                                 

18.0 

42.00 

1913  

10.0 

29  00 

1907 

19  0 

62  00 

1908  

5.0 

43.00 

Average  

12.1 

37.00 

Year. 

Percentage 
increase 
in  gross 
earnings. 

Amount 
spent  on 
construc- 
tion per 
$100  of 
gross 
earnings. 

Year. 

Percentage 
increase 
in  gross 
earnings. 

Amount 
spent  on 
construc- 
tion per 
$100  of 
gross 
earnings. 

1902           

20.0 

$76.  00 

1912  .  .  . 

10.0 

$23.00 

1Q03  

16.0 

57.00 

1913  

10.0 

29.00 

1904                      

10.0 

28.00 

1914  

2.1 

24.00 

1905  

12.5 

31.00 

1915  

6.3 

12.00 

1906  

18.0 

42.00 

1916  

8.9 

13.00 

1907          

19.0 

62.00 

1917  

13.4 

11.00 

1908     

5.0 

43.00 

1918  

18.7 

11.00 

1QQ° 

16  0 

30  00 

1910              

5.0 

35.00  I 

Average  

10.7 

27.00 

1911       

3.8 

42.00 

Mr.  BRADLEE.  On  the  first  sheet  of  the  four  pages  I  have  just 
passed  up,  you  will  find  the  gross  earnings  of  the  group  of  properties 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  .COMMISSION.     205 

which  we  manage,  from  the  year  1902  to  1918,  showing  the  gross  earn- 
ings of  the  properties  in  each  year.  The  second  column  shows  the 
construction  expenditures  for  additions  to  those  properties  each  year. 
In  making  up  the  construction  expenditures  we  have  omitted  certain 
large  expenditures  which  were  in  the  nature  of  new  developments 
rather  than  of  additions  to  existing  property.  For  example,  we  built' 
an-  interurban  road  between  Galveston  and  Houston.  It  is  owned  by 
the  same  company  which  owns  the  street  railway  in  Houston  and  the 
same  company  which  owns  the  street  railway  in  Galveston;  but  we 
operated  that  as  a  new  proposition  and  did  not  include  it  in  here 
under  the  construction  expenditures  for  additions  to  property.  We 
have  omitted  certain  water  powers  and  others  large  items  of  that 
kind.  So  that  these  figures  of  construction  expenditures  cover  merely 
the  extensions  and  development  of  existing  property. 

Commissioner  MEEKER.  Why  the  tremendous  drop  from  1914  to 
1915  in  construction  expenditures? 

Mr.  BRADLEE.  I  will  come  to  that  in  a  moment. 

On  the  second  sheet  you  will  find  the  percentage  increase  in  gross 
earnings  of  the  group  of  companies.  In  the  year  1902  it  was  20  per 
cent  and  in  each  year  there  has  been  an  increase,  the  minimum  being 

3.8  per  cent,  with  the  exception  of  the  year  1917,  in  which  there  was 
a  decrease  of  6.3  per  cent.     That  decrease  was  due  very  largely  to  the 
effect  of  the  jitney  bus  combined,  in  certain  sections  of  the  country, 
with  poor  general  business  conditions.     Following,  in  1916,  the  jitney 
disappeared  to  some  extent  and  the  gross  earnings  increased  again. 
In  the  last  year,  1918,  the  gross  earnings  have  increased  18.7  per  cent 
or  almost  as  high  as  the  maximum  of  any  year  since  1902. 

On  the  third  page  you  will  find  repeated  the  percentage  increase 
in  gross  earnings  for  the  years  from  1902  to  1913,  and  also  the 
amount  spent  on  construction  extensions  per  hundred  dollars  of  gross 
earnings.  In  other  words,  in  1902  for  every  $100  of  gross  earnings 
of  this  group  of  companies,  it  was  necessary  to  spend  $76  in  additions 
and  extensions.  The  average  for  the  entire  period  1902  to  1913  is  $37 
expended  on  extensions  and  improvements  for  each  $100  of  annual 
gross  earnings. 

On  the  fourth  page  the  figures  are  identical  with  page  3,  except 
they  have  been  continued  from  1913  to  1918.  The  original  figures,  as 
it  happens,  the  first  page,  was  made  up  in  1914  and  this  second  page 
was  made  to  bring  it  up  to  date.  You  will  note  that  the  high  rate  of 
investment  continued  up  to  and  including  the  year  1914.  In  1915  we 
had  conditions  which  had  been  brought  about  by  the  jitney;  wo  had 
the  beginning  of  the  war  period,  and  every  effort  was  made  to  keep 
down  further  extensions  to  property.  During  the  war  period  we  have 
continued  that  policy,  and  of  course  during  the  past  year  and  a  half 
the  Government,  through  the  Securities  Issues  Committee,  has  pro- 
hibited the  utilities  from  spending  anv  money  on  improvements  or 
extensions  other  than  such  as  was  absolutely  necessary.  In  addition, 
there  has  been  the  difficulty  of  selling  securitiesv  of  which  Mr. 
Stuart  spoke  to  you. 

Now  those  figures  of  the  last  four  years  moan  this:  The  companies 
have  gone  on  increasing  in  gross  earnings.  In  1916  they  increased 

8.9  per  cent;  in  1917,  13.4  per  cent,  and  in  1918,  18.7  per  cent;  but  wo 
have  not  spent  during  that  period  anything  like  an  adequate  amount 
to  take  care  of  that  increased  business.     We  have  been  in  one  sense 


206     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMItflSSIOIT. 

living  on  our  fat — we  have  been  calling  on  our  power  plants,  our 
track,  our  cars,  to  carry  more  than  their  normal  amount  of  load,  and 
we  have  taken  chances  of  breakdowns  and  interruptions  to  service 
which  in  normal  times  we  should  not  do.  Tluit  means  that  these 
properties  at  the  present  time  are  below  par.  They  are  not  developed 
to  the  extent  they  should  be  normally  to  handle  the  volume  of  busi- 
ness which  they  now  transact. 

To  meet  that  situation  and  to  adequately  serve  the  public  we  must 
not  only  meet  future  extensions  but  we  must  make  up  for  what  we 
have  failed  to  spend  in  the  last  four  years  so  that  the  demand  for  ad- 
ditional capital  during  the  next  four  years,  if  we  are  to  adequately 
serve  the  public,  must  be  above  normal  to  offset  the  four  years  which 
are  below. 

Mr.  WARREN.  Did  you  stater  Mr.  Bradlee,  whether  that  statement 
consisting  of  four  pages  related  to  all  the  utilities  under  the  manage- 
ment of  Stone  &  Webster  or  street  railways  ? 

Mr.  BRADLEE.  It  relates  to  all  of  the  utilities,  street  railway,  gas, 
and  electric  light.  I  was  unable  to  separate  them  out  in  the  time  al- 
lowed. In  fact,  I  do  not  believe  we  could  separate  them  out,  because 
many  of  the  properties  are  combined  companies,  the  same  company 
doing  street-railway  and  electric  service,  and  it  would  be  difficult  if 
not  impossible  to  separate  many  of  the  construction  expenditures  and 
determine  exactly  what  should  be  apportioned  to  the  street  railway 
and  what  to  the  electric-light  company. 

The  CHAIRMAN.  You  stated  there  were  35  companies  being  oper- 
ated by  Stone  &  Webster? 

Mr.  BRADLEE.  Approximately;  yes. 

The  CHAIRMAN.  Of  that  number,  how  many  are  street-railway 
companies  ? 

Mr.  BRADLEE.  Approximately  25  are  either  street  railway  or  com- 
bined street-railway  and  light  companies. 

The  CHAIRMAN.  You  are  quite  familiar  with  the  street-railway 
companies  operated  by  other  concerns  throughout  the  country  ? 

Mr.  BRADLEE.  Many  of  them. 

The  CHAIRMAN.  Do  you  feel  that  your  companies  are  quite  typical 
of  the  companies  giving  service  in  other  sections  of  the  country? 

Mr.  BRADLEE.  I  think  they  are  reasonably  typical  of  what  has  oc- 
curred in  the  industry — yes. 

The  CHAIRMAN.  Do  you  feel  that  the  other  companies  have  been 
devoting  about  as  much  money  to  new  construction  annually  as  you 
have  ? 

Mr.  BRADLEE.  About  a  year  ago  a  report  was  made  to  Mr.  John 
Skelton  Williams  outlining  the  conditions  in  the  street-railway  in- 
dustry. If  I  remember  the  figures  correctly,  the  gross  earnings  of 
the  street  railways  were  placed  in  that  report  at  $1,500,000,000.  It 
was  estimated  that  the  annual  expenditures  for  extensions  and  im- 
provements would  be  from  $600,000.000  to  $700,000,000  a  year.  That 
would  correspond  very  closely  to  those  figures.  Those  figures  would 
figure  out  just  about  $600,000,000  a  year  on  a  gross  business  of 
$-1,500,000,000,  so  that  the  statistics  which  were  gathered  for  all  -the 
companies  correspond  very  closely  with  those  for  that  group. 

The  CHAIRMAN.  Your  table  shows  that  from  1902  to  1918  there 
was  $98,252,000  invested  in  construction  expenditures. 

Mr.  BRADLT  K.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     207 

The  CHAIRMAN.  Is  that  whole  amount  capitalized? 

Mr.  BRADLEE.  No.    A  large  part  of  it  was. 

The  CHAIRMAN.  About  what  per  cent? 

Mr.  BRADLEE.  Oh,  I  could  not  tell  you.  A  certain  amount  came 
from  earnings  from  companies  that  were  not  paying  dividends,  who 
earned  their  dividends  but  turned  the  money  back  into  the  property; 
but  just  what  per  cent  that  was  I  could  not  tell  you. 

The  CHAIRMAN.  How  much  of  that  money  represents  new  capital  ? 

Mr.  BRADLEE.  A  large  part  of  it  represents  new  capital. 

The  CHAIRMAN.  About  what  per  cent? 

Mr.  BRADLEE.  Oh,  I  could  not  tell  you  what  per  cent. 

The  CHAIRMAN.  Of  course  your  books  show  that  ? 

Mr.  BRADLEE.  Oh,  yes. 

Commissioner  BEALL.  This  gross  earning  which  you  gave  on  the 
first  page,  does  that  include  the  additional  gross  earnings  which  you 
derived  from  the  new  properties  which  you  built  and  which  you  say 
were  not  included  in  the  total  of  $91,000,000  construction  expendi- 
tures ? 

Mr.  BRADLEE.  No. 

Commissioner  BEALL.  You  have  segregated  that? 

Mr.  BRADLEE.  Yes.  Those  gross  earnings  apply  only  to  the  com- 
panies to  which  the  construction  expenditures  applied. 

Commissioner  BEALL.  How  could  you  show  that  where  you  de- 
veloped new  water  power  and  built  new  power  houses,  as  you  did? 

Mr.  BRADLEE.  We  simply  segregated  that  as  we  did  in  the  Houston 
and  Galveston  interurban  case. 

Commissioner  BEALL.  But  all  your  big  developments  on  the  White 
Eiver  and  similar  places,  where  you  have  spent  many  millions  of  dol- 
lars, but  which  brought  in  a  lot  of  gross  revenue,  how  did  you  get 
that  out  of  this?  I  do  not  see  how  you  could. 

Mr.  BRADLEE.  The  White  River  was  included  in  this  figure. 

Commissioner  BEALL.  But  you  did  not  include  the  White  River 
expenditure  on  the  other  side,  did  you  ? 

Mr.  BRADLEE.  Yes;  we  included  the  White  River  expenditure  in 
the  years  in  which  it  was  made,  and  included  the  earnings  from  the 
White  River  operation  in  the  years  following. 

Commissioner  BEALL.  I  thought  you  said  you  had  not  put  it  in 
your  construction  expenditures,  a  new  line. 

Mr.  BRADLEE.  When  I  spoke  of  a  new  enterprise  I  meant  an  en- 
tirely new  thing — like  a  new  interurban  road,  as  distinguished  from 
a  water  power  which  was  built  to  supply  a  going  concern. 

Commissioner  GADSDEN.  This  statement  you  have  rendered  is  ? 
combined  statement  of  the  three  utilities,  gas,  water,  and  electricity, 
is  it  not  ? 

Mr.  BRADLEE.  Yes. 

Commissioner  GADSDEN.  If  it  were  made  up  entirely  of  street  rail- 
ways, as  you  have  in  the  first  chart,  the  proportion  of  capital  would 
be  larger'? 

Mi-.  BRADLEE.  The  proportion  of  capital  would  be  larger  on  the 
street  railway  than  on  the  other  two. 

Commissioner  GADSDEN.  This  chart  shows  a  proportion  of  about 
fow  ami  a  half  to  one. 

Mr.  BRADLEE.  Yes. 


208     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  That  proportion  holds  true  as  regards  additional  or 
increasing  earnings  and  increasing  capital  expenditures,  as  I  take  it. 

Mr.  BKADLEE.  Yes. 

Mr.  WARREN.  The  proportion  is  larger  than  that,  is  it  not,  as  re- 
gards the  original  or  initial  capital? 

Mr.  BRADLEE.  In  some  cases,  yes,  and  in  some  cases  it  would  be 
about  the  same. 

Mr.  WARREN.  In  some  cases  it  would  run  five  or  seven  to  one,  would 
it  not? 

Mr.  BRADLEE.  Yes;  it  certainly  would.  I  might  r*iy  that  those 
figures,  you  will  understand,  are  average  figures.  We  have  one  pub- 
lic utility,  a  large  water  power,  which  was  built  entirely  new  and  in 
which  the  investment  is  10  to  1.  So  that  those  figures  should  not  be 
used  or  considered  as  applying  definitely  to  any  particular  industry. 
They  simply  represent  the  average  of  the  group. 

Xow,  to  meet  the  requirements,  such  as  those,  we  must  sell  securi- 
ties. There  is  no  other  way  to  meet  them.  The  earnings  of  the 
properties  are  not  adequate  to  even  meet  operating  expenses — I  am 
speaking  of  street  railways  now — to  meet  operating  expenses,  taxes, 
and  interests  on  bonds,  in  many  cases.  There  is  nothing  left  there  to 
apply  to  extensions  and  improvement.  It  must  all  be  obtained  from 
the  investor  in  some  form,  and  unless  it  is  obtained  from  the  in- 
vestor it  will  be  hopeless  for  the  street  railways  to  attempt  to  ade- 
quately serve  the  public.  The  service  to-day  is  inadequate.  It  will 
continually  grow  more  and  more  inadequate  unless  some  means  is 
found  to  improve  the  credit  of  the  street  railways  and  enable  them 
to  raise  the  money  needed  to  meet  these  demands  for  further  serv- 
ice; and  that  amount  of  money,  as  is  indicated  in  these  figures,  is  a 
very  large  sum  in  proportion  to  the  gross  earnings  of  the  company. 

The  railway  industry  as  a  whole  must,  in  some  way,  if  it  is  to 
fairly  serve  the  public,  raise  six  or  seven  hundred  million  dollars  a 
year  for  new  work,  and  in  addition  it  must  provide  for  the  refinanc- 
ing of  maturing  obligations  to  an  amount  varying  from  $250,000.000 
to  $300,000,000  a  year.  So  that  there  is  approaching  a  billion  dollars 
a  year  to  be  raised  in  some  way  for  the  street-railway  industry  in 
order  to  adequately  serve  the  public. 

The  CHAIRMAN.  Would  it  be  convenient  for  you  to  file  a  statement 
showing  the  amount  of  refunding  obligations  that  are  due  in  the 
next  year? 

Mr.  BRADLEE.  I  think  such  figures  are  obtainable.  We  secured 
them  for  the  report  which  was  sent  in  to  Mr.  Williams,  and  I  think 
they  could  be  obtained  for  next  year.  I  would  be  glad  to  try  and 
see  what  I  can  get  on  that. 

This  portion  of  new  capital,  to  my  mind,  is  the  crux  of  the  situa- 
tion. In  many  discussions  of  the  public-utility  situation  the  dis- 
cussion has  centered  around  what  is  a  reasonable  return  on  the 
capital  that  is  now  invested,  and  the  suggestion  has  been  made — I 
read  just  the  other  day  the  report  of  the  committee  of  fifty  or  one 
hundred,  I  have  forgotten  wrhich  it  was,  in  Denver,  a  committee  of 
citizens  who  were  appointed  by  the  mayor  to  investigate  the  Denver 
situation.  That  committee  made  a  very  satisfactory  and  intelligent 
report  in  many  ways,  but  then  they  went  on  to  say :  "  Here  is  a  bad 
situation.  It  is  not  anybody's  fault  in  particular.  The  dollar  has 
depreciated  and  everybody  is  suffering;  the  public  is  suffering  and 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     209 

must  suffer  through  increased  fare.  The  company,  on  the  other 
hand,  should  share  their  part  of  the  burden  and  take  a  moderate 
return  on  their  investment  and  be  satisfied  with  less  than  they  might 
.think  was  reasonable."  That  is  all  right;  it  may  be  perfectly  fair 
and  just  as  applied  to  the  investment  that  is  already  there.  But  the 
city  of  Denver  is  going  to  grow.  The  city  of  Denver,  if  it  continues 
as  it  has  in  the  past,  Avill  have  10  years  from  now  at  least  twice  the 
investment  in  its  street-railway  system  that  it  has  to-day,  and  that 
money  must  come  from  somewhere. 

Now  the  street  railway  should  be  looked  on,  as  I  see  it,  not  as  a 
static  thing  but  as  a  growing  organization,  something  which  is 
expanding  and  extending  all  the  time  and  which  must  extend  and 
expand  to  adequately  serve  the  public.  It  is  possible  to  make  a  trade 
with  the  city  by  which  the  investment  which  has  already  been  made 
shall  accept  what  may  seem  an  inadequate  return,  but  that  is  only 
a  half  truth;  it  is  looking  at  only  half  the  situation.  You  can  make  a 
trade  with  a  man  who  already  has  his  money  invested,  but  you  can 
not  make  a  trade  of  that  kind  with  a  man  who  is  going  to  invest  his 
money  next  year  and  the  year  after.  That  man  will  look  at  the 
situation  in  the  street-railway  field  and  compare  it  with  the  situa- 
tion in  other  lines  of  industry.  There  is  no  situation  that  I  knoAv  of 
where  competition  is  keener  than  in  the  investment  of  money.  The 
investor  looks  for  the  investment  which  he  considers  is  going  to 
be  the  most  favorable  for  him,  and  that  is  the  investment  which  he 
buys.  Unless  he  can  be  convinced  that  he  will  have  equal  security 
and  an  equal  chance  for  profit  in  the  street  railway  or  other  public- 
utility  industry  that  he  can  obtain  in  manufacturing  and  any  other 
line  of  industry,  he  will  put  his  money  into  manufacturing  and 
not  into  the  public  utility. 

Xow  that  problem  is  the  one  which  lies  at  the  basis  of  the  solu- 
tion of  this  whole  question.  It  is  not  the  question  of  what  money 
is  in  there  so  much  as  it  is  how  are  you  going  to  get  additional  money 
in  order  to  reasonably  serve  the  public. 

There  are  only  two  ways  that  I  know  of :  One  is  to  go  to  municipal 
ownership  and  have  the  city  or  State  raise  the  money  on  city  or  State 
bonds.  The  other  is  to  establish  some  plan  under  which  the  investor 
will  feel  that  in  the  future  he  may  count  on  a  reasonable  protection 
of  his  invested  capital  and  a  reasonable  insurance  of  an  adequate 
return. 

I  think  that  covers  what  I  had  in  mind  here  on  the  capitalization 
end  of  the  problem. 

Mr.  WARREN.  Can  you  give  the  commission  any  information,  Mr. 
Bradlee.  about  the  increasing  costs  of  operation  during  the  last  two 
years  or  the  last  three  or  four  years? 

Mr.  BRADLKE.  I  received  yesterday  from  Texas  a  letter  and  papers 

Jvoni  three  of  our  Texas  companies  in  which  our  Texas  managers 

•\d  taken  the  operating  expenses  in  two  of  the  companies  for  the 

onth  of  April.  1010,  and  in  one  company  for  the  month  of  March. 
:'»10.  They  listed  on  one  of  our  regular  sheets  the  expense  items  for 
..hose  months  of  the  year  1010.  They  then  figured  the  cost  of  the 
s';ime  labor  and  material  on  the  basis  of  prices  of  labor  and  material 
in  March,  1013.  In  other  words,  they  assumed  that  exactly  the 
same  number  of  hours  of  labor  were  spent,  exactly  the  same  materials 


210     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

were  u.sed,  but  took  the  prices  of  1913  and  then  refigured  their  operat- 
ing expenses  for  the  month.  I  will  submit  to  the  commission  these 
sheets  in  detail  and  simply  give  a  few  summary  figures. 

The  Houston  Electric  Co.,  figured  on  that  basis,  shows  an  increase 
in  expense  on  the  maintenance  of  way  and  structures  of  76  per  cent. 

Mr.  WARREN.  That  is  one  of  the  four  important  divisions  of 
operating  expense,  is  it  not,  Mr.  Bradlee  ? 

Mr.  BRADLEE.  Yes,  that  is  an  important  division.  On  the  main- 
tenance of  equipment  the  increase  was  58  per  cent.  On  the  con- 
ducting of  transportation — that  means  the  operation  of  cars — an 
increase  of  50  per  cent.  On  general  and  miscellaneous  expenditures, 
32  per  cent;  an  average  for  the  total  expense  of  48.4  per  cent. 

In  the  case  of  the  Houston  company  the  cost  of  fuel  was  decreased 
by  making  that  change.  The  cost  of  fuel  in  1919  was  less  than  the 
cost  of  fuel  in  1913.  That  was  due  to  the  fact  that  we  fortunately 
made  contracts  for  fuel  oil  two  years  ago  at  a  very  low  rate  and  those 
contracts  are  still  in  effect.  If  we  were  buying  fuel  oil  at  the  pres- 
ent prices,  there  would  have  been  a  marked  increase  in  the  cost  of 
fuel  which  would  have  increased  these  percentages. 

Mr.  WARREN.  You  made  your  contract  at  a  lower  price  than  the 
price  in  1913? 

Mr.  BRADLEE.  Lower  than  the  price  in  1913,  so  there  is  an  actual 
saving  in  that  item. 

Mr.  WARREN.  I  did  not  catch  the  figure  for  the  total  operating 
expense  there. 

Mr.  BRADLEE.  The  total  operating  expense  was  48.4  per  cent. 

Mr.  WARREN.  Increase? 

Mr.  BRADLEE.  Increase.  In  the  Northern  Texas  Traction  Co., 
which  is  the  company  in  Fort  Worth,  Tex.,  a  street-railway  company 
which  operates  the  entire  street  railways  in  Fort  Worth  and  two  in- 
terurban  lines — one  between  Fort  Worth  and  Dallas  and  the  other 
between  Fort  Worth  and  Cleburne — in  this  property,  the  increase  in 
maintenance  of  way  and  structures  was  63  per  cent;  in  maintenance 
of  equipment,  83  per  cent ;  in  conducting  transportation,  57  per  cent ; 
in  general  and  miscellaneous,  7  per  cent,  a  total  of  45  per  cent  for 
the  entire  property.  In  this  case  also  we  have  a  fuel  oil  contract  so 
we  are  paying  no  more  for  fuel  oil  in  1919  than  in  1913. 

The  third  company  is  located  in  El  Paso,  Tex.  It  is  a  combined 
railway  and  lighting  property,  but  the  figures  are  separate  for  the 
two  departments  of  the  business.  In  the  railway  department,  the 
maintenance  of  way  and  structures  increased  47  per  cent;  main- 
tenance of  equipment  increased  61  per  cent;  the  total  cost  of  conduct- 
ing transportation  increased  90  per  cent;  general  and  'miscellaneous 
expenditures  increased  27  per  cent,  a  total  for  the  entire  company  of 
65.3  per  cent. 

This  you  will  see  as  a  total  is  considerably  higher  than  the  others, 
but  in  El  Paso  we  burn  coal.  We  had  no  contract,  and  the  cost  of 
fuel  increased  107  per  cent,  which  accounts  for  this  increase.  If  the 
increase  in  fuel  were  eliminated,  the  increase  in  this  company  would 
be  48  per  cent  or  practically  corresponding  with  the  other  two  com- 
panies. 

Mr.  WARREN.  I  thought  as  you  read  those  figures  that  the  trans- 
portation in  the  last  company,  the  El  Paso  company,  I  think,  in- 
creased more  than  it  did  in  the  companies  preceding. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COJVOUSSIOiff.     211 

Mr.  BRADLEE.  That  is  because  fuel  enters  into  the  cost  of  trans- 
portation ;  it  is  one  of  the  items. 

Mr.  WARREX.  It  is  not  separated  into  power  and 

Mr.  BRADLEE.  No.  That  enters  in  as  one  of  the  items  under  that 
heading.  These  figures  I  onl.y  received  yesterday.  These  are  the 
only  copies  I  have,  and  I  would  like  to  take  tlie^  home  and  have 
some  copies  made  and  then  send  them  to  the  commission,  if  that 
meets  with  your  approval. 

The  CHAIRMAX.  Yes, 

Mr.  WARREX..  You  can  not  say,  I.suppose.  from  the  figures  there, 
how  your  operating  ratio  or  operating  railway  revenue  is  affected 
by  this  increase.  Does  that  appear? 

Mr.  BRADLEE.  Xo,  that  does  not  appear.  These  figures  simply 
cover  the  matter  of  expense.  I  might  say,  however,  that  the  Hous- 
ton company  a  few  years  ago  was  paying  dividends  at  the  rate  of  6 
per  cent  on  its  common  stock.  It  now  is  not  paying  any  dividends. 
It  is  barely  earning  the  interest  on  its  bonds.  The  Fort  Worth  com- 
pany is  more  fortunate  and  is  still  paying  some  dividends  on  its  com- 
mon stock. 

Commissioner  GADSDEX.  On  account  of  the  oil  contract ;  is  it  not  ? 

Mr..  BRADLEE.  On  account  of  the  oil  contract  to  quite  an  extent ;  yes. 
It  is  a  big  help. 

Mr.  WAUREX.  And  the  other  company  was  a  combined  company? 

Mr.  BRADLEK.  The  other  company  was  a  combined  company,  a 
large  part  of  its  business  coming  from  electric  light  and  power. 

Mr.  WARREX.  What  sort  of  franchises  are  these  companies  operat- 
ing under  in  Texas? 

Mr.  BRADLEE.  The  ordinary  old-fashioned  type  of  franchise — lim- 
ited term;. none  of  the  modern  provisions  of  service-at-cost  or  any- 
thing of  that  sort. 

Mr.  WARREN.  What  is  your  opinion  of  those  limited-term  fran- 
chises, are  they  to  the  advantage  of  the  public  served  by  the  company 
or  not? 

Mr.  BRADLEE.  I  think  they  are  very  much  to  the  disadvantage  of  the 
public  served.  As  the  franchise  term  expires  it  becomes  more  and 
more  difficult  to  raise  money  needed  for  extension  and  improvement; 
and  being  more  difficult,  it  must  be  raised  on  shorter  and  shorter  term 
bonds  or  notes.  They  must  be  renewed  more  frequently,  and  e*ich 
renewal  costs  money.  The  amount  to  be  paid — that  is.  the  rate  of  in- 
terest— is  also  higher,  because  the  term  is  short  and  because  the  fran- 
chise is  uncertain.  My  feeling  is  that  the  public  is  very  much  better 
oif  with  some  form  of  indeterminate  franchise  in  which  the  public  is 
adequately  guarded  through  power  to  take  over  the  property  by  the 
city  if  at  any  time  they  feel  that  that  should  be  done. 

Mr.  WARREN.  Is  there  also  a  tendency  on  the  part  of  the  company 
to  neglect  improvements  and  maintenance  toward  the  end  of  the 
term,  if  there  is  anticipated  difficulty  respecting  the  renewal  of  the 
franchise? 

Mr.  BRADLEE.  Inevitably.  As  you  get  toward  the  end  of  the  fran- 
chise term,  if  you  have  doubts  as  to  whether  you  are  going  to  renew 
it,  you  do  not  put  in  much  new  money — you  hold  everything  down 
to  the  lowest  point  that  you  can. 

Mr.  WARREX.  And  it  used  to  be  the  case — I  do  not  know  whether 
it  is  still — that  at  the  beginning  of  the  term  there  was  a  certain  cocki- 


212      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

ness  and  indifference  on  the  part  of  the  grantees  of  the  franchise  re- 
specting the  wishes  of  the  public. 

Mr.  BRADLEE.  Well 

Mr.  WARREN.  Because  they  had  a  long  period  of  enjoyment  to  look 
forward  to.  Was  that  true  in  some  cases? 

Mr.  BRADLEE.  I  imagine  it  may  have  been. 

Mr.  WARREN.  Have  any  of  your  companies  operated  under  the 
service-at-cost  principle  ? 

Mr.  BRADLEE.  Xo ;  we  have  no  companies  operating  under  that  prin- 
ciple. We  have  made  a  pretty  exhaustive  study  of  the  service-at-cost 
franchise  and  of  the  results  obtained  in  cities  where  it  has  been  in 
effect.  I  believe  a  little  later  one  of  our  men,  Mr.  Nash,  is  to  talk 
to  you  on  some  phases  of  that. 

In  general,  we  believe  that  the  service-at-cost  franchise  is  work- 
ing in  the  right  direction,  and  we  believe  that  some  plan  of  this  sort, 
something  which  is  a  distinct  departure  from  former  methods,  is  an 
essential  to  restore  credit.  There  must  be  something  definite  and 
something  radical  done  in  order  to  change  public  sentiment,  and  the 
best  solution  from  the  standpoint  of  relations  with  the  public  that 
we  have  seen  suggested  is  the  service-at-cost  franchise  in  some  form. 

Mr.  WARREN.  Have  you  had  anything  to  do,  Mr.  Bradlee,  with  the 
sale  and  distribution  of  securities? 

Mr.  BRADLEE.  Yes.  We  have  a  department  for  the  sale  and  dis- 
tribution of  securities.  The  securities  of  our  own  properties  are  sold 
partly  wholesale  to  bankers,  who  then  distribute  them  to  investors, 
and  sold  partly  through  our  OWTH  securities  department;  so  that  we 
have  had  experience  both  in  the  wholesaling  and  retailing  of  public 
utility  securities. 

Mr.  WARREN.  Can  you  give  the  commission  any  impression  as  to 
the  nature  of  that  distribution — how  widespread  it  is,  how  large  the 
holdings  average?  You  may  have  heard  Mr.  Stuart's  testimony 
earlier  this  afternoon. 

Mr.  BRADLEE.  I  have  no  figures  in  mind,  no  definite  figures,  but  my 
impression  is  that  the  securities  of  our  companies  are  distributed 
fully  as  widely  as  Mr.  Stuart  stated  was  Kansas  City's. 

Mr.  WARREN.  And  that  would  apply  to  a  pretty  large  volume  of 
securities? 

Mr.  BRADLEE.  Yes. 

Mr.  WARREN.  That  is  all  that  I  wish  to  ask  the  witness. 

The  CHAIRMAN.  I  would  be  very  glad  if  the  commissioners  desire 
to  ask  any  questions  that  they  do  so. 

Commissioner  WEHLE.  Mr.  Bradlee,  your  statement  which  you 
filed  with  reference  to  Stone  &  Webster  companies  does  not  mention 
the  number  of  companies  involved  in  the  statement  nor  the  names 
of  the  companies. 

Mr.  BRADLEE.  I  would  be  glad  to  send  that  to  you  if  you  desire 
to  have  it. 

Commissioner  WEHLE.  Could  you  add  that  to  this  testimony? 

Mr.  BRADLEE.  I  would  be  very  glad  to. 

Mr.  WARREN.  You  can  state  the  number  now. 

Mr.  BRADLEE.  I  think  it  is  about  35. 

Commissioner  WEHLE.  But  some  of  them — we  were  not  quite  clear 
as  to  their  exact  nature ;  and  I  thought  perhaps  we  could  have  it  more 
definitely  stated. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.     213 

Mr.  BRADLEE.  Those  are  all  public  utilities  and  they  are  scattered 
all  over  the  country. 

Commissioner  WEHLE.  Then  your  statement,  while  it  treats  of 
the  gross  earnings,  does  not  treat  of  net  earnings.  Would  it  be  ad- 
visable, do  you  think,  in  connection  with  this  statement,  to  let  us 
have  net  earnings,  or  would  you  rather  not  include  that  in  your 
statement  for  some  reason? 

Mr.  BRADLEE.  I  have  no  objection  to  giving  the  net  earnings,  but 
what  I  was  endeavoring  to  point  out  in  those  figures  Avas  the  compari- 
son of  investment  required  and  gross  earnings;  that  is,  the  amount 
of  new  investment  as  compared  with  the  volume  of  business  trans- 
acted. 

Commissioner  WEHLE.  The  reason  I  ask  for  the  net  earnings  in 
connection  with  your  testimony  is  that  it  is  not  entirely  clear,  unless 
it  its  explained,  just  what  you  call  your  gross  earnings,  whereas  net 
earnings  have  a  more  common  definition  or  more  universal  definition 
than  gross  earnings. 

Mr.  BRADLEE.  By  gross  earnings  I  mean  the  number  of  dollars 
taken  in  by  the  company  in  its  business  before  any  deductions  are 
made. 

Commissioner  WEHLE.  On  what  basis  of  accounting  did  you  arrive 
at  these  gross  earnings? 

Mr.  BRADLEE.  We  simply  add  up  the  nickels  as  they  come  in  and 
the  dollars  as  they  are  received. 

Commissioner  WEHLE.  That  is  your  gross  earnings? 

Mr.  BRADLEE.  That  is  our  gross  earnings ;  it  is  the  total  income. 

Mr.  WARREN.  Without  deductions? 

Mr.  BRADLEE.  Without  deductions  of  any  sort,  kind,  or  descrip- 
tion. 

Commissioner  WEHLE.  Xo  deductions  of  interest? 

Mr.  BRADLEE.  No  deductions  for  expense,  interest,  maintenance,  or 
anything;  it  is  the  dollars  which  are  taken  in  by  the  company  in 
the  year. 

Commissioner  WEHLE.  But  there  are  so  many  elements  that  enter 
into  the  situation  before  we  come  to  the  net  earnings  then  that  it 
is  rather  difficult  for  the  commission,  is  it  not,  to  know  exactly  how 
to  treat  the  situation  of  the  street  railway  companies  without  taking 
the  net  earnings? 

Mr.  BRADLEE.  I  presume  that  the  commission  will  have  presented 
to  it  figures  of  net  earnings  of  the  industry. 

Commissioner  WEHLE.  You  see  we  have  here  in  the  record  already, 
Mr.  Bradlee,  some  indication  of  the  expansion  in  the  various  items 
which  are  deducted  from  gross  earnings. 

Mr.  BRADLEE.  Yes. 

Commissioner  WEHLE.  And  which  are,  as  we  have  seen  here,  cut- 
ting down  the  net  earnings  or  even  extinguishing  the  net  earnings  en- 
tirely. 

Mr.  BRADLEE.  Yes. 

Commissioner  WEHLE.  And  along  that  same  line  it  would  seem 
that  we  might  have  some  interesting  testimony  if  you  could  carry 
your  sheets  just  a  little  further. 

Mr.  BRADLEE.  I  would  be  very  glad  indeed  to  send  you  figures  that 
will  show  exactly  what  the  expenses,  net  earnings,  and  charges  are  on 


214     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION1. 

both  properties.    We  published  a  book  which  gives  that  information, 
and  I  will  send  copies  of  those  to  the  commission. 

Mr.  WARREX.  What  is  the  latest  year  you  cover  in  those  reports? 

Mr.  BRADLEE.  1918. 

Mr.  WARREN.  1918? 

Mr.  BRADLEE.  Yes. 

Commissioner  WEIILE.  In  these  35  companies  that  you  are  report- 
ing on  in  this  concentrated  way  in  these  statements  which  you  have 
filed,  are  there  any  companies  which  have  been  allowed  a  higher 
rate  than  the  normal  5-cent  rate  for  transportation? 

Mr.  BRADLEE.  In  the  city  of  Tacoma  we  have  a  7-cent  fare;  in 
Beaumont,  Tex.,  we  have  a  6-cent  fare;  in  Galveston  we  did  have  a 
6-cent  fare,  and  they  took  it  away  from  us  and  have  gone  back  to  5 
cents. 

Commissioner  MEEKER.  Was  that  because  you  were  making  too 
much  money? 

Mr.  BRADLEE.  Xo ;  it  was  not.  It  was  because  the  city  administra- 
tion changed  and  a  new  crowd  was  elected.  I  think  those  are  the 
only  ones — no,  in  Paducah,  Ky.,  the  fare  has  increased  to  6  cents. 
Otherwise  I  think  the  fare  is  5  cents. 

Commissioner  WEHLE.  Have  those  fares  been  in  force  during  the 
entire  year  1918? 

Mr.  BRADLEE.  No;  they  have  not.  They  have  been  increased  at 
various  times  during  the  year  on  the  various  companies. 

Commissioner  WEHLE.  None  of  those  increases  were  in  effect  in 
1917? 

Mr.  BRADLEE.  No ;  all  of  them  occurred  in  1918. 

Commissioner  WEHLE.  Do  any  of  the  properties  which  you  have 
listed  here  in  your  statement  purchase  their  power  rather  than  pro- 
duce it? 

Mr.  BRADLEE.  Yes. 

Commissioner  WEHLE.  How  many  of  the  companies  purchase  their 
power  ? 

Mr.  BRADLEE.  I  think  about  three.  In  one  case — there  are  two 
companies  there,  one  an  electric-light  company  and  one  a  railway 
company,  and  the  raihvay  company  purchases  from  the  electric-light 
company,  so  both  companies  are  included  in  that  statement. 

Commissioner  WEHLE.  What  kind  of  contracts  for  the  purchase 
of  power  are  there  in  force  in  those  three  cities,  if  you  can  give  us 
those  ? 

Mr.  BRADLEE.  Well — 

Commissioner  WEHLE.  First,  as  to  the  period  over  which  the  con- 
tract of  supply  runs. 

Mr.  BRADLEE.  I  am  afraid  I  have  not  that  sufficiently  in  mind  to 
give  you  any  exact  figures  on  it. 

Commissioner  WEHLE.  What  are  the  three  companies  that  pur- 
chase their  power? 

Mr.  BRADLEE.  There  is  power  purchased  by  one  of  the  Seattle- 
companies  or  Puget  Sound  companies ;  power  is  purchased  in  Keokuk 
and  power  has  been  purchased  in  the  Blue  Hill  Street  Railroad,  which, 
by  the  way,  is  no  longer  under  our  management. 

Commissioner  WEHLE.  What  is  the  last? 

Mr.  BRADLEE.  The  Blue  Hill  Street  Railroad,  and  by  the  way,  let 
me  say  a  word  about  the  Blue  Hill  Street  Railroad 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.     215 

Mr.  WARREN.  That  is  in  Massachusetts? 

Mr.  BRADLEE.  In  Massachusetts. 

Commissioner  MEEKER.  N«ar  Boston? 

Mr.  BRADLEE.  Near  Boston.  Mr.  Tripp  made  a  statement  this 
morning  that  Westinghouse,  Church,  Kerr  &  Co.  gave  up  the  stock 
in  a  property  in  which  they  were  interested.  We  gave  up  the  stock 
in  the  Blue  Hill  Street  Railroad  Co.  in  consideration  of  having  some 
one  else  assume  the  burden  of  going  on  and  conducting  the  business. 
That  stock  was  issued  under  Massachusetts  laws,  and  under  the 
Massachusetts  laws  it  was  necessarily  fully  paid  at  par  and  it  repre- 
sented an  investment  of  100  cents  on  the  dollar.  And  rather  than 
continue  the  operation  of  that  property,  we  gave  away  the  stock  and 
we  assumed  in  addition  and  continue  to  carry  one-half  the  floating 
debt,  so  that  we  not  only  lost  our  stock  but  we  are  still  liable  for 
half  the  floating  debt.  Since  that  time  the  company  has  gone  in 
the  hands  of  receivers,  and  I  think  we  have  lost  half  the  floating 
debt. 

Commissioner  WEHLE.  In  connection  with  purchasing  power — 
would  you  be  willing  to  give  the  commission  some  view  as  to  what 
the  future  policy  of  street-railway  business  should  be  from  an  eco- 
nomic standpoint? 

Mr.  BRADLEE.  My  impression  is  that  there  are  to-day  in  the 
country  too  many  small  power  plants.  I  believe  it  would  be  eco- 
nomically better  to  have  a  fewer  number  of  large  power  plants  and 
obtain  the  economies  which  come  from  production  on  a  large  scale — 
economies  in  first  cost  of  the  plant  and  economies  through  more  effi- 
cient operation  with  large-sized  turbines.  Just  how  far  that  should 
be  applied  to  street  railways  is  an  open  question.  In  a  city  as  large 
as  Boston,  it  is  quite  possible  that  the  Boston  Elevated  can  produce 
its  power  as  cheaply  as  it  could  produce  it  if  it  combined  with  the 
local  electric-light  company,  because  each  power  station  is  of  suffi- 
cient size  to  produce  power  economically.  In  the  smaller  towns.  I 
think  it  might  very  frequently  work  out  to  be  more  economical  to 
have  one  power  station  owned  either  by  the  street-railway  or  the 
electric-light  company,  as  the  case  might  be,  to  produce  power  for 
both;  and,  as  a  matter  of  fact,  in  many  of  our  properties,  being 
combined  electric-light  and  street-railway  properties,  we  have  just 
that  situation. 

Commissioner  WEHLE.  Do  you  find  that  in  the  places  where  Stone 
&  Webster  Co.  have  in  operation  the  combined  power  plant  for 
furnishing  both  the  light  and  the  power  for  traction  that  you  are 
generally  producing  it  at  a  lower  cost  than  in  other  places  where 
you  have  your  independent  plant  for  the  operation  of  the  traction 
line? 

Mr.  BRADLEE.  In  general  the  cost  goes  down  as  the  size  of  the  plant 
and  the  output  increase. 

Commissioner  WEHLE.  Then  you  would  say  that  the  normal  de- 
velopment which,  as  an  engineering  proposition  and  as  an  economic 
proposition,  should  be  aimed  at  in  the  years  to  come,  is  a  plan  which 
would  earn'  with  it  the  elimination  in  the  smaller  city  of  the  power 
plant  devoted  exclusively  to  traction  purposes  and  would  carry 
further  the  purchase  or  the  derivation  of  power  from  the  larger 
plant  which  serves  the  entire  community? 


216      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  BRADLEE.  I  think  in  many  cases  that  would  work  out  to  the 
economic  advantage  of  the  community. 

Commissioner  WEHLE.  Not  only  for  traction  purposes  and  light- 
ing purposes  but  also  for  industrial  power? 

Mr.  BRADLEE.  I  think  that  is  equally  true  for  industrial  power. 
There  are  so  many  small  plants  which  produce  power  very  much 
more  expensively  and  .consume  very  much  more  coal  than  would  be 
the  case  if  they  were  supplied  from  a  central  station. 

Commissioner  WEHLE.  In  the  present  state  of  the 

Mr.  BRADLEE.  Of  course,  any  change  of  that  kind  must  be  gradual. 
I  mean  you  can  not  afford  to  throw  away  what"  you  have  to-day, 
necessarily.  There  may  not  be  enough  additional  economy  to  war- 
rant simply  discarding  existing  plants,  but  the  tendency  as  develop- 
ment goes  on,  I  think,  should  be  toward  greater  concentration. 

Commissioner  WEIILE.  The  Stone  &  Webster  Corporation  has 
made  a  success,  has  it  not,  of  the  activity  of  taking  over  properties 
which  are  in  a  far  from  flourishing  financial  condition,  in  building 
them  up  and  putting  them  on  their  feet? 

Mr.  BRADLEE.  We  thought  so  up  to  about  a  year  and  six  months 
ago.  We  have  had  a  good  many  troubles  in  the  last  18  months. 

Commissioner  WEHLE.  In  connection  with  doing  that  business 
Stone  &  Webster  have  taken  over  properties  of  all  sizes,  have  they 
not? 

Mr.  BRADLEE.  Yes ;  up  to  cities  of  300,000  people. 

Commissioner  WEHLE.  You  spoke  of  Paducah,  Ky.,  for  instance. 

Mr.  BRADLEE.  Yes. 

Commissioner  WEHLE.  Which  has  a  population  of  how  many, 
do  vou  remember? 

Mr.  BRADLEE.  About  30,000  or  35,000,  I  think. 

Commissioner  WEHLE.  And  you  have  there  raised  your  fare  to  how 
much  ? 

Mr.  BRADLEE.  Six  cents. 

Commissioner  WEHLE.  Do  you  believe  that  that  will  suffice  to  solve 
your  problem  in  Paducah? 

Mr.  BRADLEE.  I  am  sorry  to  say  the  company  is  in  the  hands  of 
a  receiver. 

Commissioner  WEHLE.  Now  we  had  testimony  in  the  record  some 
time  ago  at  another  hearing,  Mr.  Bradlee,  to  the  effect  that  in  cities 
of  approximately  this  size  that  we  are  now  discussing — 30,000  in- 
habitants— there  is  a  type  of  property  which  presents  a  dilemma, 
from  which  there  seems  to  be  no  escape,  according  to  the  testimony 
of  this  witness ;  if  the  rate  is  not  raised  it  is  impossible,  so  said  this 
witness,  for  the  company  to  come  out  with  a  profit.  On  the  other 
hand,  if  it  is  raised,  the  people  will  refuse  to  ride  to  such  an  extent 
as  to  cut  down  the  profit  again.  Would  you  say  that  Paducah  pre- 
sents that  sort  of  a  situation  ? 

Mr.  BRADLEE.  No;  I  would  not.  I  think  that  is  true  of  certain 
properties.  I  think  those  are  primarily  properties  that  depend  to 
a  considerable  extent  on  pleasure  travel,  or  else  they  are  properties 
built  through  sparsely  settled  communities  rather  than  urban  lines. 
I  believe  that  the  increase  in  fare  in  the  urban  systems,  even  in  the 
small  cities,  will  bring  about  a  solution  of  the  problem,  and  I  be- 
lieve that  even  though  the  first  effect  of  that  increase  in  fare  is  to 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     217 

cut  clown  earnings  so  that  there  is  no  immediate  increase  in  gross, 
I  believe  the  ultimate  effect  will  be  to  work  out  the  situation. 

As  a  matter  of  fact,  in  such  of  the  small  cities  as  I  have  had 
experience,  and  as  I  have  seen  of  other  properties,  the  increase  in 
receipts  when  the  fare  is  changed  from  5  to  6  cents  is  about  one-half 
of  the  theoretical  increase.  In  other  words,  from  5  to  6  cents  is 
20  per  cent  increase  and  you  actually  get  about  10  per  cent  increase. 
It  does  not  apply  to  all  cases,  but  in  general  it  runs  about  that  way. 
Then  gradually  the  falling  off  in  riding  returns,  people  get  a  little 
tired  of  walking  or  else  the  growth  of  the  city  brings  new  riders  into 
the  community,  and  after  a  time  the  riding  is  right  where  it  was 
before  with  the  full  increase  of  20  per  cent. 

Commissioner  WEHLE,  Have  you  made  any  study  of  the  cost  of 
affording  the  public  service  of  transportation  by  gasoline  instead  of 
electricity  ? 

Mr.  BRADLEE.  Yes. 

Commissioner  WEHLE.  What  sort  of  a  study  has  been  made  by 
the  Stone  &  Webster  Corporation  of  that? 

Mr.  BRADLEE.  We  have  studied  the  situation  in  this  country,  we 
have  studied  the  situation  abroad  in  Paris  and  London,  and  we  are 
operating  gasoline  buses  in  connection  with  our  properties  in  Puget 
Sound,  in  connection  with  our  properties  in  Fort  Worth,  and  I 
think  in  one  or  two  of  the  other  cities.  We  are  using  the  gasoline 
buses  primarily  as  feeders  for  the  trolley  lines,  using  them  in  terri- 
tory where  service  is  required  but  which  is  not  yet  built  up  to  a 
point  to  be  self -supporting,  and  where  there  may  be  doubt  as  to 
whether  they  will  ever  build  up  to  a  point  to  be  self-supporting.  It 
is  a  simple  matter  to  put  in  a  bus  and  handle  the  traffic,  and  if  the 
district  does  not  build  up,  to  transfer  the  bus  to  some  other  location 
where  service  is  needed,  whereas  if  you  once  lay  your  tracks  you 
have  made  a  permanent  investment  which  can  be  moved  only  at 
material  loss. 

In  general,  the  cost  of  transportation  in  the  buses  is  greater  than 
with  the  service  on  rails  and  as  far  as  we  have  been  able  to  determine 
we  see  no  reason  to  assume  that  bus  transportation  can  take  the 
place  of  the  present  type  of  trolley  car  except  in  special  cases. 

One  of  our  men  last  week  visited  Mr.  Ford's  plant,  and  went  over 
with  them  the  plans  which  they  have  in  mind  for  a  gasoline  car  to 
be  operated  on  the  street-railroad  tracks.  Mr.  Ford  lias  expressed 
the  idea  that  he  can  produce  a  gasoline  car  which  is  lighter  weight 
than  the  present  electric  car  and  will  consequently  be  more  efficient. 
I  am  a  little  bit  "  from  Missouri  "  on  that,  but  we  would  be  glad  to 
get  anything  that  would  increase  efficiency. 

Commissioner  WEHLE.  But  it  is  an  interesting  field  for  thought 
in  connection  with  certain  kinds  of  communities,  is  it  not — for  the 
future,  that  is? 

Mr.  BRADLEE.  I  should  say  certain  locations  and  communities 
rather  than  certain  kinds  of  communities. 

Commissioner  WEHLE.  You  were  just  now  speaking  of  the  snvillor 
property  to  which  the  generalization  made  by  a  previous  witness 
might  possibly  apply,  namely,  that  it  presents  an  economic  dilemma. 

Mr.  BRADLEE.  Yes. 

Commissioner  WEHLE.  And  the  exception  which  you  had  in  mind 
was  a  certain  kind  of  sparsely  settled  community? 
100043°— 20 15 


218    PROCEEDINGS  or  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BRADLEE.  Yes. 

Commissioner  WEHLE.  Does  it  occur  to  you  that  perhaps  the 
application  of  gasoline  with  or  without  tracks  might  conceivably 
solve  such  problems  as  that? 

Mr.  BKADLEE.  Well,  it  might  solve  it  from  the  standpoint  of  the 
community,  but  I  would  not  want  to  be  an  investor  in  the  company 
that  put  them  in.  I  do  not  think  economically  it  would  be  a  success. 
In  other  words,  if  the  street  railway  does  not  pay,  I  doubt  if  the  bus 
would,  although  there  may  be  exceptional  cases  where  it  would. 

Commissioner  WEHLE.  What  kind  of  a  case  does  Mr.  Ford  make 
out  in  connection  with  the  selling  of  the  car?  He  must  sell  this  bus 
if  he  is  undertaking  to  manufacture  it  at  a  considerable  cost — 

Mr.  BRADLEE.  He  has  at  the  present  time  an  idea  rather  than  a 
developed  car. 

Commissioner  WEHLE.  Has  he  manufactured  any  cars? 

Mr.  BRADLEE.  No ;  he  simply  has  it  on  paper,  and  not  very  complete 
on  paper,  either. 

Commissioner  WEHLE.  Your  cars  that  you  are  operating  in  Fort 
Worth  and  Seattle  are  not  on  paper,  though  ? 

Mr.  BRADLEE.  No ;  they  are  in  the  city. 

Commissioner  WEHLE.  Are  they  operating  on  tracks? 

Mr.  BRADLEE.  No ;  they  are  operating  on  streets. 

Commissioner  WEHLE.  How  much  higher  does  the  cost  of  opera- 
tion of  those  cars  seem  to  run  than  the  cost  of  similar  transportation 
would  be  on  the  track  ? 

Mr.  BRADLEE.  I  do  not  think  I  ever  figured  it  that  way.     I— 

Commissioner  WEHLE.  If  you  had  a  new  community  in  which  no 
street-car  property  existed 

Mr.  BRADLEE.  I  will  say  this.  I  do  not  think  we  are  operating  a 
bus  that  pays. 

Mr.  WARREN.  You  do  not  think  you  are  operating  a  bus  that  pays, 
you  say? 

Mr.  BRADLEE.  No. 

The  CHAIRMAN.  Is  it  convenient  for  you  to  be  here  to-morrow 
morning  ? 

Mr.  BRADLEE.  Well,  I  have  a  ticket  on  the  7.30  train  for  Boston, 
and  have  some  pretty  important  engagements  there.  If  I  could  get 
through  to-night  I  would  like  to,  but  if  I  can  not,  I  will  stay. 

Mr.  WARREN.  Mr.  Bradlee  came  at  great  inconvenience  to  himself, 
Mr.  Chairman,  and  I  should  like,  if  possible,  if  we  could  release  him 
to-night,  because  I  know  what  his  engagements  in  Boston  are. 

The  CHAIRMAN.  We  will  hear  Mr.  Bradlee  through.  Go  on,  Mr. 
Wehle. 

Commissioner  WEHLE.  Supposing  that  you  have  a  community  of 
perhaps  20,000  to  30,000  inhabitants,  somewhat  scattered,  and  you 
were  called  in  as  an  expert  to  solve  the  problem — the  transportation 
problem — for  that  community  and  establish  a  transportation  sys- 
tem for  it 

Mr.  BRADLEE.  We  have  a  general  rule  in  our  business  and  have  had 
for  many  years,  and  that  is  never  to  interest  ourselves  in  a  strcet- 
railwav  problem  in  a  city  of  less  than  25,000. 

Mr.  WARREN.  Is  that  'the  result  of  the  Blue  Hill  Street  Railroad  ? 

Mr.  BRADLEE.  Well,  that  is  the  result  of  watching  various  com- 
panies. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     219 

Commissioner  WEHLE.  But  I  am  asking  you  this  question,  Mr. 
Bradlee,  as  an  individual  whom  I  know  to  have  had  considerable  ex- 
perience, and  I  am  asking  you  this  from  the  public  point  of  view  and 
really  asking  you  to  address  yourself  to  it,  not  from  the  investment 
point  of  view  of  a  company  which  has  a  certain  settled  policy  in  de- 
veloping property,  but  simply  because  one  of  the  various  phases  of 
this  whole  problem  that  is  being  put  up  to  us  is  even  the  phase  of  the 
small  community. 

Mr.  BBADLEE.  Xaturally. 

Commissioner  WEHLE.  And  I  am  asking  you  not  with  reference  to 
your  business,  of  course,  but  simply  from  the  public  point  of  view. 

Mr.  BBADLEE.  Well,  I  said  that  simply  to  indicate  our  point  of 
view  on  those  properties.  I  think  when  you  have  a  small  community 
of  that  sort  it  really  comes  down  to  a  community  problem.  I  doubt 
whether  there  is  any  system  of  transportation  in  a  community  of 
15,000  or  20,000  people  which  would  be  self-supporting  just  as  a 
commercial  enterprise.  It  may  be  run  in  connection  with  the  larger 
system,  and  the  larger  system  may  support  that  smaller  district. 
In  that  way,  they  may  be  served  without  any  help  from  the  com- 
munity. But  if  it  is  an  isolated  community  I  think  it  will  need  some 
form  of  public  help.  Relief  from  burdens  will  be  one  help;  pos- 
sibly some  contribution  toward  the  expenses,  another  form  of  help. 
You  probably  know  that  in  Massachusetts  a  law  has  recently  been 
passed  under  which  cities  and  towns  are  permitted  to  contribute  a 
small  percentage  of  the  assessed  value  of  the  city  or  town  property 
toward  the  local  transportation  system;  and  a  number  of  Massa- 
chusetts cities  and  towns  are  making  such  contributions.  A  property 
in  which  we  are  interested  in  Plymouth,  Mass.,  is  receiving  a  con- 
tribution of  that  kind  at  this  time,  and  without  it  the  company  could 
not  have  got  along. 

Commissioner  WEHUC.  Where  the  Stone  &  Webster  Corporation — • 
to  come  back  to  the  corporation  now — has  taken  over  property  and 
reorganized  it,  what  has  it  generally  done  with  reference  to  the  out- 
standing issues  of  stock  ? 

Mr.  BBADLEE.  In  some  cases  the  outstanding  issues  of  s.tock  have 
been  left  unchanged.  In  other  cases  there  has  been  a  complete  re- 
organization— a  new  company  has  been  formed,  the  old  companies 
have  disappeared  and  the  new  company  has  issued  securities  against 
the  properties  taken  over. 

Commissioner  WEHLE.  On  what  basis,  generally? 

Mr.  BBADLEE.  I  do  not  know  that  there' is  any  general  basis. 

Commissioner  WEHLE.  Is  there  any  approach  to  a  general  basis? 

Mr.  BRADLEE.  No;  I  do  not  think  there  is.  We  have  done  all  kinds 
of  things.  We  have  issued  securities  for  less  than  the  cost;  we  have 
issued  securities  exactly  equal  to  the  ccst  to  us  of  the  property ;  we 
have  issued  securities  equal  to  the  assumed  value,  or  the  best  we  could 
determine  to  be  the  value  of  the  property;  and  we  have  iasued  se- 
curities in  excess  of  the  value  of  the  property.  I  think  we  have  done 
all  the  different  combinations,  first  and  last. 

Commissioner  WEHLE.  Have  you  issued  any  bonus  stock? 

Mr.  BRADLEE.  Yes. 

Commissioner  WEHLE.  How  recently? 

Mr.  BRADLEE.  Well,  not  for  quite  a  number  of  years. 

Commissioner  WEHLE.  How  many  years? 


220    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BRADLEE.  I  can  not  tell  you ;  but  it  is  several  years  back.  We 
have  not  taken  over  any  new  companies  for  several  years  now.  The 
question  of  issuing  bonus  stock,  as  I  see  it,  has  been  this :  Rightfully 
or  wrongfully,  the  practice  has  developed  of  selling  bonds  in  a  new 
company  and  of  selling  preferred  stock  and  giving  the  purchaser  of 
the  bonds  and  the  preferred  stock  a  certain  amount  of  common  as 
a  bonus ;  the  idea  being  that  the  bonds  and  the  preferred  stock  would 
represent  their  investment,  the  common  stock  would  represent,  as 
Mr.  Tripp  said  this  morning,  their  hopes;  and  if  the  proposition 
worked  out  well,  the  common  stock  might  be  worth  something;  if  it 
did  not  work  out  well,  it  would  have  no  value. 

Now  that  practice  grew  up — I  do  not  know  when  it  started  or 
where,  but  it  did  grow  up — and  there  was  a  time  when  it  was  prac- 
tically impossible  to  finance  a  new  corporation  without  following 
that  practice.  You  were  in  competition  with  that  method,  and  the 
investor  liked  it,  and  if  you  were  going  to  get  the  investor's  money 
and  get  him  interested  in  the  enterprise,  you  were  more  or  less  forced 
to  fall  in  line  to  a  greater  or  less  extent  with  that  method  of  handling 
the  business. 

I  think  the  public-utility  people  recognized,  perhaps  not  at  the 
start,  but  many  years  ago,  the  fallacy  of  that  method  of  financing. 
I  think  most  of  them  would  have  done  away  with  it  many  years  ago 
if  it  had  been  in  their  power  to  do  away  with  it  and  go  on  and 
develop  the  business.  But  it  has  taken  time,  and  it  is  only  gradually 
that  the  public  have  been  perhaps  educated  up  to  a  greater  extent 
to  handle  the  financing  of  such  corporations  in  that  way. 

Commissioner  WEHLE.  The  legitimate  investment  interests  and  the 
better  class  of  production  interests  would  be  glad  to  see  an  abolition 
of  the  practice  of  issuing  bonus  stock  ? 

Mr.  BRADLEE.  I  would  be  delighted  if  it  could  be  wiped  out. 

Commissioner  WEHLE.  Has  it  been  abolished? 

Mr.  BRADLEE.  No ;  it  has  been  abolished  recently,  because  there  has 
been  no  financing  of  street  railways. 

Commissioner  WEHLE.  How  recently  do  you  know  of  bonus  stock 
having  been  issued  in  connection  with  the  sale  of  securities  or  the 
issuance  of  mortgage  bonds  of  any  public-utility  company? 

Mr.  BRADLEE.  Well,  I  have  no  case  in  mind  in  the  last  few  years. 

Mr.  WARREN.  Has  it  not  been  abolished  in  all  States  where  the 
supervisory  commissions  have  been  established? 

Commissioner  BEALL.  There  is  hardly  any  State,  as  I  understand 
it,  where  it  could  be  done  to-day.  You  certainly  could  not  do  it  in 
any  state  where  there  is  a  public-service  commission. 

Mr.  WARREN.  That  is  what  I  thought. 

Commissioner  BEALL.  And  all  the  older  and  more  important  States 
I  think,  without  exception,  have  a  commission,  have  they  not,  Mr. 
Elmquist? 

The  CHAIRMAN.  Forty-seven  States  of  the  Union  have  commis- 
sions. 

Commissioner  BEALL.  Of  course,  there  are  a  few  States,  I  believe, 
where  the  commission  does  not  pass  on  the  issues  of  securities,  but 
in  most  States  they  do. 

Mr.  BRADLEE.  Wherever  there  is  a  commission  with  that  authority, 
of  course  that  immediately  stops  it. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    221 

Commissioner  WEHLE.  Certainly,  the  commission  knows  there  are 
a  number  of  States  where  the  public-service  commission  of  the  State 
has  that  authority. 

Mr.  BRADLEE.  Yes. 

Commissioner  WEHLE.  But  there  are  some  left  where  the  public- 
service  commission  has  not  that  authoritj7,  and  my  question  which 
I  asked  merely  had  reference  to  those  States. 

Mr.  BKADLEE.  Yes.  I  think  the  practice  is  very  distinctly  disap- 
pearing, and  I  hope  it  has  disappeared. 

Commissioner  WEHLE.  Even  the  authority,  though,  as  it  exists, 
differs  very  much  in  different  States,  does  it  not? 

Mr.  BRADLEE.  In  the  control  of  securities? 

Commissioner  WEHLE.  Yes. 

Mr.  BRADLEE.  Yes,  it  varies  as  to  the  extent  of  control. 

Commissioner  WEHLE.  There  are  some  States  which  undertake  to 
exercise  some  regulation  over  the  issuance  of  securities.  The  statute 
does  not,  in  terms,  forbid  the  issuance  of  bonus  stock;  is  not  that 
true  ? 

Mr.  BRADLEE.  Yes;  I  think  so. 

Commissioner  WEHLE.  That  is  all.  Mr.  Chairman. 

Mr.  \VARREN.  Is  it  not  true,  Mr.  Wehle,  that  the  law  does  not 
recognize  the  issuance  of  bonus  stock  as  such  in  any  jurisdiction;  it 
always  has  to  be  maneuvered?  Theoretically,  any  State  law  that  I 
have  ever  run  across  treats  all  stock  as  being  required  to  be  issued 
for  value  and  the  so-called  bonus  stock  is  usually  the  result  of  a  con- 
struction contract,  or  something  of  that  sort.  I  do  not  recollect  any 
State  which  in  terms  would  sanction  the  issuance  of  stock  for  noth- 
ing as  a  bonus  to  go  with  other  security. 

Commissioner  WEHLE.  No;  my  question  did  not  imply  that,  I 
think,  Mr.  Warren.  My  question  did  imply,  though,  that  there  arc 
some  States  where  there  is  a  regulation  over  the  issuance  of  securities 
by  public-service  companies  where  the  issuance  of  securities  in  the 
form  of  bonus  stock  is  not  positively  prohibited. 

Commissioner  MEEKER.  I  would  like  to  get  your  idea  of  the  proper 
basis  for  getting  at  the  value  of  properties  upon  which  the  company 
has  a  just  claim  to  receive  a  return.  Would  you  agree  with  the  state- 
ment made  by  Gen.  Tripp  as  to  using  stocks  and  bonds  outstanding 
as  the  basis  of  a  physical  valuation  ? 

Mr.  BHADLEE.  I  think  that  Mr.  Tripp's  idea  for  determining  the 
money  that  went  into  the  property  is  good  as  far  as  it  goes,  but  I  do 
not  think  it  covers  the  situation  fully. 

To  take  a  specific  instance:  The  Haverhill  Gas  Light  Co.  was 
organized  many  years  ago — I  think  in  the  sixties.  It  is  a  company 
in  Massachusetts  which  furnishes  gas  in.  the  city  of  Haverhill.  That 
company  invested  some  sixty-odd  thousand  dollars  of  capital  in  its 
original  plant.  Then,  year  after  year,  they  took  everything  they 
earned  and  they  put  it  back  into  the  property.  They  never  paid  any 
dividends  and  never  increased  the  stock.  They  just  gradually  worked 
up  the  value  of  the  property.  Later  we  became  interested  in  that 
property  and  we  acquired  the  $05,000 — I  think  it  was — of  stock.  But 
there  had  1>een  invested  in  that  property  at  that  time  something  like 
$HOO,000  of  monev.  It  could  not  be  reproduced— 

Commissioner  !\!EEKER.  In  addition  to  the  original  $65,0001 


222    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BRADLEE.  Well,  including  the  $65,000.  Ninety  per  cent  of  the 
money  had  gradually  been  put  in  there  through  dividend  accruals 
and  accruals  on  those  dividends.  We  had  a  rate  case  before  th« 
Massachusetts  Gas  and  Electric  Light  Commission,  and  in  that  rate 
ease  it  was  necessary  for  us  to  go  back  and  show  what  happened  in 
the  building  up.  of  this  property,  because  there  was  danger  from  our 
point  of  view  that  they  would  simply  say,  u  You  only  have  an  invest- 
ment here  of  $65,(X)0."  We  were  able  fortunately  to  get  at  the  books 
of  the  company  running  away  back,  and  we  found  that  over  that  en- 
tire period,  while  the  property  had  been  built  up,  with  the  excep- 
tion of  the  $65,000,  out  of  earnings,  the  company  had  never  earned 
an  excessive  amount  in  any  year  on  the  property  which  existed  at 
that  time. 

Commissioner  MEEKER.  As  I  understood  Gen.  Tripp,  he  would 
take  account  of  just  that  situation.  How  did  you  acquire  the  prop- 
erty ;  was  it  by  trie  issuance  of  bonds  or 

Mr.  BRADLEE.  No,  we  bought  the  stock. 

Commissioner  MEEKER.  The  $65,000  of  stock? 

Mr.  BRADLEE.  Yes,  but  we  paid  a  good  deal  more  than  $65,000 
for  it. 

Commissioner  MEEKER.  Yes,  naturally.  But  you  would  be  able  to 
show  you  had  more  than  $65,000  of  an  investment  in  the  property  of 
the  plant? 

Mr.  BRADLEE.  Yes. 

Commissioner  MEEKER.  I  think  that  he 

Mr.  BRADLEE,  I  do  not  understand  that  Mr.  Tripp  would  take  the 
purchase  price  of  the  property.  That  is,  if  you  owned  a  property 
and  I  bought  it  from  you  to-morrow,  and  a  week  later  we  appeared 
before  a  public-service  commission  to  have  our  rates  regulated,  I  do 
not  assume  that  the  commission  would  take  the  price  I  bought  the 
property  from  you  at  a  week  previous  to  the  hearing  as  an  indication 
of  its  value. 

Commissioner  MEEKER,  No,  but  his  scheme  did  take  account  of  the 
turning  back  of  earnings  into  the  property.  But  that  is  not  the 
point  I  want  to  bring  out.  Do  you  think  that  the  value  of  the  prop- 
erty is  most  easily  gotten  at  by  the  method  of  appraisal  of  physical 
valuation,  or  do  you  think  it  can  be  gotten  at  easier  in  some  other 
way? 

Mr.  BRADLEE.  I  do  not  think  the  problem  is  quite  as  simple  as  Mr. 
Tripp  stated.  The  Supreme  Court,  as  I  understand  it.  has  pointed 
out  that  the  money  that  goes  into  the  property  is  one  element  in  de- 
termining a  fair  value  j  that  the  cost  of  reproduction  is  another  ele- 
ment in  determining  a  fair  value ;.  that  the  price  paid  for  the  prop- 
erty by  the  then  owners  is  another  element  in  determining  the  fair 
value;  and  that  it  is  necessary  to  weigh  those  all  more  or  less  and 
give  them  some  consideration  in  arriving  at  a  conclusion  as  to  what 
is  the  fair  value. 

Now,  I  think  it  is  perfectly  true  that  there  are  cases  in  which  a  fair 
value  can  be  arrived  at  by  taking  the  money  that  has  gone  into  the 
property.  I  think  there  are  other  cases  in  which  that  would  lead  to 
an  unfair  value  unless  a  broader  consideration  was  given  to  the  other 
factors.  Wherever  it  is  possible  to  arrive  at  a  fair  solution  of  the 
question  by  taking  the  actual  cash  investment,  I  believe  that  that  is 
a  simpler  thing  to  get  at.  I  believe  it  is  a  thing  which  is  much  better 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    223 

understood  by  the  public.  I  think  it  makes  it  much  easier  to  work 
out  a  Satisfactory  solution  with  the  public  and  I  am  inclined  to  adopt 
that  plan  and  favor  it  except  with  this  reservation — that  there  are 
cases  in  which  I  believe  that  might  lead  to  injustice  sometimes  toward 
the  investor,  sometimes  an  injustice  perhaps  to  the  community. 

Commissioner  MEEKER.  Do  you  believe  that  it  is  essential  that  we 
get  at  a  fair  valuation  of  the  street-railway  properties? 

Mr.  BRADLEE.  I  do.     I  see  no  way  of  working  out  a  service-at-cost 

franchise  or  any  other  equitable  solution  without  arriving  at  some 
-c  •        i 
fair  value. 

Commissioner  MEEKER.  I  do  not  wish  to  keep  you  any  longer  than 
possible 

Mr.  BRADLEE.  That  is  all  right;  I  can  stay.  I  am  not  going  until 
7.30.  I  am  sorry  to  keep  }7ou. 

Commissioner  MEEKER.  You  have  indicated  you  have  not  very 
much  faith  in  the  motor  bus.  I  would  like  you  to  explain  to  me,  if 
you  can,  this  great  falling  off  in  gross  earnings  that  occurred  in  1915, 
which  you  say  was  due  in  part  to  the  jitney  bus. 

Mr.  BRADLEE.  Yes. 

Commissioner  MEEKER.  If  the  jitney  bus  or  any  other  kind  of  bus 
is  not  really  a  competent  competitor  with  the  street  railways,  how 
could  they  have  dug  such  holes  in  your  gross  earnings  in  that  year? 

Mr.  BRADLEE.  Well,  it  takes  a  little  time  to  find  out  whether  a  thing 
is  a  financial  success  or  not.  The  jitney  started  up,  not  with  a  bus, 
not  in  the  class  of  service  that  a  street  railway  would  give;  it  started 
out  with  a  lot  of  second-hand  automobiles,  a  great  many  of  them 
Ford  cars  and  other  low-priced  cars.  The  people  were  crowded  into 
those  cars  in  a  way  that  they  never  would  stand  for  in  the  long  run. 
There  were  no  regulartory  ordinances,  there  was  nothing  to  deter- 
mine what  was  reasonable  service  and  what  was  not.  But  even  under 
those  conditions,  the  figures  which  we  have  show  that  the  average 
time  a  man  stayed  in  the  jitney-bus  business  was  about  three  months, 
and  then  he  disappeared  and  went  into  something  else.  Unfortu- 
nately, others  were  not  willing  to  profit  by  his  advice,  and  they  had 
to  learn  for  themselves;  and  the  numbers  of  buses  remained  the  same 
over  a  very  considerable  period  of  time,  but  the  men  who  operated 
them  shifted. 

Commissioner  MEEKER.  In  other  words,  the  jitneys  were  running  at 
a  loss  all  the  while,  although  a  good  many  of  the  jitney  operators  did 
not  know  enough  to  know  that  they  were  operating  at  a  loss? 

Mr.  BRADLEE.  It  took  them  time  to  find  out,  and  many  of  their 
expenses  were  not  charged  in  at  all. 

Commissioner  MEEKER.  And  just  following  that  out,  the  jitney 
buses  did  not  give  any  sufficient  security  to  the  passengers:  In  case 
of  accident  the  passengers  simply  suffered  loss? 

Mr.  BRADLEE.  In  the  early  clays  there  was  no  security  at  all. 
Later,  in  many  cities,  ordinances  were  passed  which  required  the 
jitney  driver  to  take  out  a  lx>nd. 

Commissioner  MEEKER.  And  as  soon  as  the  jitney  bus  was  put  on 
a  business  basis  it  became  a  more  expensive  method  of  conducting 
transportation  than  the  street-railway  system? 

Mr.  BRADLEE.  Yes. 

Commissioner  MEEKER.  Do  you  think  there  may  be  possible  im- 
provements in  the  motor  bus  and  gasoline  engine  that  may  bring  it 
again  into  the  field  as  a  competitor? 


224    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BRADLEE.  That  is  always  a  possibility. 

Commissioner  MEEKER.  But  nothing  is  in  sight  as  far  as  you 
know  ? 

Mr.  BRADLEE.  And  that  is  one  of  the  menaces  to  the  street-railway 
business. 

Commissioner  MEEKER.  In  Great  Britain  they  have  given  some 
attention  to  the  creation  of  power  at  great  central  plants  located  at 
the  mines.  Has  any  such  plan  developed  in  this  country  to  your 
knowledge? 

Mr.  BRADLEE.  Xot  on  any  definite  plan  such  as  has  been  worked 
out  in  England.  In  England  the  Government  took  the  matter  up 
and  appointed  a  special  commission  to  investigate,  and  that  com- 
mission has  studied  the  situation  throughout  England  and  has  made 
very  definite  recommendations  for  centers  at  which  large  power 
plants  shall  be  developed.  As  I  understand  it,  that  is  now  in  report 
form;  that  is,  no  definite  progress  has  been  made  in  carrying  out 
the  plan.  The  report  was  submitted  about  a  year  and  a  half  ago,  I 
think — about,  but  during  the  war;  so  naturally  it  was  held  up. 
Just  what  will  take  place  now  I  do  not  know. 

Commissioner  MEEKER.  Do  you  think  that  there  is  a  possi- 
bility  

Mr.  BRADLEE.  And  in  this  country  there  has  been  a  tendency  to 
work  toward  that  same  general  plan.  There  is  a  tendency  to  con- 
centrate, there  is  a  tendency  of  the  larger  power  distributing  sys- 
tems to  interconnect  their  lines  and  relay  each  other,  and  I  think  that 
is  a  tendency  in  the  right  direction. 

Commissioner  MEEKER.  That  may  then  eventually,  help  in  the 
solution  of  the  troubles  of  the  street  railway  companies,  the  furnish- 
ing of  cheaper  power? 

Mr.  BRADLEE.  Yes;  but  the  saving  in  power  will  not  go  very  far 
in  the  street-railway  situation.  Power,  after  all,  is  not  a  very  large 
percentage  of  your  total  expense. 

Commissioner  MEEKER.  The  principal  expense  is  labor — . — 

Mr.  BRADLEE.  Yes;  so  that  even  though  you  made  a  25  per  cent 
saving  in  power  it  would  be  a  pretty  small  per  cent  of  the  total 
railway  expense. 

Commissioner  MEEKER.  Xow  we  had  data  furnished  to  us  yester- 
day giving  some  information  about  labor  costs.  Could  you  give  us 
some  further  information  about  the  actual  increase  in  the  wage  scale 
in  the  different  items  that  you  spoke  of  a  few  moments  ago? 

Mr.  BHADLEE.  I  think  you  will  find  that  all  here  in  detailed  figures 
which  I  am  going  to  send  you.  For  example,  I  simply  gave  you  the 
figures  under  conducting  transportation.  Now  one  of  the  items  that 
goes  to  make  up  that  figure  is  the  expense  of  trainmen.  The  train- 
men's expense  increased  80  per  cent  in  the  Houston  companv  from 
1913  to  1919.  And  you  will  find  all  through- 
Commissioner  MEEKER.  As  long  as  that  is  to  be  a  matter  of  record, 
that  is  all  I  want  to  know. 

Mr.  BRADLEE.  Yes. 

Commissioner  MEEKER.  Another  thing  I  would  like  to  ask,  is  it 
possible  for  you  to  give  us  a  monthly  statement  showing  the  effects 
on  your  gross  earnings  and  net  earnings,  too,  if  possible,  of  the 
increase  in  fares  in  those  cities  where  you  have  secured  an  increase 
in  fares?  Otherwise,  we  will  not  know  where  you  stand,  whether 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    225 

your  gross  earnings  have  actually  been  increased  or  remained  station- 
ary, or  to  what  extent  they  have  been  increased  by  the  increase  in 
fares. 

Mr.  BRADLEE.  Yes;  I  think  we  might  get  some  such  figures  up. 

Commissioner  MEEKER.  If  it  is  possible,  I  think  it  would  be  very 
important  to  show  such  figures. 

Mr.  BRADLEE.  I  will  see  what  we  can  do  along  that  line. 

Commissioner  SWEET.  Do  you  think,  Mr.  Bradlee,  that  the  crucial 
point  in  this  whole  matter  is  getting  the  companies  on  a  basis  where 
they  can  appeal  to  new  capital  and  get  new  capital  invested,  and 
without  that  kind  of  relief  their  case  is  pretty  hopeless? 

Mr.  BRADLEE.  I  think  that  is  crucial  in  this  way :  That  it  is  essen- 
tial if  the  public  is  to  be  adequately  served.  Now,  if  that  situation 
is  met  and  the  situation  is  worked  out  so  that  the  new  capital  is 
attracted,  then  I  think  we  can  assume  that  the  old  capital  is  in  that 
same  plan  reasonably  taken  care  of  so  that  the  measure  of  what  is 
necessary  to  be  done  is  what  is  necessary  to  attract  new  capital. 

Commissioner  SWEET.  You  agree  substantially  with  Gen.  Tripp, 
that  to  be  upon  a  healthy  basis  it  must  be  possible  for  companies 
engaged  in  the  business  to  attract  new  capital  so  as  to  keep  up  with 
the  needed  extensions  and  growth  of  the  industry;  do  you? 

Mr.  BRADLEE.  I  do.  I  do  not  think  they  can  adequately  serve  the 
public  without  that.  It  is  an  essential. 

Commissioner  SWEET.  Now,  can  you  suggest  any  way  by  which 
the  public  can  be  brought  to  a  realization  of  that  fact?  You  do  not 
think  the  public  does  realize  it  now,  do  you? 

Mr.  BRADLEE.-  No;  I  do  not. 

Commissioner  SWEET.  Can  you  suggest  any  way  in  which  that  can 
be  brought  to  the  public  so  as  to  make  the  public  realize  that  it  is  not 
inerely  a  question  of  invested  capital  and  making  that  fairly  profit- 
able, but  a  question  of  continually  increasing  capital?  How  can  the 
public  be  made  to  understand  that? 

Mr.  BRADLEE.  I  hope  that  yaur  committee  will  state  that  so  clearly 
in  your  report  that  it  will  be  understood  by  the  public  and  will  come 
not  only  to  their  attention  but  so  forcibly  that  it  will  in  the  future 
understand  it. 

Commissioner  SWEET.  You  are  passing  the  buck,  as  they  say. 

Mr.  BRADLEE.  Well,  you  are  our  hope  right  now. 

Commissioner  SWEET.  We  want  you  to  tell  us  how  to  do  it,  if  you 
can. 

Mr.  BRADLEE.  Well,  I  have  tried  to  present  there,  just  from  specific 
cases,  what  has  happened  in  a  group  of  companies  whore  there  has 
been  need  of  capital  or  the  capital  has  been  furnished,  that  their 
need  is  not  a  sporadic  and  occasional  need  but  it  is  a  continuous  one 
month  by  month  and  year  by  year.  Similar  figures  could  be  pro- 
duced and  very  likely  have  boon  produced  and  will  be. presented  to 
yon  for  the  industry  as  a  whole,  showing  the  amount  of  money  which 
has  gone  into  it  year  by  year  in  order  to  meet  the  public  need.  I 
think  those  figures  might  be  put  in  such  a  form  that  a  convincing 
statement  to  the  public  could  be  made,  and  I  am  sure  that  anything 
that  your  commission  would  say  along  that  line  would  be  very 
helpful. 

Commissioner  SWEET.  That  is  all,  thank  you. 


223    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Commisioner  BEALL.  Mr.  Bradlee,  you  were  speaking  about  noth- 
ing having  been  done  in  this  country  as  to  big  power  plants  at  the 
mines.  That  is  not  really  quite  correct,  is  it?  Are  you  familiar  with 
the  Windsor  plant  on  the  Ohio  River  ? 

Mr.  BRADLEE.  If  I  said  that,  I  did  not  mean  that. 

Commissioner  BEALL.  I  want  the  commission  to  know  there  are  a 
good  many  plans  and  some  are  actually  being  built,  for  big  power 
houses  that  will  distribute  not  only  in  one  State  but  in  a  number  of 
states.  There  is  this  big  plant  at  Windsor  on  the  Ohio  River  which 
furnishes  power  to  at  least  two  or  three  States.  The  Duquesne  Co.  of 
Pittsburgh  is  now  erecting  at  a  cost  of  many  millions  of  dollars  a 
plant  at  a  place  near  Cheswick,  right  at  the  mine.  They  are  making 
actual  progress  on  that.  And  there  is  a  big  power  company  in  Cali- 
fornia, and,  if  I  recall  it,  through  the  war,  at  the  request  of  the 
Government  they  were  all  hitched  up  together,  California,  Colorado, 
Utah,  and  I  think  they  went  up  into  one  of  the  Northern  States  as 
well. 

Mr.  BRADLEE.  What  I  thought  I  said  and  what  I  intended  to  say 
was  that  there  had  been  no  general  plan  worked  out  by  the  Gov- 
ernment  

Commissioner  BEALL.  No;  not  by  the  Government,  but  they  have 
been  requesting  it 

Mr.  BRADLEE.  As  they  have  in  London,  and  no  general  plan  refer- 
ring to  the  country  as  a  whole,  as  has  been  done  in  England.  There 
are  many  cases;  we  have  such  cases  ourselves.  The  Mississippi  River 
Power  Co.  is  an  instance.  The  Puget  Sound  Traction,  Light  & 
Power  Co.  is  another  instance  of  such  a  case.  There  we  have 
four  water  powers  and  two  steam  plants  interconnected  feeding  the 
cities  of  Tacoma,  Seattle,  Everett,  and  Bellingham,  and  all  the  in- 
termediate territory.  We  are  connected  up  with  another  power  com- 
pany which  is  located  in  Canada,  which  supplies  power  across  the 
line.  We  have  a  similar  system  in  Georgia — in  Columbus — and  that 
system  is  connected  up  with  another  large  power-supply  system 
there;  and  that  general  tendency  is  marked  throughout  the  country. 

Commissioner  Beall.  That  is  true  also  in  Utah,  is  it  not  ? 

Mr.  BRADLEE.  Yes. 

Commissioner  BEALL.  That  company  with  all  its  plants  in  Utah 
and  Montana  and  Nevada,  connected  with  street  railways  and  elec- 
tric light  and  power  companies  ? 

Mr.  BRADLEE.  And  the  New  England  Power  Co.  in  New  England 
is  another  instance.  There  are  many  instances  of  that  kind.  I  did 
not  mean  to  say  for  a  moment  that  such  was  not  the  case. 

Commissioner  BEALL.  I  wanted  to  ask  one  question  on  those  jit- 
neys. Was  not  one  cause  for  the  success,  to  use  such  a  term  as  that, 
in  Seattle,  Los  Angeles,  and  other  western  cities,  the  fact  that  in  the 
first  year  or.  two  of  their  operation  they  only  operated  in  the  rush 
hours  when  the  traffic  was  the  heaviest  and  only  operated  on  good 
streets  where  the  congestion  was  thickest? 

Mr.  BRADLEE.  Yes. 

Commissioner  BEALL.  That  is,  they  did  not  give  service  at  all 
hours  of  the  day  or  night  like  a  street-railway  company  does. 

Mr.  BRADLEE.  No ;  they  simply  went  in  and  took  the  cream  of  the 
business.  They  not  only  operated  on  the  most  crowded  streets,  but 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    227 

they  only  operated  short  distances.  They  picked  out  the  short  hauls. 
They  also 

Commissioner  BEALL.  In  other  words,  they  took  the  business  which 
was  profitable? 

Mr.  BRADLEE.  They  took  the  cream  of  the  business  and  left  the 
skim  milk. 

The  CHAIRMAN.  Before  adjournment,  the  commission  has  the  fol- 
lowing announcement  to  make:  At  the  conclusion  of  the  testimony 
which  is  to  be  presented  by  the  American  Electric  Railway  Associa- 
tion and  related  utilities,  the  commission  will  adjourn  until  August 
4  at  this  point,  when  it  will  receive  testimony  from  Secretary  of  War 
Baker  and  a  group  of  economists  and  others  who  will  be  invited  to 
attend.  After  that  the  commission  will  take  another  adjournment 
until  August  11,  at  which  time  mayors  from  Xew  York,  Boston, 
Buffalo,  Chicago,  Xew  Orleans,  Minneapolis,  St.  Louis,  Seattle,  San 
Francisco,  and  probably  some  other  cities  will  be  invited  to  attend 
and  testify.  At  the  same  time  we  will  invite  regulating  commis- 
sions to  come  here  and  present  their  testimony. 

We  now  will  stand  adjourned  until  10  o'clock  to-morrow  morning. 

Mr.  WARREN.  May  I  ask  one  question  before  we  adjourn? 

On  that  matter  of  valuation,  Mr.  Bradlee,  in  cases  where  the  securi- 
ties of  the  company  have  been  issued  under  supervision  by  a  super- 
visory board  and  with  its  approval,  the  easiest  method  would  be, 
would  it  not,  to  take  the  capitalization  of  the  company  as  the  basis 
rather  than  either  a  valuation  or  an  attempt  to  determine  the  amount 
of  money  that  has  gone  in? 

Mr.  BRADLEK.  I  think  that  would  be  easy  and  that  would  appl}'  to 
the  State  of  Massachusetts  as  a  very  good  example — 

Mr.  WARREN.  Yes;  exactly. 

Mr.  BRADLEE.  There  for  2u  or  30  years  the  securities  have  all  been 
issued  under  the  direction  and  control  of  the  commission  and  the 
securities  represent  the  actual  cash  which  has  gone  into  the  property. 

Let  me  say  just  a  word  on  that.  It  seems  to  me  if  you  are  going 
to  take  the  cash  that  has  gone  into  the  property  as  the  measure  of 
value,  the  cash  to  be  considered  and  the  value  to  be  considered  is 
the  entire  cash  value  of  everything  that  has  gone  in  to  create  that 
property  from  the  investor  or  any  services,  and  which  has  not  been 
paid  back.  If  the  investor  has  had  some  of  his  investment  paid 
back  to  him  that,  of  course,  cancels  that  part  of  the  proposition. 
But  in  so  far  as  the  investor  has  put  in  money  in  good  faith*  and 
properly,  that  should  be  recognized,  whether  that  money  has  gone 
into  a  building  which  is  there  to-day  or  a  building  which  was  there 
some  time  ago  and  has  disappeared.  If  the  investor  has  not  got  his 
money  back,  he  is  still  entitled  to  a  return  on  his  money  until  such 
time  as  lie  is  reimbursed  for  the  capital  which  he  has  furnished.  So 
to  my  mind,  the  essence  of  the  thing  is  what  money  has  gone  in  there 
and  not  been  paid  back,  and  everything  that  enters  into  that  class 
should  be  a  proper  element  in  the  cost  of  the  property. 

The  CHAIRMAN.  We  now  stand  adjourned  until  10  o'clock  to- 
morrow morning. 

( Wlu>reu}>on,  at  5.30  p.  in.,  an  adjournment  was  taken  to  Thursday, 
July  17,  at  10  a.  m.) 


228    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

WASHINGTON,  D.  C.,    July  77,  1919. 

Met  pursuant  to  adjournment  at  10  a.  m. 

Present :  Parties  as  before. 

The  CHAIRMAN.  Are  you  ready  to  proceed,  Mr.  Warren? 

Mr.  WARREN.  I  am  going  to  ask  Mr.  Clark,  whose  testimony  was 
interrupted  day  before  }"esterday,  to  resume  the  stand  and  com- 
plete his  historical  sketch,  if  I  may,  now.  Will  you  take  the  stand, 
Mr.  Clark? 

STATEMENT  OF  MR.  WILLIAM  J.  CLARK— Continued. 

Mr.  WARREN.  Mr.  Clark,  the  other  day  about  the  time  that  you  fin- 
ished your  testimony,  you  were  speaking  of  obsolescence,  referring  to 
some  company,  I  think. 

Mr.  CLARK.  Depreciation  through  obsolescence.  Possibly  I  may 
have  given  the  commission  a  wrong  impression  as  regards  when  that 
terminated.  I  was  referring  to  the  Connecticut  situation,  as  you  may 
remember,  and  I  was  speaking  of  the  excessive  depreciation  from 
that  cause  up  to,  I  think,  1897  and  1898. 

Of  course,  as  a  general  feature,  this  has  continued  throughout  the 
country.  1  did  not  know  but  I  might  have  given  the  commission  the 
wrong  impression  in  that  regard.  The  ratio  has  decreased,  of  course, 
with  the  advancement  in  the  state  of  the  art.  That  was  all  on  that 
feature. 

But,  gentlemen,  if  I  may  make  another  statement,  I  am  exceed- 
ingly anxious  to  assist  the  commission  in  every  possible  way  and,  at 
the  same  time,  even  more  anxious  not  to  unnecessarily  absorb  your 
time.  I  would,  therefore,  explain  that  while  I  consider  myself  quite 
well  acquainted  with  street-railway  and  local-transportation  condi- 
tions the  world  over  up  to  about  two  years  ago,  since  then  I  have 
devoted  practically  all  of  my  waking  hours  for  seven  days  a  week  to 
the  preparation  of  some  exhaustive  data  on  foreign  commercial,  in- 
dustrial, and  business  conditions  for  the  Government,  more  espe- 
cially to  aid  in  the  expansion  of  American  foreign  trade.  Conse- 
quently, I  can  not  say  that  I  am  up  to  date  fully  on  all  of  these  later 
developments,  although  I  have  a  general  idea. 

It  has  struck  me,  therefore,  that  perhaps  my  greatest  value  to  the 
commission — if  they  so  desire — would  be  in  connection  with  the 
historical  side;  and  in  that  regard  I  would  say  that  before  leaving 
New 'York  I  hastily  caught  from  my  files  certain  material  which  I 
have  here,  which  is  not  in  condition  to  be  presented  as  exhibits  to  the 
commission,  but  which  I  should  be  very  glad  to  turn  over  to  them  if 
they  desire  it  as  a  basis  for  verifying  certain  facts.  I  would  go 
further  and  state  that 

The  CHAIRMAN.  In  what  shape  is  that  Mr.  Clark? 

Mr.  CLARK.  It  is  copies  of  newspaper  articles,  over  different  peri- 
ods. I  might  say,  continuing  this,  that  I  find  even  with  our  friends 
of  the  street-railway  association  a  mystery,  or  a  seeming  mystery, 
concerning  the  census  of  street  railways  for  1890.  I  have  never  found 
but  very  few  people  who  knew  where  that  existed.  Well,  here  it  is, 
gentlemen ;  and  the  mystery  is  this :  The  data  is  found  in  the  volume 
on  steam  railroads  and,  so  far  as  I  know,  has  never  been  catalogued 
so  that  people  could  discover  where  it  was. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    229 

Xow,  in  my  opinion,  much  of  the  data  contained  there  is  of  ex- 
treme importance  to  you  on  this  question  of  capitalization,  because 
it  is  very  thorough  and  complete ;  and  many  of  the  comparisons  there, 
although  the  census  of  1890,  are  with  the  figures  of  1880,  so  it  carries 
you  back  to  that  point.  I  wish  that  Mr.  Welsh  might  have  had  this 
material  so  he  could  perhaps  have  started  some  of  his  charts  earlier. 

Xow,  as  to  the  other  sources  of  information  which  are  not  gen- 
erally known:  Obviously  examination  of  the  trade-  and  technical 
journals  reveals  much,  and  that  is  the  character  of  material  I  have 
here — extracts  which  we  made  in  the  days  gone  by. 

There  is  another  feature  incident  to  that  which  is  not  generally 
appreciated.  If  you  desire  to  fix  dates,  if  you  desire  certain  other 
facts  incident  to  these  different  periods,  examination  of  the  adver- 
tisements of  electrical  manufacturing  companies  the  world  over — • 
this  is  as  true  of  European  publications  as  it  is  of  Americaiv — re- 
veals a  great  deal  of  interest. 

Xow,  even  more  important  as  regards  finding  these  facts,  while 
at  the  outset  without  explanation  it  may  seem  to  be  entirely  technical, 
are  the  patent  records  in  many  important  pieces  of  litigation.  I 
might  say  that  the  records  in  one  particular  case  would  fill  a  shelf 
7  or  8  feet  long.  Xow  those  records  are  made  up  principally,  of  course, 
with  the  reports  of  testimony  of  individuals,  of  fac  simile  reproduc- 
tions of  articles  which  have  appeared,  some  of  them,  away  back  in  the 
thirtes  and  forties — the  reproduction  of  drawings  and  everything  of 
that  sort,  And  this  material  is  beautifully  cross-indexed.  Xow  I 
suppose  that  it  is  existing  here  in  the  library  of  the  Patent  Office — I 
am  not  sure — but  if  not,  those  are  available  at  a  library  that  we 
control  in  Xew  York  City. 

Xow,  I  should  be  very  glad,  if  the  committee  desires — to  avoid  us- 
ing up  your  time  here — so  far  as  the  time  will  permit,  to  compile  a 
statement — I  do  not  mean  an  expression  of  opinion — as  to  what  the 
past  publications  reveal  in  connection  with  the  history  of  the  devel- 
opment of  electric  railways,  not  only  in  this  country  but,  if  it  is 
desired,  to  a  great  extent  abroad,  because  the  same — 

The  CHAIRMAN.  The  commission  would  be  pleased  to  have  that 
statement,  Mr.  Clark. 

Mr.  CLARK.  And  it  can  be  made  as  extensive,  as  I  say,  as  time  will 
permit.  It  can  be  made  very,  very  short — I  say  that,  but  not  very 
short — or  it  can  be  made  quite  extensive,  if  you  wish  it  to  tell  the 
history. 

Xow  turning  to  historical  matters  of  a  general  character  briefly 
for  a  moment :  As  you  doubtless  know  the  street  railway  as  a  possible 
carrier  originated  in  this  country,  although  for  transportation  of 
minerals  and  so  on,  in  England,  it  probably  goes  back  to  the  seven- 
teenth century.  The  first  moves  of  its  introduction  abroad  were  by 
i\  gentleman  once  famous  in  this  country,  Mr.  George  Francis  Train, 
\vho  had  some  very  unusual  experiences  in  trying  to  do  it. 

Xow  briefly,  to  outline  the  results  of  this  and  perhaps  carrying 
that  further,  I  will  put  it  this  way:  The  street-railway  mileage  of  the 
United  States  to-day  is  greater  than  that  of  all  the  other  countries 
of  the  world  combined.  We  have  not  accomplished  everything  here. 
I  will  probably  surprise  you  when  I  tell  you  this,  that  the  idea 
of  what  we  now  call  the  interurban  railway  developed  in  Argentina 


230    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

with  animal  traction,  and  that  long  before  there  had  been  any  prac- 
tical electric  railways  there  was  a  straight-away  horse-car  line  which 
ran  for  120  miles  and  which  operated  sleeping  cars  which  were  made 
in  Philadelphia.  Now  I  do  not  wish  to  lead  you  far  on  this  thing — 

Commissioner  SWEET.  What  was  the  date  of  that,  Mr.  Clark  ? 

Mr.  CLARK.  I  can  not  give  you  the  exact  date. 

Commissioner  GADSDEN.  Where  did  it  run  from? 

Mr.  CLARK.  From  Buenos  Aires  out  to  a  town — I  have  forgotten 
the  name  of  it — in  the  direction  of  Rosario,  120  miles.  I  do  not  know 
but  our  friends  of  the  Brill  Co.  who  are  here  to-day,  who  built  those 
sleeping  cars,  can  give  you  more  exact  data. 

But  turning  back  historically  and  bringing  in  further  information 
concerning  the  condition,  as  I  see  the  question  of  electric  street- 
railway  development  and  the  problems  involved  in  its  operation,  up 
to  a  comparatively  recent  period — two  or  three  years,  or  three  or  four 
years — the  great  question  was  the  one  of  investment  or,  perhaps  more 
properly,  capitalization  involved.  Now,  of  course,  as  you  are  well 
aware  from  what  has  been  said  here,  it  is  a  different  thing;  the 
character  of  the  problem  has  changed  somewhat.  Decrease  in  the 
value  of  the  purchasing  power  of  the  dollar,  so  that  the  costs  of  all 
that  goes  fcrward  construction  and  operation  are  the  great  questions. 
You  have  all  doubtless  heard  much  on  this  subject  as  regards  the 
lower  capitalization  or  lower  costs  of  construction,  because,  of  course, 
with  the  municipalities  the  account  stands  as  construction  account 
and  not  as  capital  account,  in  the  United  Kingdom  as  compared  with 
the  United  States,  and  true  of  some  other  countries.  So,  if  agree- 
able, I  will  say  a  word  or  two  on  that. 

Now,  remember  that,  like  the  street  railway,  in  a  practical  manner 
the  electric  railway  was  developed  here  in  America.  Now,  all  this 
excessive  depreciation  through  obsolescence  that  I  have  already  re- 
ferred to — that  is,  the  worst  features  of  it,  the  earlier  ones,  when 
the  seemingly  excessive  costs  were  involved — had  been  gone  through 
to  a  great  extent  before  Europe  had  made  much  of  any  start.  In 
other  words,  it  was  able  to  profit  by  our  experience  here.  In  the 
United  Kingdom  especially,  street  railways  as  a  whole  had  gone 
through  a  unique  experience  which  culminated  about  the  time — 
well,  it  culminated  about  1893  or  1894  when  we  here  had  been  ac- 
quiring this  costly  experience  that  I  have  referred  to. 

As  you  are  perhaps  aware,  the  English  theory  of  vested  rights  in 
property  the  courts  have  carried  a  great  deal  further  than  has  ever 
been  done  here.  Now  the  gas  companies,  the  water-supply  com- 
panies which  the  municipalities  had  taken  over,  had  gone  to  the  ex- 
treme in  paying  for  enormous  costs,  some  of  which  I  could  give  you 
if  I  had  my  data  here.  Carrying  this  further  in  the  practical  opera- 
tion of  street  railways — I  myself  have  had  charge  of  construction 
there  where  this  has  been  done,  where  street  wiclenings  were  neces- 
sary in  the  construction  of  a  street  railway  and  it  was  necessary  to 
expropriate  or  condemn  property — if  you  touched  a  licensed  saloon 
for  which  the  proprietor  had  a  long  lease,  you  would  usually  be 
forced  to  pa}^  more  to  the  holder  of  that  license  than  the  entire  value 
of  the  property.  That  is  a  specimen  of  the  way  they  do  with  that 
problem. 

Now,  everybody  supposed  that  the  tramway  act  of  1870  or  1871 
carried  with  it  the  usual  British  practice,  as  I  remarked  before, 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    231 

going  to  the  extreme  on  paying  for  vested  rights.  But  about  the  first 
of  the  street-railway  franchises  granted  under  that  expired  at  Glas- 
gow and,  to  be  very  frank,  the  street-railway  company  there  had  not 
treated  the  public  or  the  municipality  fairly  well.  The  holding  of 
the  court  or  the  courts,  for  that  matter,  was  to  the  effect  that  the 
municipalities  were  not  obliged,  as  in  the  case  of  the  gas  companies, 
if  they  acquired  the  street-railway  property,  to  take  it  over  as  a  going 
concern,  or,  in  fact,  to  take  it  over  at  all.  If  they  desired  to  do  it, 
it  was  what  was  known  as  scrap  value.  And  so  this  term  which  is 
commonly  used,  of  the  scrap-iron  tramway  clause,  resulted  in  this — 
that  for  all  the  mileage  of  street  railways  which  were  taken  over  by 
the  municipalities — I  have  forgotten  the  exact  figures;  I  could  give 
it  you ;  it  was  a  mere  trifle — I  think,  in  the  entire  Kingdom,  some- 
thing like  two  and  a  half  millions  of  dollars  was  all  that  the  munici- 
palities paid  for  the  tramways  that  they  took  over.  However,  I 
would  like  to  correct  that  figure  later  on. 

Now,  for  comparison's  sake,  let  me  say  that  the  tramways  of  the 
United  Kingdom  in  extent  are  not  comparable  to  those  of  this 
country;  in  fact  in  extent  they  are  about  the  equivalent  to  those  ot 
New  1  ork  State  alone.  But  as  these  were  municipalized,  as  I  said, 
they  were  practically  able  to  wipe  out  the  previous  capital  account. 

Now,  with  all  due  respect  to  our  friends  there,  \vhen  it  came  to 
reconstructing  these  lines  and  getting  them  in  shape  for  electrical 
operation,  it  was  found  necessary  to  do  a  great  deal  of  street  widen- 
ing and  straightening;  and  the  municipal  authorities  were  up  against 
what  I  stated  a  moment  ago,  in  that  regard,  going  to  the  extremity 
as  to  fixing  the  value  of  the  property  taken  over.  In  the  great  ma- 
jority of  cases  that  was  done  out  of  the  general  funds  of  the  mu- 
nicipality. If  I  recollect  right,  about  $^5,000,000  were  expended 
in  that  way  at  London,  which  the  London  County  Council  municipal 
tramways  had  the  advantage  of.  Liverpool,  I  think,  was  about 
$15,000,000  in  the  same  way.  That,  of  course,  all  tended  to  hold 
down  the  capital  investment.  And  so  it  can  be  said  without  fear 
of  contradiction,  and  I  think  if  the  gentleman  who  is  listed  to  testify 
here,  and  who  can  give  you  far  more  information  and  more  exact 
information  than  I,  Sir  Albert  Stanley — I  think  he  will  give  you 
some  very  interesting  facts  on  that. 

Now,  continuing  on  with  the  progress  of  the  street  railways  in 
certain  cities,  and  in  fact  there  has  been  a  great  outcry  since  the 
war  on  the  part  of  municipal  authorities  where  this  was  done;  like 
here,  they  were  forced  to  pay  for  paving  between  the  tracks,  and 
I  think  there,  2  feet  outside  of  the  outer  rails,  but  in  many  other  cases 
this  was  not  done.  Paving  was  cared  for  out  of  the  general  funds 
of  the  municipalities,  and  so  it  has  gone — with  the  net  result  that 
those  tramways — their  construction  accounts — are  relatively  very 
much  lower  than  here.  But  as  I  have  sometimes  put  it,  while  the 
investors  in  American  street-railway  securities  have  paid  liberally 
and  excessively  for  what  went  before  them,  thank  God,  none  of  us 
has  stolen  anything  from  the  men  who  made  their  investments,  as 
has  been  done  under  legal  form  there  in  England. 

Xow,  as  regards  another  most  important  feature  which  has  been 
partially  touched  upon  in  the  testimony  of  others:  The  fundamental 
error,  as  I  see  it,  in  the  establishment  of  our  system  of  street  rail- 
ways here  in  this  country  was  the  fixed  5-cent  fare  or  the  fixed  fare, 


232    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

I  should  say,  because  it  was  not  in  all  cases  5  cents.  Whereas,  in  the 
United  Kingdom  and  elsewhere  throughout  the  world,  as  you  well 
know,  they  have  the  zone  system  or  something  which  is  the  equiva- 
lent of  it.  o 

Xow,  while  the  investors  in  street  railways  here  at  prasent,  as  you 
all  know,  are  suffering  from  the  result  of  that  system,  unquestionably 
the  result  has  been  to  confer  far  greater  benefits  upon  the  American 
public  than  has  the  other  system ;  that  is  by  distributing  your  urban 
population  far  more  thoroughtly  than  has  been  the  case  over  there. 
Had  our  street  railways  as  they  existed,. we  will  say,  in  1880,  simply 
electrified  as  the  time  came  along  their  existing  lines  and  constructed 
only  those  which  it  would  have  been  profitable  to  operate,  their 
stockholders  would  have  been  very  much  better  off.  But  practically, 
on  the  other  side — I  could  go  into  it  in  detail  if  I  had  my  data  and 
show  it  to  you — much  as  you  have  heard  about  this  wondrous  de- 
velopment over  there,  they  have  in  the  main  simply  constructed  lines 
where  they  would  pav  at  the  outset. 

Now,  in  perhaps  the  best  managed  system  of  all — in  Glasgow — I 
have  been  intimate  with  that  from  the  first.  I  went  over  in  1897, 
after  they  had  sent  their  commission  here  to  this  country,  when  they 
were  just  making  their  preparations.  I  went  over  the  line  which 
they  were  supposed  to  electrify  first,  and  I  followed  it  up  after  I 
located  there  in  1899  and  was  very  intimate  with  the  management. 

Now,  what  is  the  result  ?  That  Glasgow,  with  its  low  initial  invest- 
ment, its  low  rates  of  fare,  seemingly,  has  made  on  paper  a  very  good 
showing ;  but  you  have  one  of  the  most  congested  cities  in  the  world 
there  to-day.  And  that  holds  true  of  these  other  cities.  The  zone 
system  of  fares  has  not  distributed  the  population  as  has  been  done 
here,  with  all  the  benefits  which  I  believe  go  with  it.  I  firmly  be- 
lieve that  the  decrease  in  the  average  death  rate  of  American  cities 
is  as  much  attributable  to  this  expansion  of  their  population  which 
has  occurred  within  the  last  30  years  as  to  improved  sanitation,  water 
supply,  and  all  the  other  things  which  have  assisted  in  doing  it. 

Commissioner  SWEET.  They  have  the  zone  system  in  Glasgow  ? 

Mr.  CLARK.  Oh,  yes ;  they  do. 

The  CHAIRMAN.  Do  you  believe  that  the  zone-fare  system  in  Glas- 
gow has  contributed  to  the  congestion  that  you  speak  of  ? 

Mr.  CLARK.  The  congestion  existed  before,  but  as  they  have  not 
extended  their  system  out,  you  understand,  where  it  would  not  pay, 
they  have  not  improved  the  condition. 

Commissioner  SWEET.  They  have  not  encouraged  suburban  resi- 
dence ? 

Mr.  CLARK.  Not  at  all.    That  is  true  all  over  Europe. 

Mr.  WARREN.  Do  you  happen  to  know  what  the  mileage  of  the 
Glasgow  system  is  now  ? 

Mr.  CLARK.  I  can  not  tell  you.  I  have  the  reports  at  home,  but  I 
will  file  with  the  commission,  as  part  of  my  exhibit,  the  parliamentary 
publications  which  give  that  on  all  of  the  British  cities. 

Mr.  WARREN.  I  remember  at  one  time  that  with  a  considerably 
larger  population  than  Boston  the  mileage  was  much  less. 

Mr.  CLARK.  Oh,  yes ;  only  a  fraction. 

Commissioner  GADSDEN.  Before  you  leave  that  question  of  Glasgow 
and  the  congestion — what  you  say  would  seem  to  indicate  that  the 
expansion  of  American  cities  and  the  improvement  in  sanitation  and 


PROCEEDINGS  OF  FEDEEAL  ELECTRIC  RAILWAYS  COMMISSION.    233 

community  life  has  apparently  been  at  the  expense  of  the  railways 
and  not  of  the  public. 

Mr.  CLARK.  That  is  exactly  what  I  believe  to  be  the  case. 

Commissioner  GADSDEN.  You  think  the  railways  have  paid  for  the 
improved  condition  and  not  the  public  themselves? 

Mr.  CLARK.  They  have.  And  as  I  partially  remarked  the  other 
day — I  suppose  you  will  laugh  at  this,  gentlemen — that  while  of 
course  it  is  the  desire  for  gain  that  has  actuated  the  financing  of  our 
railways,  and  so  forth,  there  has  been  something  about  electricity — 
there  is  a  germ  which  catches  the  average  individual  and  makes  him 
progressive,  and  that  goes  further  in  serving  the  public  than  would 
be  done  in  any  other  way,  as  I  see  it. 

Commissioner  GADSDEN.  Now,  what  have  you  got  to  say,  Mr.  Clark, 
about  the  wisdom  of  changing  over  now  from  a  fixed  system  of 
fares  to  the  zone  system,  so  far  as  it  affects  the  companies  and  their 
fares  or  effects  the  communities? 

Mr.  CLARK.  Now,  gentlemen,  you  arc  getting  into  intricate  prob- 
lems. If  you  will  pardon  me,  Mr.  Gadsden,  for  going  back  a  little 
ways,  I  wish  to  start  no  controversy  here  on  the  relative  merits  of 
private  and  public  ownership,  but  I  believe,  gentlemen,  that  mu- 
nicipal ownership  per  se  is  practically  a  dead  issue,  for  this  reason: 
Your  public  utilities  almost  without  exception  have  outgrown 
municipal  boundaries.  You  see  it  everywhere.  Now.  I  think  if  you 
will  examine  the  census  reports — my  figures  will  not  be  exact — some 
15  or  20  per  cent  of  the  entire  population  of  the  United  States  is 
resident  within  10  miles  of  the  boundaries  of  some  40  of  the  more  im- 
portant cities;  that  is,  not  within  the  municipal  boundaries,  but  within 
10  miles  limit  of  them.  Now,  your  electric-lighting  systems  and  your 
street-railway  systems  have  spread  there.  In  trying  to  solve  your 
problems,  this  is  what  has. embarrassed  me.  I  have  an  abiding  faith 
m  the  American  public;  and  to  be  very  frank,  gentlemen,  I  believe 
that  if  the  street-railway  interests  had  devoted  more  of  their  energies 
to  educating  the  public  as  a  whole  than  they  have  to  educating  the 
representatives  of  the  public  we  would  all  have  been  very  much  bet- 
ter off. 

Now,  I  agree  with  what  has  been  testified  to  here  already — that 
this  remedy  which  you  are  seeking  must  rest  on  public  opinion;  it 
could  not  stand  without  it.  Now  this  is  what  puzzles  me.  Take  al- 
most any  of  these  cities:  How  are  you  going  to  get  your  expression 
of  public  opinion  where  it  may  be  scattered  through — well,  we  take 
the  Public  Service  Corporation  of  New  Jersey,  where  it  takes  in  half 
of  the  State  of  New  Jersey  in  these  various  municipalities.  And  yet, 
I  feel  that  what  we  do  want  in  settling  it  is  to  let  the  public  have  a 
say. 

Now,  as  I  said  before,  I  am  not  up  to  date  on  all  these  things,  for 
good  reasons;  but  I  think  there  has  not  been  a  case  in  the  United 
States  yet  where  the  public  utilities  have  gone  direct  to  the  people 
witli  a  well-demonstrated  proposition,  you  understand,  shown  to  pos- 
sess merit  and  to  be  in  the  public  interest,  but  what  the  public  have 
supported  it.  I  think  that  that  is  the  case.  But  dealing  with  the 
street-railway  situation,  as  I  say,  to  get  this  expression  of  public 
opinion — how  you  are  going  to  do  it  is  what  bothers  me.  Take  this 
public-service  corporation,  for  the  sake  of  illustration — the  expres- 

1GOG430— 20 10 


234    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

sioia  of  a  referendum  to  the  people  of  Newark  or  Newark  and  Jersey 
City  and  the  Oranges  would  not  tell  the  whole  story.  And  every- 
where you  go  it  is  the  same  thing.  And  yet  I  am  particularly 
anxious  to  see  if  some  scheme  can  not  be  worked  out  so  that  the  public 
itself  can  have  a  chance  to  express  its  opinion  on  these  matters. 

Commissioner  SWEET.  Do  you  not  think  there  are  other  ways  of  ex- 
pressing public  opinion  rather  than  by  votes  or  referendums? 

Mr.  CLARK.  Well,  I  think  there  is  within— 

Commissioner  SWEET.  If  there  is  a  settled  public  sentiment  in  favor 
of  a  proposition  such  as  municipal  ownership  or  any  matter  of  that 
kind,  is  not  that  reflected  generally  in  the  representatives  of  the  pub- 
lic, in  common  councils,  and  in  legislatures? 

Mr.  CLARK.  Yes,  to  a  great  extent.     Not  always,  I  think. 

Commissioner  SWEET.  Is  it  not  true  that  most  of  the  members  of 
these  representative  bodies  have  their  ear  to  the  ground  ? 

Mr.  CLARK.  .1  think  it  is,  entirely  so. 

Commissioner  SWEET.  And  they  want  reelection,  generally? 

Mr.  CLARK.  Yes. 

Commissioner  SWEET.  And  therefore  they  reflect  public  sentiment 
in  their  votes  and  their  action? 

Mr.  CLARK.  They  do. 

Commissioner  SWEET.  Or  they  try  to,  at  least? 

Mr.  CLARK.  They  try  to. 

Commissioner  SWEET.  Sometimes  they  make  a  mistake  with  re- 
gard to  public  sentiment. 

Mr.  CLARK.  Yes ;  but  I  think  the  difficulty  there  is  the  fact,  so  fre- 
quently, that  before  these  gentlemen  become  representatives  of  the 
people — in  other  words  the  more  they  are  elected,  they  will  inaugu- 
rate a  campaign  of  false  education,  that  they  arouse  a  public  sentiment 
which  is  not  a  proper  one  and  not  in  accordance  with  the  facts  or 
conditions.  I  think  you  can  see  it  reflected  in  your  public  press.  I 
have  within  a  very  few  days.  You  see  it  reflected  in  fiction.  Here  is 
the  traction  magnate  who  has  worked  all  these  evils,  and  so  on. 

Commissioner  SWEET.  Well,  that  had  a  certain  basis  of  truth,  did 
it  not,  in  the  old  days  ? 

Mr.  CLARK.  In  certain  instances  it  did,  I  am  sorry  to  say. 

Commissioner  SWEET.  Yes. 

Mr.  CLARK.  And  I  want  to  say  right  there,  gentlemen,  however — 
if  you  will  pardon  me — do  not  conceive  the  idea  that  all  the  watering 
of  stock  and  all  the  ingenious  forms  of  financial  manipulation  exist 
on  this  side  of  the  water,  because  the  gentlemen  on  the  other  side  to 
my  mind  can  teach  the  most  expert  'Americans  of  that  sort  much  more 
than  they  ever  knew.  It  is  a  delicate  matter  to  speak  on,  gentlemen, 
but  I  want  to  say  this:  In  my  thirty-odd  years  of  experience  with 
this,  on  many  occasions  I  have  cursed  the  American  public  official,  I 
hav^  said  he  was  corrupt,  you  understand,  frequently — that  he  was 
not*represehting  his  constituents.  But,  gentlemen,  I  want  to  say  this, 
after  my  extensive  experience  abroad,  and  I  am  glad  to  say,  that 
talk  all  you  wish  about  the  great  integrity  of  public  officials  in  other 
countries,  ours  are  just  as  near  perfection  as  they  are.  Our  great 
difference  is  this — we  wash  our  dirty  linen  in  public,  and  they  do  not. 

Commissioner  SWEET.  Well,  it  is  a  pretty  good  thing  to  wash  it, 
don't  you  think  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    235 

Mi.  CLARK.  Oh,  it  is  in  the  public  interest,  I  think  so;  and  yet 
there  is  a  tact 

Commissioner  SWEET.  The  process  may  be  unpleasant,  but  it  brings 
better  results  in  the  long  run. 

Mr.  CLARK.  It  does,  unquestionably. 

Mr.  WARREN.  You  spoke  of  the  foreign  street-railway  develop- 
ment haxring  had  the  advantage  of  the  experimentation  in  this  coun- 
try, and  that  of  course  is  true. 

Mr.  CLARK.  Oh,  yes. 

Mr.  WARREN.  But  as  against  that  is  it  not  true  that  our  public  got 
the  benefits  of  this  improved  method  of  transportation  long  before 
the  public  abroad  got  it  ? 

Mr.  CLARK.  Oh,  very  much,  very  much.  And  that  can  be  quite 
easily  shown,  I  think. 

Mr.  WARREN.  And  the  cost  of  experimentation  was  one  of  the  prices 
that  they  might  reasonably  expect  to  pay? 

Mr.  CLARK.  Yes. 

Mr.  WARREN.  And  that  they  Were  anxious  to  pay  at  the  time,  were 
they  not  ? 

Mr.  CLARK.  Why,  yes. 

Commissioner  SWEET.  jCan  you  tell  us  what  the  electric-railway  sit- 
uation in  Great  Britain  is  now  ? 

Mr.  CLARK.  Not  very  accurately.  I  would  much  prefer  that  you 
ask  Sir  Albert  Stanley  when  he  appears.  You  know  who  he  is,  I 
presume.  He  was  English  born,  but  received  his  street-railway 
training  in  Cleveland,  then  at  Detroit,  then  with  the  Public  Service 
Corporation  of  New  Jersey,  and  then  went  over  as  the  manager  of  the 
London  Underground  Railways;  and  during  the  war  he  has  been  tlio 
chairman — he  was  not  only  knighted,  but  made  chairman  of  the 
British  Board  of  Trade,  which,  as  you  are  perhaps  aware,  is  a  good 
deal  more  in  form  than  any  commission  we  have  in  this  country. 
If  you  can  conceive  of  the  Interstate  Commerce  Commission,  plus 
similar  authority  over  everything  in  the  way  of  navigation  and  indus- 
tries of  every  name  and  nature,  you  have  the  British  Board  of  Trade. 
And  Sir  Albert,  I  am  sure,  with  his  experience  in  this  country  and 
there,  will  give  you  a  very  accurate  picture. 

I  would  like  to  say  this,  gentlemen,  however — I  am  jumping  all 
over  the  lot,  as  usual — once  more  referring  to  municipal  ownership ; 
there  is  a  mistaken  impression  as  to  how  extensive  it  is.  Now  while 
it  is  very  extensive  in  the  United  Kingdom,  there  is  virtually  none 
in  France,  so  far  as  street  railways  are  concerned,  very  little  as  re- 
gards the  central  stations,  and  only  about  one-third  of  the  mileage  in 
Germany.  Certain  of  the  British  colonies,  as  of  course  you  know, 
have  it  quite  extensively,  notably  Australia. 

Commissioner  SWEET.  You  spoke  of  municipal  ownership  as  be- 
ing somewhat  inconsistent  with  the  general  practice  in  this  country 
of  extending  the  railway  systems  out  into  the  suburbs  or  beyond  the 
limits  of  the  city. 

Mr.  CLARK.  "Y  es. 

Commissioner  SWEET.  Is  there  any  legal  objection  to  a  munici- 
pality's owning  its  street  railroads  and  operating  them  beyond  the 
city  limits? 

Mr.    CLARK.  No   legal   one   that   I   see.     I   think    I   can   see — 

Commissioner  SWEET.  Would  it  not  be  a  very  natural  and  proper 


236    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

thing  for  a  city  to  do  that  even  without  profit,  or  perhaps  with  a 
small  degree  of  loss,  because  of  the  resultant  benefits  to  the  city? 

Mr.  CLARK.  Well,  it  might,  and  yet  I  should  rather  hold  to  the 
contrary  theory — that  the  municipal  authorities  would  say,  "If  you 
fellows  want  the  full  advantage  of  good  public-utility  service  and 
all  that  goes  with  it,  come  inside."  Just  the  same  as  New  York 
reaches  out  and  tries  to  catch  in  various  ways  the  man  who  do:s 
business  there,  you  understand,  and  who  may  live  in  New  Jersey  or 
Long  Island  or  Connecticut.  And  apropos  of  that — it  may  not  fit 
this  situation,  and  yet  it  reminds  me  of  something  I  ought  to  tell 
you — the  most  jealous  people  in  the  world  that  I  have  known,  or 
creations,  I  should  say,  are  British  municipalities.  And  I  have 
never  expected  to  live  to  see  what  has  occurred  in  connection  with 
those  bulk  power-station  matters  which  were  referred  to,  I  think,  on 
yesterday's  hearing.  Now  to  illustrate :  You  can  not  tell  where  Man- 
chester and  Salford  begin  and  end,  any  more  than  you  can  tell  where 
Hoboken  and  Jersey  City  begin  and  end,  yet  through  jealousy,  they 
laid  their  tramways  on  different  gauges  so  they  could  not  exchange 
traffic.  There  is  another  point  there  in  the  north — I  have  forgotten 
the  names  of  the  towns— where  they  would  not  build  within  half  a 
mile  of  each  other.  And  you  find  that  all  javer  the  Kingdom. 

Now  that  is  not  only  reflected  in  tramway  practice,  but  otherwise. 
I  trust  I  will  not  be  considered  egotistical  when  I  tell  you  my  ex- 
perience with  those  things,  which  was  a  little  different,  you  under- 
stand, than  a  business  experience. 

During  the  Spanish  War,  I  became  quite  intimate  with  one  who 
was  then  Capt.  and  afterwards  Admiral  Paget,  the  royal  attache, 
and  I  located  in  London  about  the  time  that  he  returned.  Through 
him  I  became  intimate  with  his  brother,  afterwards  Gen.  Paget, 
about  whom  there  Was  quite  a  stir  ^  in  Ireland,  as  you  will  perhaps 
remember,  just  before  the  present  war.  That  brought  me  in  con- 
nection with  certain  people  connected  with  the  British  war  office; 
and  my  advice  was  asked  on  this  subject,  and  I  gave  it  considerable 
study,  as  to  how  far  we  could  go  in  coupling  up  the  tramway  systems 
of  England  or  of  Great  Britain  to  be  used  as  an  auxiliary  means 
of  military  transport  if  necessary.  It  was  found  utterly  impossible. 
This  parliamentary  publication,  which  I  will  give  you,  tells  the  whole 
story,  which  you  will  see. 

This  same  thing — if  I  may  digress  for  a  moment  from  street  rail- 
ways— occurred  in  connection  with  the  connection  of  power  plants 
and  the  character  of  their  electric  voltage.  It  is  the  worst  mixed- 
up  affair  imaginable — all  kinds  and  sorts  of  conditions,  instead  of  as 
it  is  being  done  here  in  this  country.  And  I  might  say  it  is  true, 
and  I  think  all  the  engineers  here  will  agree  with  me,  that  the  larger 
you  make  a  physical  electrical  system — that  is,  I  mean,  make  it 
physically — whether  the  source  of  generation  be  water  power  or 
whether  it  be  steam,  the  better  in  the  public  interest,  the  more  eco- 
nomical will  be  your  result.  Now,  you  are  probably  aware  how  ex- 
tensively that  thing  has  gone  on  in  this  country,  notably  in  the 
South.  You  take  it  in  the  West,  where  these  extensive  hyrdoelectric 
systems,  and  sometimes  the  steam  systems,  have  interconnected 
themselves  physically. 

Now,  illustrating  this  point  we  are  on — although  it  is  not  apropos 
to  street  railways,  it  may  be  of  interest  to  .you — in  the  very  early  days 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    237 

of  our  getting  into  the  war,  a  request  came  to  me  from  the  X-ray 
experts  selected  by  the  Surgeon  General  for  information  upon  the 
central-station  voltages  of  France.  Without  going  into  detail,  it  was 
necessary  to  secure  very  careful  electrical  regulation  to  operate  X-ray 
apparatus.  They  said  they  could  not  get  the  information.  I 
laughed,  and  I  went  to  my  library  and  handed  them  a  French  publi- 
cation of  1914  which  gave  it  on  every  central  station  in  France,  But 
this  had  to  be  worked  up  for  them  to  get  it  in  proper  shape.  To  our 
surprise,  we  discovered  that  with  direct  current  alone  there  were  36 
different  voltages  ranging  from  60  to  560.  Of  course  municipal 
ownership  was  not  responsible  for  this,  but  it  led  to  something  else 
I  am  telling  you  about.  With  alternating  current  it  was  just  as  bad. 
Xow  England  was  not  interested  in  this  particular  thing,  of  course, 
but  for  curiosities  sake  we  thought  we  would  see  what  they  had 
there.  Relatively  there  were  wider  differences  in  England  than  in 
France  in  that  respect.  Xow  as  showing  what  the  Germans  had 
done,  there  was  one  case  alone  that  I  know  of  where,  by  connecting 
physically  over  20  different  generating  stations,  they  were  able  to 
mass  something  over  100,000  kilowatts  for  the  fixation  of  nitrogen. 
That  had  been  carefully  planned  in  advance. 

Xow,  the  effect  of  all  of  this  is  shown,  as  you  know,  in  England 
by  their  proposed  legislation  on  bulk  power  stations.  This  theory 
that  you  could  draw  a  line  around  a  municipality  and  do  what  you 
pleased  inside  without  regard  to  your  next-door  neighbor  or  the 
fellow  outside  has  been  completely  exploded.  But  the  details,  as  I 
say,  Sir  Albert  can  tell  you  better  than  I  can.  But  the  tendency  of 
the  world  to-day  is  in  this  general  direction — realization  of  the  fact 
that  your  electric  public  utilities  are  broader  than  the  confines  of  any 
municipality,  and  they  are  bound  to  be  so  if  we  are  going  on  with 
this  development  as  I  believe  we  are. 

Mr.   WARREN.  And   to  get   the   best   advantages   from   them? 

Mr.  CLARK.  Yes,  in  the  public  interest. 

Mr.  WARREX.  Mr.  Clark,  you  spoke,  when  you  were  testifying  day 
before  yesterday,  of  the  cost  of  electric-car  equipment  in  the  early 
days  of  the  use  of  electric  motive  power  compared  with  the  cost  just 
before  the  war.  I  think  you  touched  on  the  power-station  costs. 
Can  you  give  the  commission  an}Tthing  more  definite  as  regards  the 
cost  of  power  stations  back  in  the  early  nineties  and  at  the  present 
time  and  as  to  the  efficiency? 

Mr.  CLARK.  Perhaps  so,  Mr.  Warren.  But  I  think  perhaps  it 
would  be  better  to  leave  it  this  way — to  give  them  not  as  part  of  this 
historical  thing,  because  I  do  not  want  to  give  you  anything  or  ex- 
press my  own  opinion,  but  I  would  be  glad  to  have  a  statement 
prepared  for  them  to  give  this  in  detail.  But  the  progress  of  the 
electric-power  station,  as  one  of  the  commissioners  spoke  the  other 
day — I  think  it  was  you,  sir  [addressing  Commissioner  Beall] — has 
been  even  more  revolutionary  than  that  of  the  street-car  in  every- 
thing that  applies  to  it.  Because,  as  I  remarked  only  a  moment 
ago,  as  you  have  gone  on  and  on  and  on,  you  found  it  necessary  to 
expand  your  systems,  ami  while  the  incentive  may  have  been  proper 
to  the  investor,  it  nevertheless  has  been  in  the  public  interest. 

Now,  as  I  remarked  before,  I  do  not  wish  unnecessarily  to  consume 
the  time  of  the  commission,  but  if  they  would  like  a  startling  illus- 
tration of  this  I  will  be  glad  to  give  it  to  them.  And  I  might  say 


238    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

as  the  General  Electric  Co.  did  not  furnish  the  apparatus,  I  am  not 
personally  concerned.  This  is  dealing  with  water  power  for  the  mo- 
ment, particularly  low  head  power. 

Xow,  I  consider  that  what  the  Duke  interests,  so  called,  have  done 
in  the  Piedmont  district  in  the  Carolinas  in  the  development  of 
power  facilities  is  one  of  the  most  beneficial  things  that  has  ever  been 
attempted  anywhere  in  the  public  interest.  Xow,  to  have  you  grasp 
what  this  means,  I  will  have  to  go  back.  The  most  comprehensive 
statement  that  has  ever  been  made  concerning  our  water  powers  is 
the  two  volumes  in  the  census  of  1880;  and  that  work  was  compiled 
under  the  direction  of  Prof.  G.  F.  Swayne,  of  Harvard,  of  whom 
you  doubtless  know ;  and  I  have  understood  he  considers  it  the  best 
work  of  his  life.  His  estimate  as  regards  potential  water  power  in 
the  United  States  agreed  quite  closely  with  those  which  have  since 
been  made  by  the  United  States  Geological  Survey,  but  of  course 
there  is  quite  a  difference  between  your  potential  or  theoretical  water 
power  and  the  available  water  power. 

In  his  work,  he  uses  language  practically  to  this  effect :  That  while 
we  have,  we  will  say — I  think  his  estimate  is  something  like 
250,000,000  of  potential  water  power  in  the  United  States— that  the 
existing  low  head  streams  like  the  Mississippi  could  never  be  utilized. 
(Of  course  you  gentlemen  have  heard  of  the  Keokuk  development 
which  has  since  occurred.)  Going  further,  that  where  the  greatest 
proportion  of  your  potential  power  existed  in  the  headwaters  of  the 
mountainous  streams,  that  could  not  be  utilized  because  it  was  im- 
possible to  use  water  at  such  high  head.  I  believe  that  this  last  esti- 
mate shows  that  72  per  cent  of  the  entire  potential  water  power  of  the 
United  States  exists  in  those  mountainous  States. 

As  you  may  know,  in  the  calculation  of  power,  the  Geological  Sur- 
vey fixes  its  permanent  power  and  bases  it  on  the  lowest  complete 
minimum  for  12  months  in  the  year,  so  there  is  a  wide  difference  be- 
tween that  and  your  maximum. 

One  of  the  reasons  for  Prof.  Swayne's  remark  about  high-head 
power  was  this :  Your  first  high  head  apparatus,  the  Peltoh,  was  hot 
developed  until  1887,  or  the  first  installation  made  in  1888  probably. 
With  that  there  was  some  electrical  development.  It  was  not  until 
you  came  to  your  practical  application  of  alternating  current  trans- 
mission, along  in  the  early  nineties,  that  that  thing  got  a  great  im- 
petus. Even  as  late  as  1898,  when  of  course  there  had  been  exten- 
sive development  and  so  on,  a  gentleman  for  whom  I  have  the  high- 
est admiration,  Mr.  Leighton- — as  you  may  know,  formerly  connected 
with  the  Geological  Survey — in  his  estimates  of  the  available  poten- 
tial water  power  of  the  country,  takes  into»account  what  could  be 
accomplished  by  storage,  which  is  obvious.  But  even  at  that  date 
they  had  not  grasped  something  else  that  went  with  it,  and  that  is 
the  physical  inter-connection  of  watersheds,  which  is  carried  out  to  a 
perfection  by  this  Southern  Power  Co. 

You  gentlemen  may  all  be  familiar  with  the  way  in  which  they 
do  it.  They  have  their  water  powers — that  is,  I  mean,  their  de- 
veloped powers — located  on  several  streams  with  different  head- 
waters back  in  the  mountains.  They  keep  their  watchmen  there  with 
telephonic  connections.  We  will  suppose,  for  instance,  that  on 
stream  No.  1  they  have  shut  down  the  plants  there,  so  that  the  local 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    239 

reservoirs  or  dams  would  fill,  and  they  are  operating,  we  will  say, 
their  plants  on  streams  No.  2  and  Xo.  3.  The  watchman  up  at  the 
headwaters  of  Xo.  1  telephones  in  that  there  has  been  a  very  large 
shower.  Immediately  the  word  goes  out  to  start  the  machinery  on. 
stream  Xo.  1,  because  they  know  there  is  all  this  mass  of  water  com- 
ing down,  and  they  let  off  streams  Nos.  2  and  3,  we  will  say,  the  local 
dams.  Xow  they  are  going  to  carry  that  even  more  extensively  by 
the  construction  of  enormous  reservoirs  back  at  the  headwaters. 
Well,  the  net  result  of  all  that  is  this,  gentlemen,  that  out  of  what 
your  Geological  Survey  estimates  as,  we  will  say^  one  permanent 
horsepower,  they  are  getting  somewhere  from  three  to  five.  In 
short,  through  inventions  and  advancement  in  the  engineering  art, 
probably  five,  six,  seven*  or  eight  times  as  much  potential  water 
power  has  been  made  available  within  the  last  30  or  40  years  as  all 
the  water  power  that  has  been  developed  in  the  United  States. 

Well,  continuing  on  for  a  moment,  you  may  know  how  those  large 
systems  in  the  South  are  interconnected,  which  carries  this  same 
scheme  a  little  further.  Xow  they,  to  a  modified  degree — and  the 
same  principles  apply  to  interconnection  of  large  steam  systems; 
and  we  came  very  close  to  it  during  the  war  period,  as  perhaps  you 
know — I  believe  that  within  a  few  years  ways  and  means  will  be 
found,  either  through  Federal  or  State  legislation,  where  a  man  will 
not  be  permitted  to  waste  power.  I  think  that  is  one  of  the  funda- 
mental things  in  our  national  economics.  In  other  words,  some 
manufacturer  who  is  running  an  old  slide-valve  engine  and  chewing 
up  some  30  or  40  pounds  of  coal  per  horsepower-hour  is  not  going 
to  be  permitted  to  do  it  when,  through  water-power  development, 
he  can  get  his  current  at  a  far  less  figure,  or  where  the  best  of  modern 
development  is  using  less  than  two  pounds  and  can  produce  the  same 
result.  But,  gentlemen,  once  more,  I  have  rambled  away  from  my 
subject. 

Mr.  WARREX.  Do  you  consider,  under  the  present  prices,  the  ques- 
tion of  whether  the  companies  should  generate  or  purchase  their 
power  is  of  great  importance? 

Mr.  CLARK.  Xo,  I  do  not  on  the  main  issue.  Of  course*  they  should 
take  advantage  of  every  possible  economical  feature,  but  it  is  so 
trifling  at  the  present  time.  Take  the  street  railways  as  a  class — • 
you  are  always  going  to  find,  Mr.  Warren,  opportunities  to  intro- 
duce little  economies,  but  this  is  a  minor  econonry  and  not  a  big  one, 

Mr.  WARREX.  The  wage  item  is  too  big;  it  overshadows  any  one  or 
all  of  these  possible  economies,  does  it  not,  in  your  opinion? 

Mr.  CLARK.  Well,  that  is  a  great  issue.  I  would  not  say  it  is  too 
l)ig.  I  agree  entirely  with  what  Mr.  Tripp  testified  here  yesterday, 
that  it  is  the  reduced  purchasing  power  of  the  dollar  that  has  created 
that  situation. 

Mr.  WARREX.  I  do  not  mean  that  the  wages  are  too  high,  but  the 
aggregate  amount  of  wages. 

Mr.  CLARK.  That  applies  to  everything  else  that  goes  to  make  up 
cost  of  conducting  transportation  and  of  maintenance,  which  are 
the  great  issues,  as  I  see  it. 

Mr.  WARREN.  I  think  if  Mr.  Clark  will  be  good  enough  to  furnish 
that  statement  which  the  commission  intimated  they  would  like — 
an  historical  sketch  of  the  industry  and  the  statement  about  the 


240    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

power  stations — that  is  all  that  I  want  to  ask  him.  I  would  be  very 
glad  to  have  the  commission  ask  him  any  questions. 

The  CHAIRMAN.  Did  you  intend  that  the  black  book  that  you  refer- 
to  should  be  filed  with  this  commission? 

Mr.  CLARK.  Why,  I  will  do  it  if  I  can  not  get  you  another  copy. 
Knowing  where  it  is,  I  have  to  go  up  to  the  Public  Printer  anyway 
with  some  other  material  while  I  am  here  and  I  think  I  can  get  you 
a  copy.  I  will  turn  it  over  to  you. 

The  CHAIRMAN.  Well,  we  can  get  it  then. 

Mr.  CLARK.  Surely;  and  I  think  I  can  get  you  another  copy. 
And  apropos  of  this,  before  I  complete  my  statement.  I  think  this 
will  interest  you,  which  I  will  also  leave  with  you.  It  is  in  rather 
bad  shape ;  some  photostat  reprints  which  I  have  had  made  of  a  very 
large  number  of  letters  from  the  mayors  of  numerous  American  cities 
which  were  published  in  the  New  York  press  in  1892;  and  I  think  it 
may  be  of  interest  to  the  commission  when  they  are  examining  some 
of  these  mayors  who  will  testify,  to  see  what  their  predecessors  said. 
I  will  give  that  to  you  now  [handing  papers]. 

The  CHAIRMAN.  You  have  been  identified  with  the  street-railway 
industry  since  its  inception? 

Mr.  CLARK.  No ;  I  would  say  the  electric-railway  industry,  not  the 
street-railway  industry. 

The  CHAIRMAN.  I  understood  you  had  worked  in  connection  with 
the  first  electric  railway  or  street  railway  in  Virginia. 

Mr.  CLARK.  No;  in  Connecticut. 

The  CHAIRMAN.  In  Connecticut? 

Mr.  CLARK.  In  Connecticut.  Mr.  Sprague,  who  will  be  here,  you 
will  find 

The  CHAIRMAN.  Have  you  had  much  to  do  with  the  operation  of 
these  utilities? 

Mr.  CLARK.  To  a  considerable  extent — as  much  as  a  man  could  who 
was  moving  all  over  creation. 

The  CHAIRMAN.  You  are  familiar  with  the  operating  conditions? 

Mr.  CLARK.  Oh,  yes;  surely. 

The  CHAIRMAN.  Have  you  had  any  experience  in  securing  munici- 
pal franchises? 

Mr.  CLARK.  A  great  deal. 

The  CHAIRMAN.  And  you  know  all  about  the  methods  employed 
in  securing  those  franchises? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  It  has  been  stated  here  that  there  is  considerable 
prejudice  existing  in  the  public  mind  against  these  utilities.  What 
is  the  reason  for  that  prejudice,  Mr.  Clark? 

Mr.  CLARK.  You  mean  the  existing  prejudice? 

The  CHAIRMAN.  Yes. 

Mr.  CLARK.  Not  those  of  the  past? 

The  CHAIRMAN.  Existing. 

Mr.  CLARK.  To  a  certain  extent,  as  I  see  it.  certain  financial 
manipulation  which  should  never  have  occurred;  that  is,  I  mean 
on  the  part  of  promoters  in  certain  directions.  To  a  greater  extent, 
excessive  exaggeration  of  what  occurred  in  that  regard.  And  third, 
and  perhaps  more  important,  although  none  of  you  gentlemen  may 
agree  with  me,  this:  The  street  railway  is  the  one  form  of  public 
utility  with  which  the  individual  citizen,  whenever  he  uses  it,  is  up 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    241 

against  an  employee  of  the  company.  Now  what  I  mean  by  that  is 
this,  we  all  have  lost  our  temper- — we  do  these  days — with  the  tele- 
phone employees  when  things  are  not  going  very  smoothly. 

But  to  my  mind  more  than  all  the  rest  it  is  little  annoying  things 
which  have  happened  in  most  localities;  these  other  causes  are  con- 
tributory. But  if  a  lady  comes  rushing  to  catch  a  sfcreet-car,  just  as 
it  has  started,  you  understand,  and  does  not  catch  the  conductor's 
eye,  she  has  a  grievance.  And  I  would  make  this  novel  suggestion, 
gentlemen,  that  you  go  right  down  here  on  the  street  and  pick  up 
two  or  three  street-car  conductors  and  let  them  tell  their  tales  of  woe 
in  dealing  with  the  public,  and  you  will  get  a  different  aspect  of  it 
than  you  ever  had. 

The  CHAIRMAN.  Is  much  of  this  prejudice  due  to  the  political 
relations  which  it  is  claimed  exist  between  street-car  officers  and 
local  officers  of  municipalities? 

Mr.  CLARK.  I  do  not  think  so.  There  was  a  time  when*  there  was 
somewhat,  but  I  think  it  is  the  individual  coming  in  contact  with 
employees,  and  that  has  been  exaggerated  by  war  conditions,  as  I 
see  it,  when  the  street  railways  could  not  maintain  as  courteous  a 
character  of  employees  as  they  had  had  before. 

Now  I  must  confess  there  is  a  great  deal  in  local  management. 
Let  me  illustrate.  I  do  not  know  what  conditions  are  now,  but  up 
to  war  time  if  you  had  gone  to  the  city  of  Denver  and  taken  a  street- 
car and  commenced  to  ask  questions  of  the  conductor,  you  would 
have  found  a  most  excellent  guide  to  the  cit}7,  without  exception. 
They  had  been  trained  that  way,  to  have  pride  in  the  city,-  and  they 
wished  to  show  it  off  and  were  courteous  to  the  extreme.  And  in 
other  cities,  where  that  had  been  neglected,  you  would  find  that  there 
was  a  lack  of  courtesy  on  the  part  of  the  employee. 

Xow,  gentlemen,  I  am  going  td  give  you  in  this  connection — I 
ought  to  put  this  first — a  paradox,  perhaps  contradicting  myself, 
that  while  I  remarked  back,  I  believe  the  larger  you  make  the  public- 
utility  system,  under  thorough  public  regulation,  of  course,  the  better 
for  the  public;  but  unquestionably  a  great  share  of  this  public  preju- 
dice in  many  localities  comes  through  the  absentee-landlord  feeling 
that  they  have.  Do  you  grasp  me?  This  not  only  applies  to  street 
railways  but  it  applies  to  others.  And  I  will  tell  3*011  a  rather  inter- 
esting story,  if  I  may — I  do  not  know  whether  it  should  go  in  the 
record  or  not — illustrative  of  it. 

Xow  very  frequently  your  sensational  press  will  play  at  that,  you 
understand ;  and  if  the  lady  that  I  referred  to  a  minute  ago  has  an 
incident  like  that  happen  on  a  street-railway  system  that  is  con- 
trolled in  the  East,  which  is  located  in  the  South  or  West,  that  is  a 
local  grievance  against  it.  I  think  that  has  far  more  effect  than  is 
generally  supposed.  But  there  is  a  wide  difference  between  the  waj71 
in  which  certain  of  these  properties  are  handled,  and  I  will  tell  you 
this  story  which  relates  to  a  combined  gas  and  electric  central  sta- 
tion— a  very  extensive  one.  I  would  prefer  not  to  give  the  name  of 
the  town  for  certain  reasons,  but  it  is  a  town  I  have  known  very  well 
for  over  thirty  years. 

On  my  arrival  there  some  three  or  four  years  ago,  I  was  invited 
to  a  dinner,  a  sort  of  got-together  dinner  that  they  have  there  in  the 
town,  of  the  business  men — I  have  forgotten  what  the  association 


242    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

was — every  week.  And  I  sat  next  a  former  United  States  Senator 
whom  I  had  known  for  a  great  many  years.  He  chanced  to  own  a 
newspaper  in  that  town  and  his  newspaper  had  always  belabored 
the  public  utilities,  as  I  had  well  known  for  30  years.  But,  in  the 
meantime,  this  property  which  I  referred  to,  a  few  years  previously 
had  drifted  into  other  hands,  and  I  had  noticed  that  the  paper  was 
dealing  with  it  extremely  kindly.  So  we  visited  at  the  luncheon 
table  and  I  said,  "  Senator,  how  is  it  that  your  paper  is  treating  the 
gas  and.  electric* company  so  nicely  "?  He  says,  "  My  God,  they  give 
us -service;  they  are  courteous;  they  are  gentlemen."  He  says,  "If 
I  make  a  complaint,  before  I  have  hung  up  my  receiver  on  the 
telephone  they  have  a  man  on  a  motor  cycle  coming  out  to  fix  it."  It 
made  a  great  impression  on  me,  and  I  went  further  west  and  I 
returned  to  this  town.  At  a  junction  point  some  miles  away  I 
picked  up  a  morning  paper  and  I  found  a  great  big  headline  in  the 
Senator's  own  paper :  "  Public-spirited  action  of  so  and  so,"  referring 
to  the  financial  interests  that  controlled  it,  in  marketing  the  civic- 
center  bonds  without  cost  to  the  city. 

Now  that  foreign  landlord,  if  I  might  use  the  expression,  had  the 
town  and  the  people — they  were  behind  him.  About  150  miles  away 
I  went  to  another  town  which  was  not  so.  large  and  where  the  re- 
verse was  true  and  where  I  think  the  error  had  been  made  by  the 
home  interests  in  not  giving  the  local  management  sufficient  author- 
ity. And  I  talked  with  the  manager.  His  ideas  were  all  right,  but 
the  newspapers  were  hammering  the  whole  institution.  Everybody 
in  town  was  down  on  it.  And  I  think  you  could  trace  it  right  to 
this,  as  I  say,  something  starting  off  this  feeling  that  it  was  an 
absentee  landlord  that  controlled  the  property  and  consequently  they 
were  against  it. 

But,  as  I  have  said  before,  I'  think  the  great  reason  why  the 
street  railways  are  hammered  is  because  of  the  little  things  that  grate 
on  the  nerves  of  those  who  patronize  them  and  are  considered  as 
personal  grievances  against  the  company. 

Commissioner  SWEET.  Was  the  name  of  the  newspaper  owned  by 
the  United  States  Senator  the  Herald? 

Mr.  CLARK.  No. 

The  CHAIRMAN.  Of  course,  we  all  know  that  service  has  much  to 
do  with  irritating  or  soothing  public  opinion. 

Mr.  CLARK.  Exactly. 

The  CHAIRMAN.  And  one  of  the  more  basic  factors  apparently 
has  been  the  disposition  on  the  part  of  the  utilities  to  make  good 
deals  with  cities  or  villages. 

Mr.  CLARK.  Naturally. 

The  CHAIRMAN.  The  city  had  something  to  sell  and  the  corpora- 
tion had  something  which  it  wanted  to  buy. 

Mr.  CLARK.  Exactly. 

The  CHAIRMAN.  And  an  arrangement  has  been  made  which  some- 
times has  been  prejudicial  to  public  interest. 

Mr.  CLARK.  Unquestionably. 

The  CHAIRMAN.  Is  not  that  the  real  thing  that  has  developed  a 
great  deal  of  opinion  against  public  utilities?  Much  of  it  may  be 
fancy,  but 

Mr.  CLARK.  I  think  most  of  it  is  fancy.  There  has  been  some  of  it, 
unquestionably. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    243 

The  CHAIRMAN.  Now,  have  yon  had  much  to  do  with  dealing  with 
regulating  officials — State  as  well  as  municipal? 

Mr.  CLARK.  I  can  not  say  that  I  have.  I  have  had  somewhat  to 
do  with  it,  but  my  experience  has  not  been  extensive-.  You  see,  I 
brought  this  baby  up  until  189&,  and  then  I  accepted  a  transfer  from 
the  management  of  the  General  Electric  Co.'s  railway  department  to 
its  foreign  department,  and  I  spent  practically  seven  years  abroad; 
and  I  continued  to  manage  the  foreign  department  until  we  devel- 
oped what  we  called  the  traction  department,  whic-h-is  dealing  with 
the  electrification  of  steam  railways;  so  I  have  not  been  brought  in 
that  direct  contact  with  the  public-sendee  commissions  that  I  was  in 
for  very  many  years  with  State  legislatures  and  municipal  authori- 
ties, and  all  that  sort  of  thing. 

The  CHAIRMAN.  You  stated  that  the  tendency  of  these  utilities  is 
to  branch  out  beyond  the  boundaries  of  cities  and  villages? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  That  applies  to  gas  companies? 

Mr.  CLARK.  Rat  to  gas  companies  so  much — or  let  me  qualify  that 
answer.  Of  course,  your  natural-gas  companies  do  go  long  distances, 
and  I  think  there  are  a  few  case  in  the  country — I  am  not  particu- 
larly familiar  with  the  gas  industry — where  they  have  gone  so  far 
to-day  that  they  are  pumping  artificial  gas.  I  think  thre  are  two 
or  three  cases  of  that  sort. 

The  CHAIRMAN.  Is  it  not  quite  true  that  these  gas  companies,  as 
well  as  electric  companies,  are  branching  outside  of  the  city  limits? 

Mr.  CLARK.  Unquestionably. 

The  CHAIRMAN.  And  is  not  that  going  to  continue  to  be  the 
tendency  ? 

Mr.  CLARK.  I  believe  it  is,  and  I  believe  that  tendency  should  bo 
encouraged  in  the  public  interest. 

The  CHAIRMAN.  That  raises  the  question  of  the  proper  form  of 
regulation  of  these  utilities. 

Mr.  CLARK.  It  does. 

The  CHAIRMAN.  Their  rates,  as  well  as  their  service  and  capitaliza- 
tion. 

Mr.  CLARK.  Exactly. 

The  CHAIRMAN.  If  these  utilities  extend  beyond  the  confines  of  a 
village  or  city,  how  are  they  to  be  regulated  efficiently  by  the  city 
officers  ? 

Mr.  CLARK.  They  can  not  be,  in  my  opinion. 

The  CHAIRMAN.  Of  course,  it  has  been  suggested  that  a  city  might 
own  the  plant  and  extend  out  until  it  occupies  the  streets  of  other 
villages  or  cities. 

Mr.  CLARK.  Yes.  find  then  you  toave  a  civic  jealousy  raised. 

The  CHAIRMAN.  Would  not  that  raise  a  good  many  difficulties  in 
this  way:  It  might  be  proper  for  the  utility  to  charge  one  rate  in 
one  city  and  another  rate  in  another  city? 

Mr.  CLARK.  Exactly. 

The  CHAIRMAN.  And  there  would  be  immediately  R  conflict  aris- 
ing between  the  two  places. 

Mr.   CLARK.  Unquestionably. 

The  CHAIRMAN.  If  that  is  so,  where  should  the  power  to  regulate 


244    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CLARK.  With  the  State,  in  my  opinion;  and  when  it  comes  to 
interstate,  as  it  is  coming  very  fast — that  is,  not  in  the  street  rail- 
ways so  much;  of  course,  the  Interstate  Commerce  Commission  has 
jurisdiction  over  those — but  the  thought  that  was  in  my  mind  was 
the  central  station,  that  I  think  in  due  course  there  should  be 
Federal  regulation  of  those. 

The  CHAIRMAN.  It  has  been  suggested  here  that  the  proper  solu- 
tion of  your  street-railway  difficulty  is  the  cost-of -service  plan.  Arc 
you  familiar  with  that? 

Mr.  CLARK.  In  a  way. 

The  CHAIRMAN.  A  cost-of-service  plan  properly  agreed  to  would 
be  absolute  perfection  to  the  invested  capital,  would  it  not  ? 

Mr.  CLARK.  So  it  seems  to  me. 

The  CHAIRMAN.  Of  course,  one  of  the  principal  items  in  u  con- 
tract of  that  kind  is  the  value  of  the  plant. 

Mr.  CLARK.  Certainly. 

The  CHAIRMAN,  In  agreeing  upon  the  value  of  the  plant  for  that 
purpose  is  there  not  apt  to  be  a  good  deal  of  conflict  of  opinion 
between  the  utility  and  the  city? 

Mr.  CLARK.  Why,  yes.  Without  seeming  egotistical — I  made  the 
first  physical  valuation  of  any  large  public-utility  corporation  in 
the  United  States  in  1896.  We  called  them  appraisals  then.  It  was- 
in  Milwaukee.  The  Federal  court  accepted  my  appraisal — we  will 
use  that  term  instead  of  valuation — which  was  something  like 
$5,300,000,  I  think— or  $5,250,000— whereas  the  city  experts  had,  I 
think,  found  a  valuation  of  about  $3,000.000.  The  proposition — this 
may  interest  you  gentlemen — was  a  little  different  in  the  way  in 
which  it  was  put  up — that  is,  as  the  court  called  for  it — than  is 
done  to-day. 

There  were  two  problems  submitted,  one  was  exact  reproduction 
less  depreciation  cost,  and  the  other  was  the  cost  of  constructing  a 
similar  system  to  the  same  extent  over  the  same  streets,  and  all  that 
sort  of  thing,  in  accordance  with  the  best  of  modern  practice.  This 
may  interest  you,  that  the  reproduction  theory  wTorked  out  at  the 
figures  I  have  stated.  The  other  would  have  cost  something  like 
$2.000,000  more  because  of  increased  wreight  of  rail,  and  all  that  sort 
of  thing,  that  came  in. 

The  CHAIRMAN.  In  view  of  the  fact  that  corporations  in  the  past 
have  found  it  expedient  sometimes  to  corrupt  public  officers  in  secur- 
ing franchises,  do  you  think  there  would  be  any  danger  in  the  future 
of  their  exercising  the  same  conduct  in  agreeing  upon  a  valuation  of 
a  plant  where  they  undertook  to  agree  on  a  cost-of-service  plan? 

Mr.  CLARK.  There  might  be  a  slight  danger,  but  I  think  that 

The  CHAIRMAN.  Is  not  that  a  real  danger  wrhere  you  are  dealing 
with  local  officers? 

Mr.  CLARK.  With  local  officers,  unquestionably. 

The  CHAIRMAN.  I  am  talking  now  only  of  local  officers. 

Mr.  CLARK.  Oh,  unquestionably ;  I  agree  with  you. 

The  CHAIRMAN.  If  that  is  so,  then  would  not  the  public  be  better 
protected  if  the  value  in  all  matters  of  this  kind  should  be  determined 
by  proper  rate  regulative  officers? 

Mr.  CLARK.  Unquestionably. 

The  CHAIRMAN.  That  would  remove  the  element  of  bargain  and 
sale,  would  it  not? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    245 

Mr.  CLARK.  It  certainly  would. 

The  CHAIRMAN.  Then  do  you  think  that,  where  cities  agree  to  pur- 
chase a  plant,  it  should  be  based  upon  a  value  found  by  the  State s 

Mr.  CLARK.  I  do  not  see  how  you  are  going  to  determine  it  other- 
wise. 

The  CHAIRMAN.  If  your  cost-of-service  plan  is  adopted,  do  you  find 
any  opportunity  for  the  State  regulating  commissions  to  pass  upon 
the  question  of  a  rate? 

Mr.  CLARK.  Well,  as  I  have  understood  it,  it  is  this,  that  the  State 
regulating  body  would  temporarily  fix  these  rates.  Is  not  that  your 
theory  ? 

The  CHAIRMAN.  I  do  not  so  understand,  under  the  cost-of-service 
plan. 

Mr.  CLARK.  I  had  supposed  that  they  were — it  has  been  shaped  up 
in  several  different  ways,  but  I  had  supposed  it  would  operate  this 
way:  We  will  suppose  that  under  your  cost-of-service  plan,  we  will 
say  6  cents  was  found  to  be  a  fair  rate,  you  understand ;  if  you  had  an 
unusual  situation  arise  which  might  make  a  T-cent  fare  necessary, 
that  it  would  be  your  public-service  commission  which  would  deter- 
mine that  fact.  Now 

The  CHAIRMAN.  After  the  contract  was  made,  then  the  rate  becomes 
self -executing,  does  it  not? 

Mr.  CLARK.  I  think  so  practically,  but  I  supposed  the  public-service 
commission  would  come  in  there — 

The  CHAIRMAN.  In  view  of  the  fact  that  that  sort  of  plan  guar- 
antees a  return  to  capital,  can  you  point  out  wherein  the  public  is 
properly  protected?  Let  me  explain.  If  there  is  any  danger  in  a 
guaranteed  return,  it  is  that  there  would  be  no  proper  check  made 
upon  operation.  It  may  be  expensive  or  it  may  be  economical,  it  may 
be  extravagant  or  not;  but  there  is  no  protection  to  the  public  from 
that  sort  of  operation.  Now.  how  are  you  going  to  safeguard  the 
public  against  inefficient  operation  or  extravagant  operation  under 
your  cost-of-service  plan? 

Mr.  CLARK.  I  should  say  through  the  public-service  commission. 

The  CHAIRMAN.  Local  or  State? 

Mr.  CLARK.  The  State,  every  time. 

The  CHAIRMAN.  Naturally  there  will  be  extensions  and  improve- 
ments made  by  these  plants  even  under  a  cost-of-service  plan. 

Mr.  CLARK.  Exactly. 

The  CHAIRMAN.  Who  is  to  pass  upon  the  question  of  security  issues 
and  the  expenditure  of  the  funds  for  that  purpose? 

Mr.  CLARK.  The  State  commission,  I  should  say,  although  as  I 
remarked  at  the  outset,  I  wish  there  were  some  way  where  you  could 
use  the  referendum  once  in  a  while  on  the  more  important  features 
developing  in  connection  with  anything  of  this  sort. 

The  CHAIRMAN.  Do  you  believe,  Mr.  Clark,  that  the  real  difficulty 
in  the  street-car  situation  is  the  fixed  5-cent  charge? 

Mr.  CLARK.  Basically,  yes. 

The  CHAIRMAN.  That  is  the  basic  difficulty? 

Mr.  CLARK.  Yes,  that  is  whore  the  great  error  was  made,  as  I  see  it, 
at  the  foundation  of  the  industry. 

The  CHAIRMAN.  Then  is  not  the  big  relief  to  the  utilities  coming 
from  a  change  in  the  franchise  system  through  an  elastic  rather  than 
an  inelastic  charge? 


246    PROCEEDINGS  OF  FEDERAL.  ELECTRIC  RAILWAYS  COMMISSION* 

Mr.  CLARK.  Yes,  I  think  so.   It  must 

The  CHAIRMAN.  If  you  are  to  have  proper  State  regulating  com-  | 
missions  with  the  authority  to  prescribe  rates,  do  you  not  think  that  \ 
would  largely  remove  the  difficulties  under  which  you  now  operate? 

Mr.  CLARK.  Oh,  I  think  it  would  to  a  very  great  extent.  Vi 

The  CHAIRMAN.  Would  that  contain  a  larger  amount  of  protection 
to  the  public  than  can  be  found  in  your  cost-of -service  plan? 

Mr.  WARREN.  A  larger  amount  01  what,  Mr.  Chairman? 

The  CHAIRMAN.  A  larger  amount  of  protection  to  the  public. 

Mr.  CLARK.  Possibly  it  might.  That  is,  I  believe  that  there 
should  be  public  regulation.  As  I  say,  I  wish  also  there  was  some 
manner — I  do  not  see  how  it  can  be  done — that  on  the  graver  prob- 
lems you  could  go  direct  to  the  public.  Now,  if  you  will  pardon  me 
for  digressing  a  moment,  there  is  a  feature  involved  I  do  not  think 
has  been  touched  on  here.  If  it  has,  I  have  not  heard  it. 

To  the  best  of  my  belief,  no  street-railway  dividends  have  ever 
been  paid  by  necessity  riding,  if  I  may  so  term  it.  I  hope  J7ou 
grasp  what  I  mean.  That  is,  all  of  my  experience  goes  to  show  that 
it  has  been,  so  to  speak,  cultivated  traffic — making  it  attractive  to 
the  public,  so  that  they  will  ride. 

Now,  I  had  hoped  not  to  get  into  this  feature  of  it  that  wre  are  deal- 
ing with  now,  because  I  do  not  pretend  to  be  an  expert  on  it; 
but  in  this  situation  arises  this  feature,  as  to  how  far  you  should 
go  in  rates,  you  understand,  in  the  way  of  advancement  to  avoid 
killing  your  traffic.  You  doubtless  know,  although  I  do  not 
think  it  has  been  brought  out  here,  what  has  occured  in  some  of  these 
cities  where  the  rates  have  already  been  increased.  A  corresponding 
increase  in  gross  receipts  has  not  developed. 

Coming  back  and  applying  this  thing,  if  I  may,  to  certain  con- 
ditions that  you  have  touched  on — I  am  not  saying  that  this  would 
be  practicable — but  I  can  conceive  of  conditions  where,  under  any 
system,  if  all  .that  is  essential  to  the  construction  and  operation  of 
street  railway  continues  to  increase  in  price,  and  where,  apparently, 
you  would  have  to  keep  going  up  and  going  up  with  your  fares, 
certain  communities  might  be  Avillihg  to  carry  part  of  this  burden 
themselves  in  the  form  of  a  subsidy. 

That  is  one  reason  why  t  have  hesitated  to  emphasize  my  theory 
here;  but  I  am  just  expressing  my  opinion,  because,  after  all,  they 
are  the  ones  whose  interest  must  be  first  considered — the  public; 
but  I  think,  as  I  say,  on  this  present  scheme — I  am  not  sufficiently 
well  up  on  it. 

By  the  way,  gentlemen,  before  I  leave,  I  would  like  to  make  one 
more  statement. 

Mr.  Tripp,  for  whom  I  have  the  utmost  admiration  in  every  way, 
in  his  testimony  of  yesterday,  referring  to  the  change  from  cable 
to  electric  railroads,  made  one  statement  which  I  do  not  think  was 
quite  correct,  and  which,  I  believe,  was  to  the  effect  that  this  was 
done  purely  on  the  part  of  the  companies  because  of  its  economical 
value. 

Now,  I  think  there  is  something  more  involved. 

I  think  you  will  find  in  print  a  statement  made  by  the  Metropoli- 
tan Railroad  of  New  York,  about  1894  or  1895,  after  they  had  some 
experience  with  electrification.  Of  course,  they  were  mostly  cable, 
and  that  gives  the  reasons  for  changing  to  electricity— that  there 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    247 

was  a  reduction  in  the  accident  account.  The  quick  snap  and  jolt  of 
the  cable  car  was  more  dangerous  than  electric  cars. 

I  think,  right  in  this  town,  you  will  find  one  of  the  best  illustra- 
tions of  a  similar  character,  as  regards  the  Capital  Traction  Co. 
As  you  may  remember,  their  main  lines  were,  all  of  them,  operated 
by  cable  for  years.  The  cable  house  was  located  about  where  the 
Municipal  Building  now  is,  and  in  1894 — I  think  it  was — it  was 
burned  down.  I  came  here  in  a  hurry  to  try  to  help  them  out  of  their 
difficulty,  and  I  thought  I  had  accomplished  Atonders.  I  thought  I 
saw  a  way  in  which  they  could  start  with  new  operation,  as  a  cable 
road,  within  two  weeks,  because  I  found  cable-winding  machinery ; 
I  found  a  generator  w^hich  could  be  attached  as  a  motor  to  operate 
this  winding  machinery,  and  I  thought  the  then  electric-lighting  com- 
pany had  sufficient  current  to  spare  so  that  they  could  throw  up  a 
shed  there  and  start  operations :  but  when  I  reached  the  executive  of- 
fices of  the  company— Mr.  Dunlop  was  then  president ;  Mr.  Glover,  of 
the  Riggs  National  Bank,  was  vice  president ••:  and  I  think  Mr.  Carl 
was  the  chief  engineer  of  the  property — I  was  surprised  to  find  that 
this  wonderful  thing  I  had  to  suggest,  out  of  which  we  were  not  going 
to  make  very  much  money,  was  not  what  they  wanted,  for  the  very 
reasons  that  I  have  stated — that  they  were  anxious  to  get  rid  of  their 
cable,  to  reduce,  among  other  things,  this  accident  accoimt. 

Now,  gentlemen,  I  must  apologize  for  taking  up  so  much  of  your 
time. 

The  CHAIRMAN.  You  may  go  right  ahead,  Mr.  Warren. 

Mr.  WARREN.  I  will  ask  Prof.  Cooley  to  take  the  stand. 

STATEMENT  OF  MR.  MORTIMER  E.  COOLEY. 

Mr.  WARREN.  Prof.  Cooley,  you  are  dean  of  the  College  of  En- 
gineers and  Architecture  of  the  University  of  Michigan,  are  you  not? 

Mr.  COOLEY.  Yes,  sir;  I  am. 

Mr.  WARREN.  You  are  also  president  of  the  American  Society  of 
Mechanical  Engineers,  are  you  not  ? 

Mr.  COOLEY.  Yes,  sir. 

Mr.  WARREN.  And  you  have  taken  part  in  a  great  many  valua- 
tions, as  an  expert  on  valuation,  I  believe? 

Mr.  COOLEY.  I  have  taken  part  in  a  great  many  valuations.  I  at 
one  time  considered  myself  an  expert  [laughter],  but  I  now  regard 
myself  more  as  a  student.  The  many  new  problems  that  have  arisen, 
1  tli ink,  require  one  to  take  the  attitude  of  a  student. 

Mr.  WARREN.  I  think  the  commission  would  like  to  know  some  of 
your  conclusions  as  your  studies  have  progressed.  How  long  have 
you  been  engaged  in  the  valuation  of  street  railways? 

Mr.  COOLEY.  Twenty  years.  I  began  in  1889  on  public-utility- 
vrluation  work. 

Mr.  WARREN.  And  can  you  give  the  commission  any  idea  of  how 
much  property,  in  value,  you  nave  had  occasion  to  consider  in  this 
way? 

Mr.  COOLEY.  Yes,  sir. 

I  started  my  work  in  valuation  in  1899,  working  for  the  City 
Commission  of  Detroit,  of  which  Maj.  Pingree,  Lawyer  Stevenson, 
and  Manufacturer  Smith  were  members.  It  was  the  time  when 
t)elroil  was  considering  the  purchase  of  the  street  railways,  and 


248    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Tom  Johnson  represented  the  street  railways.  We  made  this  valua- 
tion in  the  summer  of  1899.  The  purchase  fell  through. 

The  next  year  Pingree  was  governor,  and  he  desired  to  have  the 
so-called  specific  tax-paying  properties  of  the  State  of  Michigan  put 
on  an  ad  valorem  basis;  and  the  legislative  act  had  been  passed  re- 
quiring the  board  of  State  commissioners  to  have  an  investigation 
made  to  determine  whether  they  should  change  from  one  basis  to 
the  other;  and  I  had  charge  of  that  valuation  in  1900.  As  a  result 
of  it,  the  legislature  passed  an  act  transferring  from  a  specific  to 
an  ad  valorem  basis  for  the  railways  of  Michigan.  That  valuation 
amounted  to  about  $200,000,000  for  the  railways.  But  it  was  not 
confined  to  the  railways ;  it  also  embraced  the  telegraphs,  telephones, 
the  plank  roads,  the  river  improvements,  the  express  companies,  and 
private  car  lines.  They  were  all  specific  tax-pa}7ing  properties,  and 
so  their  valuation,  in  total,  amounts  to  about  $240,000,000. 

Then,  under  the  act  transferring  these  properties  to  an  ad  valorem 
basis,  the  State  board  of  assessors  were  required  to  make  the  assess- 
ment; and  that  was  done  in  April,  I  believe,  of  1902. 

The  railroads  then  brought  suit  to  enjoin  the  auditor  general  from 
collecting  taxes ;  and  that  resulted  in  another  valuation. 

But  I  am  a  little  ahead  of  my  story. 

The  law  required  the  assessment  to  be  as  of  a  particular  date,  and 
that  required  a  valuation  to  be  made  as  of  some  date  in  April  in 
1902  or  1903 — I  have  forgotten  precisely — and  for  the  railways  alone 
the  value  as  of  that  particular  date  w-as  about  $240,000,000. 

Then  the  railroads  sued  to  enjoin  the  auditor  general  from  collect- 
ing taxes,  and  that  resulted  in  a  third  valuation  in  1905;  and  the 
properties  were  then  found  to  be  worth  about  $280.000,000.  That 
suit  was  carried  into  the  Supreme  Court  of  the  United  States,  and 
decided  in  favor  of  the  State,  and  brought  some  $13,000,000  of  back 
taxes  to  the  State. 

That  was  the  first  big  work  of  the  kind,  I  think,  that  was  ever 
done  in  this  country. 

Almost  immediately  came  the  valuation  of  the  railroad  properties 
in  the  State  of  Wisconsin,  and  I  was  consulting  engineer  on  that 
valuation. 

Just  a  little  later  came  a  valuation  of  certain  of  the  railway  prop- 
erties in  Newfoundland — properties  that  were  going  to  be  transferred 
from  private  to  public  ownership — and  I  took  part  in  that  valuation. 

Then,  in  1906,  the  city  of  Chicago  tried  to  settle  a  quarrel  of  some 
15  or  20  years'  standing,  and  T  took  part  in  the  valuation  of  the 
Chicago  street  railways  as  one  of  the  board  of  commissioners  there. 
That  valuation  amounted  to  about  $50,000,000. 

Then,  next,  I  was  in  Milwaukee  in  connection  with  their  valua- 
tion— some  $15,000,000  of  railway  property — before  the  Wisconsin 
Railway  Commission.  It  was  at  that  hearing  that  the  so-called 
Wisconsin  method  of  finding  the  going  value  of  the  concern  was 
evolved.  I  had  some  little  part  in  that. 

The  CHAIRMAN.  Did  you  take  part  on  behalf  of  the  State? 

Mr.  COOLET.  Up  to  the  Milwaukee  valuation,  all  of  the  others  were 
State  employment,  and  I  might  state  right  here  without  enumerat- 
ing in  detail  all  the  properties  with  which  I  have  been  connected — 
there  are  several  hundred  of  them,  and  they  aggregated  in  value 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.    249 

somewhere  between  one  and  a  quarter  billion  and  one  and  a  half 
billion  dollars — from  85  to  90  per  cent  of  all  that  work  has  been 
done  for  and  paid  for  by  the  public. 

The  more  recent  work  that  I  have  been  engaged  on — in  fact,  we 
are  just  finishing  it;  I  have  to  write  the  report  as  soon  as  I  get 
back — is  the  valuation  of  all  the  properties  of  the  Michigan  United 
Railways. 

I  am  also  just  employed  by  the  Michigan  Railway  Commission, 
or  rather,  the  public-utilities  commission,  which  has  just  been  cre- 
ated, to  bring  the  valuation  of  the  Detroit  United  Railway  lines* 
which  was  made  in  1914  for  the  Michigan  Railway  Commission, 
down  to  date. 

Those  two  properties — the  Michigan  United  Railways  and  ihe 
Detroit  United  Railways—embraced  practically  all  of  the  railway 
mileage  in  southern  Michigan;  I  mean  all  of  the  electric-railway 
mileage,  not  only  interurban.  but  city  properties  as  well. 

Then,  two  or  three  years  ago,  I  had  charge  of  the  valuation  of  the 
electric  railways  of  the  Public  Service  Railway  Co.  of  New  Jer- 
sey, which  is  a  pretty  large  proportion  of  all  of  the  electric  rail- 
ways in  New  Jersey. 

I  also  worked  on  the  Cleveland  application  at  the  time  Judge 
Tayler  rendered  his  famous  decision,  and  I  have  had  some  part  in 
the  New  York  State  Railways  case  before  the  up-State  commission. 

I  also  appeared  before  the  clown-State  commission  on  the  Metro- 
politan Railways,  I  think  they  are  called,  in  New  York  City. 

Mr.  WARREN.  How  about  Washington? 

Mr.  COOLEY.  Oh,  yes;  I  took  part  in  the  valuation  of  the  Capital 
Traction  Co.  here  in  this  city  three  or  four  years  ago. 

These  companies  that  I  have  just  been  mentioning  are  all  electric 
railways,  but  I  have  also  had  to  do  with  telephone  properties  of  the 
New  York  State  Telephone,  the  Pennsylvania,  and  the  Baltimore, 
or  rather,  the  Baltimore  &  Potomac — I  think  they  call  it — and  have 
valued  the  telephone  properties  and  electric  and  telegraph  properties 
of  Michigan  three  different  times. 

I  merely  speak  of  that,  because  it  does  not  make  any  difference, 
as  I  have  found,  what  the  nature  of  the  utility  property  is.  The 
fundamental  principles  involved  in  their  application  are  all  alike. 

Mr.  WARREX.  Prof.  Cooley,  I  think  you  have  thoroughly  qualified 
and  have  gotten  it  into  the  record.  I  would  like  to  ask  you  uo-v, 
were  you  at  the  Naval  Academy? 

Mr.  COOLEY.  Yes,  sir;  I  graduated  as  a  cadet  engineer  in  1878,  and 
had  all  together  about  between  11  and  12  years'  service  in  the  Navy  as 
an  engineer  officer.  I  resigned  after  I  had  been  at  the  University 
of  Michigan  for  four  years  under  a  detail  from  the  Navy  Depart- 
ment, and  then  went  back  in  the  Spanish-American  War  as  clref 
engineer. 

Mr.  WARREX.  What  would  you  say  was  the  keynote  of  the  trou- 
bles, so  far  as  you  have  found  troubles — and  I  assume  you  have — in 
this  valuation  question? 

Mr.  COOLEY.  There  is  not  very  much  trouble  now  in  valuing  a 
property.  Valuation  lias  been  very  much  simplified,  very  much  or- 
ganized, and  it  is  not  a  difficult  matter  to  procure  results,  and  they 
are  reasonably  accurate;  but  the  great  difficulty — and  I  myself  think 
100043°— 20 17 


250    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

it  is  the  keynote  of  all  our  trouble  to-day — is  ignorance,  slieev  igno- 
rance and  lack  of  understanding  by  the  public,  very  largely,  but  not 
confined  to  the  public — a  lack  of  understanding  by  the  railroads 
themselves  of  the  fundamental  principles  that  are  involved  in  :ill 
questions  of  valuing  property,  and  especially  all  questions  that  are 
involved  in  fixing  rates.  If  we  could  have  a  campaign  of  education 
which  will  make  perfectly  clear  these  things  that  are  now  misunder- 
stood, I  think  the  trouble  would  disappear  almost  wholly. 

I  am  convinced  of  that,  and  I  have  been  trying  to  do  my  part  in 
dispelling  that  ignorance,  but  it  is  very  difficult.  The  attitude  of  the 
public  mind  is  such  that  you  can  not  approach  them ;  you  can  not 
make  them  listen  to  you ;  they  won't  believe  you,  and  I  do  not  know 
that  they  are  to  be  altogether  blamed  for  it,  because  they  have  been 
sorely  tempted  in  the  past.  I  think  the  public-utilities  companies 
all  admit  to-day  that  their  own  conduct  in  the  past  has,  to  some 
extent,  merited  the  difficulties  that  they  now  find  themselves  in. 

I  make  no  defense,  and  the  utilities  themselves  make  no  defense,  of 
the  mistakes  that  they  have  made  in  the  past.  The  utility  com- 
panies, as  a  rule,  now  see  what  mistakes  they  have  made,  and  are 
trying  their  best  to  remedy  them;  but  the  public  is  not  yet  willing 
to  meet  them  anywhere  near  half  way;  and  so  I  say  it  is  a  case  of 
ignorance — a  greater  amount  of  ignorance  on  the  part  of  the  public 
than  it  is  on  the  side  of  the  utility. 

Mr.  WARKEN.  But  you  say  that  as  a  general  proposition  the  factors 
in  any  valuation  are  the  same  as  in  other  cases  s 

Mr.  COOLEY.  I  think  myself  that  the  factors  that  enter  into  a 
Taluation  of  any  kind  of  a  utilit}7  property  are  just  the  same  in  the 
case  of  a  steam  or  electric  road  or  a  gas  or  water-works  property 
or  a  telephone  or  telegraph  property.  They  are  all  practically  the 
same,  the  same  fundamental  principles,  the  same  fundamental  ele- 
ments; and  when  you  have  described  the  process  of  valuation  of  one 
property,  and  have  all  the  factors  in  connection  with  that  property, 
you  have  them  all  in  connection  with  the  other  property.  There  are 
about  18  or  20  of  them,  depending  upon  how  much  subdivision  you 
give  all  factors  that  you  can  not  fail  to  take  into  consideration  in 
eA'ery  rate-making  case. 

Mr.  WARREN.  Will  you  say  something  on  the  historical  develop- 
ment of  those  factors,  Prof.  Cooley,  and  then  run  over  them  ? 

Mr.  COOLEY.  Yes. 

Mr.  WARREN.  I  hesitate  to  ask  you  questions,  because  I  know  you 
'know  so  much  more  about  the  subject,  Prof.  Cooley,  than  I  do. 

Mr.  COOLEY.  It  is  rather  difficult  to  talk  on  this  subject,  because 
it  is  so  easy  to  talk — what  I  mean  is  that  there  is  so  much  that  can 
be  said  and  that  one  can  talk  a  very  long  time,  and  I  would  like  very 
much  to  confine  myself  to  the  particular  things  about  which  the  in- 
formation I  can  give  would  be  wanted. 

Mr.  WARREN.  Well,  it  has  been  suggested  here  that  in  case  the  com- 
mission should  make  recommendations  along  certain  lines,  as,  for 
instance,  possibly  a  service-at-cost  recommendation,  that  that  might 
involve,  perhaps  necessitate,  a  basis  for  any  such  plan  for  any  par- 
ticular company,  and  the  valuation  question  has  arisen  and  has  been 
discussed  by  some  of  the  witnesses  as  to  what  sort  of  a  valuation  and 
upon  what  basis  it  should  be  made. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".    251 

Mr.  COOLEY.  Then,  perhaps  I  might  start  by  discussing  what  wo 
will  call  factors  determining  a  reasonable  charge  for  public-utility 
service. 

Mr.  WARREN.  I  think  that  would  be  very  useful. 

Mr.  COOLEY.  That  will  not  involve  my  going  into  the  details  of 
valuation,  unless  it  be  desired. 

The  CHAIRMAN.  Let  me  make  this  suggestion:  Perhaps  the  com- 
mission should  give  some  consideration  to  the  question  as  to  whether 
we  should  enter  into  a  very  full  development  of  the  proper  principles 
of  valuation.  It  is  a  question  whether  our  commission  shall  make 
any  finding,  or  even  should  make  a  finding,  as  to  the  proper  elements 
which  should  be  included  in  the  physical  valuation  of  a  plant.  Wo 
are  dealing  with  fundamental  principles  and  fundamental  evils. 

Mr.  COOLEY.  I  will  endeavor  to  take  up  what  I  understand  to  be 
your  point;  but  what  I  did  not  want  to  do  here  was  to  go  into  the 
detail  of  physical  valuation  and  take  up  the  value  of  ties,  rails,  and 
cars  and  different  elements  of  the  physical  property. 

Mr.  WARREN.  I  might  suggest,  Mr.  Chairman,  that  I  suppose  that 
is  a  matter  which  the  commission  will  consider  in  executive  session,  as 
to  whether  they  will  make  any  recommendation  about  the  valuation, 
or  as  to  the  elementvS  entering  into  it,  or  the  basis  upon  which  it  should 
be  made.  It  might  help  the  commission  in  its  consideration  of  that 
question  if  they  themselves — you  and  other  members  of  the  com- 
mission— were  to  ask  Prof.  Cooley  any  questions  that  seem  to  have 
particular  pertinence  to  your  decision  on  that  question. 

The  CHAIRMAN.  There  is  so  much  to  be  said  on  that  subject  of 
valuation  that  if  we  go  into  it  we  can  occupy  a  whole  month  in  just 
taking  that  testimony  alone. 

Mr.  COOLEY.  Yes.  I  have  found  in  presenting  this  subject  that  it 
makes  for  quicker  and  easier  understanding  if  you,  the  gentlemen 
whom  I  am  addressing,  consider  yourselves  the  individuals  who  enter 
into,  or  propose  to  enter  into,  the  enterprise  or  the  project  of  build- 
ing a  railroad  property.  Each  one  of  you  gentlemen  may,  therefore, 
consider  yourself  the  originator  of  a  railroad  property,  and  I  am 
going  to  try  to  tell  you  what  you  will  do  as  you  proceed  with  your 
study  of  the  problem  as  you  proceed  with  your  work.  I  think  that 
will  bring  it  home  perhaps  easier  than  any  other  way. 

The  first  step  will  be  for  you  to  inquire  whether  the  project  is 
feasible.  You  will  not  want  to  go  into  it  unless  it  is  feasible,  and 
this  will  involve  a  preliminary  investigation.  You  will  want  to 
sound  public  sentiment  to  know  to  what  extent  the  proposed  service 
would  be  demanded  or  would  be  desired,  what  concessions  would 
have  to  be  obtained  in  the  matter  of  property  consents,  and  the  con- 
ditions under  which  franchises  could  be  obtained.  If  these  inquiries 
have  resulted  favorably,  the  next  step  would  be  to  employ  engineers 
to  look  over  the  field  and  make  preliminary  surveys  and  estimates  of 
cost,  and  determine  upon  the  feasibility  of  the  project  as  a  whole 
from  an  engineering  point  of  view.  With  this  information  thus  far 
accumulated,  your  next  step  is  to  go  to  your  bankers  and  see  about 
the  financing  of  the  proposition.  If  they  decline  to  finance  it — if  you 
can  not  make  a  sufficiently  good  showing  to  induce  money  to  como 
into  the  project — it  falls  through,  and  all  the  time  and  all  the  money 
that  you  have  spent  up  to  this  point  disappears.  You  write  it  on': 


252    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

You  have  not  anything  to  show  for  it,  and  it  is  a  good  deal  of  a  sum 
of  money  that  these  preliminary  steps  involve.  You  may  not  know 
how  much  it  will  be;  but  the  best  investigations  that  I  have  been 
able  to  learn  about  indicate  that  these  preliminary  costs  that  I  have 
just  mentioned  to  you  may  run  as  high  as  5  per  cent  of  the  total  cost 
of  the  property,  from  2  to  5  per  cent.  Now,  that  is  a  great  deal  of 
money.  If  you  have  a  $100,000,000  property,  that  mav  mean  any- 
where from  $2,000,000  to  $5,000,000.  Of  course,  I  have  barely  out- 
lined that.  But  should  the  future  promise  be  great  enough  to  inter- 
est capital  mildly,  let  us  say,  at  the  outset,  the  banker  may  be  induced 
to  gamble  a  bit,  and  he  will  make  you  a  proposition  of  what  he  will 
do.  If  the  gamble  is  a  good  bit  of  a  gamble,  you  will  have  to  pay 
a  good  bit  of  a  price  for  it.  If  it  is  a  small  gamble,  you  will  get  a 
corresponding  reduction  in  the  way  of  discounts,  stock  bonuses,  and 
things  of  that  sort. 

It  is  a  gamble,  you  understand,  up  to  this  point. 

The  CHAIRMAN.  Do  you  mean  to  say,  Professor,  that  the  bankers 
gamble  with  the  money  that  they  have  in  their  possession  ? 

Mr.  COOLEY.  I  do  not  mean  to  say  that  they  gamble  in  the  sense 
of  putting  the  money  on  the  table,  but  they  gamble  in  the  sense  that 
you  have  gambled  when  you  have  made  your  preliminary  investiga- 
tion of  this  property.  You  have  made  up  your  mind  it  is  a  good 
thing,  and  you  go  into  the  thing.  You  do  not  know  that  it  is  a  good 
thing  until  you  have  actually  brought  it  to  completion  and  tried  it 
out.  Now,  the  banker  makes  up  his  mind  one  way  or  the  other. 
There  is  alwTays  an  element  of  doubt,  but  he  tries  to  make  that  ele- 
•ment  just  as  small  as  possible;  nevertheless,  it  is  in  the  nature  of  a 
gamble  up  to  the  time  the  property  has  demonstrated  whether  it  is 
good  property  or  poor  property. 

Commissioner  SWEET.  There  is  an  element  of  chance  in  it? 

Mr.  COOLEY.  That  is  it.  I  used  the  word  "  gamble."  It  is  an  ele- 
ment of  chance.  That  is  precisely  what  it  is,  and  the  number  of 
wrecks  is  very,  very  large. 

Now,  you  have  got  your  property  on  its  feet,  so  far  as  knowing 
that  the  project  is  feasible  and  that  you  can  get  your  money  for  it. 

The  next  thing  is  to  begin  to  do  business.  You  hire  your  engineers 
"and  you  organize  your  staff  and  your  legal  help.  You  make  an  or- 
ganization which  corresponds  very  closely  to  the  organization  that 
you  are  going  to  use  after  the  property  is  put  into  operation.  You 
make  all  the  careful  surveys  that  are  necessary.  You  write  all  the 
specifications.  You  go  through  all  the  steps  that  will  enable  you  to 
procure  the  physical  property  complete  in  all  of  its  details. 

Now,  that  is  a  preliminary  part  of  the  actual  construction  work. 
In  other  words,  all  of  this  organization  work  and  these  preliminary 
plans  have  followed  the  development  of  the  project  and  are  the  be- 
ginning steps  of  the  actual  building  operations. 

When  all  of  this  work  has  been  done,  these  surveys  are  completed 
and  the  actual  work  itself  begins. 

Now,  at  this  point,  the  knowledge  of  the  public  begins.  The  pub- 
lic knows  nothing  about  the  things  that  I  have  been  talking  about  up 
to  this  moment.  They  are  ignorant  of  those.  They  can  see  that  the 
cost  of  the  property  begins  when  you  start  to  lay  the  ties  and  to  buy 
the  land. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    253 

I  doubt  if  it  is  necessary  at  this  time  to  describe  in  detail  all  of  the 
various  steps  of  building  up  the  physical  property.  We  can  do  that 
later,  if  you  desire  it. 

The  CHAIRMAN.  You  may  omit  it  for  the  present. 

Mr.  COOLEY.  I  beg  your  pardon? 

The  CHAIRMAN.  That  may  be  omitted  for  the  present. 

Mr.  COOLEY.  Yes.  But  when  you  have  got  through  with  this 
physical  property — and  it  has  taken,  perhaps,  a  year,  two  years, 
three  years  or  four  years,  depending  upon  its  magnitude  and  extent, 
depending  upon  market  conditions  with  respect  to  material  and 
labor,  depending  upon  the  extent  to  which  the  municipality  will  per- 
mit you  to  dig  up  and  disturb  its  streets,  depending  upon  a  large 
number  of  factors.  It  has  taken  from  one  to  three  or  four  years  to 
complete  this  property,  to  build  the  physical  structure,  the  structure 
which  corresponds  with  the  hotel  structure,  we  will  say,  or  to  the 
merchant's  establishment — the  physical  structure. 

Now,  you  can  build  that  structure  in  several  different  ways — and  I 
speak  of  that  because  it  is  another  point  of  doubt,  of  ignorance. 
The  company  can  organize  its  own  construction  force  and  build  it  it- 
self, hire  its  own  labor  and  buy  its  own  materials;  or  it  can  let  it  by 
contract.  It  can  let  it  to  a  general  contractor,  who  will,  in  turn,  sub- 
let different  parts  of  it.  All  of  those  are  legitimate  ways  of  building 
properties,  and  properties  are  being  built  that  way  all  the  time. 

Now,  suppose,  for  example,  the  property  has  been  let  to  a  general 
contractor,  and  he,  in  turn,  has  sublet  it.  Each  of  those  contractors 
makes  the  closest  possible  estimate  that  he  can  make  of  the  cost,  and 
when  he  gets  his  estimate  made,  he  adds  a  contingency  item,  always. 
He  never  fails  to  do  that.  He  submits  that  figure  to  the  general  con- 
tractor, and  the  general  contractor,  who  is  responsible  for  the  com- 
plete job,  in  turn,  submits  the  aggregate  of  all  of  his  subcontractor's 
prices  to  the  company,  and,  in  turn,  adds  his  contingency  and  takes  his 
profit  out  of  it,  the  same  as  the  subcontractors.  Each  has  got  to  have 
a  profit.  Otherwise,  they  are  not  going  to  build  it. 

Now,  the  public  does  not  know  that.  They  do  not  think  that.  In 
20  or  30  or  40  years  after  the  property  is  built,  they  send  you  to 
value  it.  You  do  not  know  whether  it  was  built  by  a  general  con- 
tractor and  sublet.  You  do  not  know  anything  about  that.  You 
can  not  find  out  anything  about  it.  The  history  of  the  property  does 
not  exist  any  longer,  except  in  the  memory  of  the  oldest  inhabitant, 
which  is  not  always  very  accurate. 

So,  we  have  to  adopt  some  plan  of  figuring  what  it  would  cost  to 
reproduce  that  property ;  and  it  is  our  effort  in  valuing  property,  to 
choose  the  most  reasonable  plan.  The  company  will  build  certain 
parts  of  it,  we  will  say,  because  it  can.  It  will  sublet  it,  maybe  di- 
ivc-tly,  to  a  subcontractor,  who  will  build  certain  other  parts  of  it. 
We  always  utilize  what  seems  to  us  to  be  the  most  reasonable  plan  of 
rebuilding  or  reconstructing  the  property. 

The  public,  as  a  rule,  does  hot  know  that  the  contractor  to-day 
must  insure  all  his  labor.  Accidents  and  liability  insurance  and  fire 
insurance,  arid  all  of  those  things,  have  to  be  taken  into  considera- 
tion during  the  progress  of  the  work.  The  public  does  not  know,  for 
instance,  that  the  company  building  this  property  has  to  make  ar- 
rangements for  its  money  before  it  starts  to  build  at  all  and  has  got 


254    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

to  carry  the  interest  on  that  money  during  all  the  period  of  con- 
struction. It  does  not  know  that. 

The  public  does  not  know  that  the  company  has  got  to  pay  taxes 
on  all  of  that  property.  It  has  to  pay  taxes  on  the  land,  and  if  it 
takes  three  years  to  build,  you  haATe  bought  your  land  presumably  at 
least  a  year  ahead,  and  you  have  four  years'  taxes  on  the  land  that 
have  to  be  paid  while  you  are  putting  up  your  property. 

You  are  the  gentlemen  who  are  building  this  property.  That  is 
why  I  am  speaking  to  you  this  way.  These  are  the  things  that  you 
gentlemen  would  do  if  you  were  engaged  in  this  project. 

Now,  I  mentioned  one  item,  namely,  this  contingency  item.  I  sup- 
pose that  contingency  item  is  receiving  more  attention  in  hearings 
before  commissions  than  almost  any  other  item.  In  the  earlier  days 
we  did  not  hesitate  to  add  10  per  cent  to  the  estimated  cost  of  repro- 
ducing that  property.  When  we  got  the  value  of  the  property,  we 
added  10  per  cent  at  the  very  end.  That  was  taken,  accepted,  and 
recognized  as  perfectly  proper,  the  idea  being  to  do  just  precisely 
what  the  contractor  does.  But  you  can  not  do  that  any  more.  We 
do  not  do  it  any  more.  We  even  go  so  far  in  valuing  property  to-day 
as  to  add  one  contingency  item  in  connection  with  roadway  and  track 
and  buildings,  for  example,  and  another  contingency  in  connection 
with  cars  and  machinery  and  things  of  that  sort.  Take  the  piping 
that  comes  around  a  steam-engine  plant  and  the  wiring  that  comes 
into  the  station.  You  must  add  -20  or  25  per  cent  for  a  contingency 
item  for  that,  whereas  2  per  cent  is  enough  in  certain  other  cases; 
but  when  you  have  got  through,  you  have — if  you  have  done  your 
work  fairly  and  as  it  should  be  done,  in  order  to  be  safe  in  every 
way — to  add  to  the  unit  costs  that  appear  in  connection  with  the 
physical  property  elements  themselves  what  is  equivalent  to  about  5 
per  cent  contingency.  Then,  when  you  get  all  through,  you  have  to 
add  another  5  per  cent  spread  over  the  whole  property.  You  have  to 
do  that  in  order  to  be  safe. 

So  you  must  not  go  into  this,  gentlemen,  unless  you  have  protected 
yourselves  amply. 

I  could  talk  for  hours  on  the  things  that  happen  that  make  a  con- 
tingency item  necessary.  I  can  cite  you  one  example,  an  extreme 
example — the  Detroit  Biver  Tunnel. 

That  tunnel  was  dug  in  a  new  \vay.  It  was  excavated  from  under 
the  water,  from  a  great  ditch  dug  across  the  river,  and  then  the  tun- 
nel built  in  steel  sections  and  sunk  in  place  and  connected  up  and 
covered  with  concrete.  That  had  never  been  done  before. 

The  New  York  Central  Railroad  and  the  other  railroads  interested, 
forming  the  tunnel  company,  debated  for  a  very  long  time  whether 
they  should  build  that  tunnel  themselves  or  let  it  by  contract.  The 
contractor  added  $1,000,000,  I  think  it  was — I  will  not  attempt  to 
be  precise  on  that,  but  it  was  an  enormous  sum — not  10  per  cent,  but 
say  50  per  cent — for  contingencies,  because  he  did  not  know  what  he 
was  going  to  encounter;  and  this  tunnel  company  considered  very 
carefully  whether  they  should  accept  his  proposition  or  build  it  them- 
selves and  take  a  chance  on  the  50  per  cent,  and  save  it,  if  possible. 
They  decided  it  was  better  to  let  the  contractor  assume  the  responsi- 
bility. And  he  did ;  and  he  cleaned  up  a  clean  million  dollars  on  it. 
He  had  good  luck. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.    255 

The  next  tunnel  will  not  cost  as  much ;  it  will  not  cost  anywhere 
near  as  much,  but  that  was  the  first  one  that  was  built  that  way. 

Now,  20  years  from  now,  you  will  send  somebody  to  appraise  that 
tunnel.  You  do  not  know  anything  about  this  50  per  cent  contin- 
gency item.  You  do  not  know  anything  about  this  tremendous  profit 
to  that  contractor,  Butler;  but  you  go  ahead  and  you  estimate  it  in 
the  best  way  you  can,  and  you  take  into  consideration  the  conditions 
of  building  tunnels  that  exist  when  you  make  the  appraisal.  You 
are  not  going  to  get  anywhere  near  the  value  of  that  tunnel,  or  the 
cost  of  it,  and  if  you  do  get  it,  is  it  going  to  be  allowed?  Xot  if 
certain  men  can  prevent  it.  It  never  will  be  allowed.  You  can  not 
get  that  by.  And  yet  it  was  an  absolutely  honest  and  very  carefully 
awarded  contract,  and  the  work  was  done  by  honest  and  reliable  men 
on  every  side. 

So  I  say,  with  respect  to  this  contingency,  it  may  vary  all  the  way 
from  2  per  cent  up  to  25  or  30  per  cent.  It  will  average  inside  of 
10  per  cent — 5  per  cent  on  the  inside  in  connection  with  the  details 
and  5  per  cent  on  the  outside — spread  over. 

Mr.  WARREN.  AVhen  you  give  that  figure,  Prof.  Cooley,  you  base 
it  on  experience  in  actual  cases,  do  you  ? 

Mr.  COOLEY.  Yes,  I  do ;  out  of  a  very  great  deal  of  experience,  and 
not  only  that,  but  I  base  it  upon  actual  expenditures  as  they  have 
been  found  by  the  vouchers.  It  is  not  a  guess  any  longer.  It  was  a 
guess  in  the  first  place,  but  it  has  gotten  beyond  the  guessing  stage. 

The  CHAIRMAN.  This  question  of  contingencies  has  been  argued 
before  the  Interstate  Commerce  Commission  in  the  railway  matter 
for  a  long  time. 

Mr.  COOLEY.  Yes,  sir. 

The  CHAIRMAN.  Are  you  aware  of  the  finding  which  was  made 
upon  that  question  in  the  Texas  Midland  case? 

Mr.  COOLEY.  No.  I  am  not;  I  am  sorry  to  say. 

The  CHAIRMAN.  Perhaps  it  may  be  of  interest  to  you  to  know  that 
the  Interstate  Commerce  Commission  did  not  fix  any  value  for  con- 
tingency in  either  the  Texas  Midland  or  the  A.,  B.  &  A.  case. 

Mr.  COOLEY.  You  would  not  have  to  fix  any  contingency  item  at 
all  if  you  could  get  the  historical  cost  of  the  property,  if  you  knew 
what  the  property  first  cost,  starting  from  the  very  beginning.  You 
can  take  that  cost  out  of  the  box,  and  that,  of  course,  is  the  thing 
to  take,  because  it  represents  the  money  invested:  but,  unfortunately, 
you  can  not  do  that  with  the  old  properties,  at  least.  You  may  do 
it  with  the  newer  properties.  So,  we  proceed  in  the  best  way  we 
know  how  to  approximate  that  cost:  and  it  is  my  belief  that  this 
so-called  cost  of  reproduction  method'  is  the  fairest  approximation 
to  what  would  have  been  the  book  costs  if  you  could  have  had  them, 
if  you  could  get  them. 

Commissioner  MEEKER.  Suppose,  in  the  meantime,  the  costs  of 
labor  and  material  have  advanced  from  50  to  100  per  cent? 

Mr.  COOLEY.  Yes;  I  am  very  glad  you  mention  that  right  here.  I 
was  going  to  speak  of  it  a  little  later,  but  right  there  that  leads  me 
to  say  that  in  making  the  statement  that  I  just  now  made  I  was 
assuming  normal  times,  normal  conditions — conditions  that  existed 
well  before  the  war — and  did  not  have  in  mind  the  extreme  costs  of 
lal)or  and  materials  that  we  now  have  to  bear. 


256    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

I  think  I  should  not  fail  to  make  this  point,  which  is  not  usually 
conceded,  I  may  also  say,  and  which  has  to  be  in  the  nature  of  an 
expression  of  opinion.  I  have  frequently  said  that,  in  my  opinion, 
if  we  could  have  the  so-called  book  costs — the  historical  costs — and 
have  all  of  them,  going  back  to  the  very  day  you  gentlemen  thought 
of  this  project  and  decided  to  go  into  it,  it  is  my  belief  that  that 
cost  would  be  greater  than  the  cost  of  reproduction  in  normal  times; 
and  the  common  opinion  is,  or  the  common  belief  is,  that  it  would 
be  very  much  less.  I  believe  it  would  be  more. 

Now,  I  do  not  believe  I  can  prove  that,  but  that  is  a  belief  that 
has  crept  in  upon  me,  in  view  of  my  study  of  this  problem  during 
all  of  these  years. 

Commissioner  MEEKER.  Well,  it  is  a  matter  of  common  observa- 
tion that  improvements  in  construction  and  all  of  the  other  items 
that  you  have  mentioned  have  come  about  with  the  passage  of  time ; 
so  that  it  would  seem  to  be  a  rather  foregone  conclusion  that  the  cost 
of  reproduction  in  normal  times,  barring  cataclysmic  world  wars, 
would  be  less  than  the  cost  of  actual  construction. 

Mr.  COOLEY.  I  am  very  glad  to  hear  that  statement.  It  is  the  most 
consoling  thing  that  I  have  heard  in  a  long,  long  time.  I  thought  I 
was  alone. 

Xow,  when  I  spoke  of  building  the  property  by  a  general  con- 
tractor, who  might  sublet,  I  also  should  have  spoken  of  another  way, 
known  as  the  cost-plus,  a  percentage  method,  which  has  been  used 
much  in  recent  years.  I  do  not  need  to  describe  it.  It  merely  means 
that  the  engineering  firm,  or  whoever  builds  the  property,  renders 
a  complete  account  of  all  the  costs,  and  when  he  gets  through  he  adds 
a  percentage  on  it.  That  is  his  profit.  The  idea  is  this,  gentlemen, 
that  there  are  profits  going  to  somebody  all  the  way  through  the 
building  of  this  property.  Xow,  you  can  not  get  away  from  that, 
and  I  don't  want  you  to  get  away  from  it,  because  the  public  does 
not  understand  it,  and  they  object  to  it.  They  do  not  want  anybody 
to  get  a  profit,  and  yet  there  are  profits  going  to  somebody  all  the 
Avay  through,  and  you  can  not  build  the  property  without  there  be- 
ing profits. 

Xow,  so  much  for  that. 

I  have  already  mentioned  incidentally  this  question  of  taxes  that 
have  to  be  paid.  If  you  bought  your  land  the  year  before  construc- 
tion organization,  and  the  construction  period  is,  say,  three  years,  you 
are  paying  four  years'  taxes  on  the  land.  Engineers  have  usually 
lumped  it  as  a  half  of  1  per  cent,  or  1  per  cent,  or  something  of  that 
sort,  in  the  past,  but  to-day  they  are  figuring  out  to  see  what  it 
would  actually  be,  and  they  are  even  going  so  far  as  to  search  the 
records  to  find  out  precisely  what  the  company  has  paid  for  taxes, 
and  instead  of  its  being  one-half  of  1  per  cent  or  1  per  cent,  they 
are  finding  upward  of  2  per  cent. 

Xow,  there  is  one  other  point  in  connection  with  taxes  that  should 
be  mentioned.  It  has  particular  reference  to  the  question  of  muni- 
cipal ownership.  The  public  believes  that  if  the  city  owns  the  prop- 
erty, it  does  not  pay  any  taxes,  and,  as  a  matter  of  fact,  it  does  not 
pay  any  taxes  directly ;  that  is,  the  public  utility  is  excused  from 
paying  taxes,  but  the  taxes — the  money  to  run  the  city  government 
and  the  State  government — have  to  be  raised,  whether  the  city  owns 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    257 

this  utility  or  a  private  company,  and  if  the  city  takes  over  the 
property  and  it  does  not  pay  taxes,  then  every  citizen  has  to  take  a 
share  in  paying  those  taxes. 

Xow,  that  is  not  ordinarily  understood,  and  it  should  be,  of  course. 
They  throw  up  their  hands  and  pooh-pooh  when  you  speak  of  it  to 
them.  They  are  getting  something  for  nothing. 

I  might  mention  a  few  of  the  items,  just  a  few,  that  appear  under 
the  head  of  organization,  administration,  and  legal  expenses.  This 
heading  is  rather  elastic.  It  is  sometimes  .made  to  include  all  of  tho 
preliminary  expenses  that  I  have  discussed  at  the  outset — costs  of 
promotion,  certificates  of  necessity,  mortgage  tax,  fees  of  incorpora- 
tion, securing  franchises,  and  other  general  expenses,  and  it  runs,  say, 
from  2|  to  5  per  cent. 

The  question  of  the  promotion  of  an  enterprise  and  of  promoter's 
profits,  is  another  red  rag  to  the  bull,  and  it  is  in  connection  with 
these  promotion  costs  and  promoter's  profits  that  the  public  thinks 
that  a  good  deal  of  the  water  has  gotten  into  the  capital  account. 
And  I  suppose  there  is  water  there  in  a  great  many  cases,  but  there  is 
very,  very  little  water  in  recent  cases,  as  far  as  my  observation  goes, 
and  much  less  water  in  the  older  cases  than  the  public  believes,  be- 
cause when  you  write  your  securities  the  bonds  are  protected  by  a 
mortgage  on  the  physical  property.  The  face  of  the  bonds  is  not 
equal  to  the  cost  of  the  physical  property,  but  some  percentage  of  it. 
It  may  be  50,  75,  or  85  per  cent.  The  practice  was  to  allow  85  per 
cent  in  one  case  that  I  knew  about. 

Xow,  that  85  per  cent,  we  will  say,  is  written  in  the  form  of  bonds 
protected  by  a  mortgage.  As  soon  as  you  have  taken  the  precaution 
to  get  into  the  cost  of  the  property  all  of  these  preliminary  costs  and 
all  of  these  other  costs  that  I  have  been  discussing  or  will  discuss, 
you  are  not  going  to  have  anywhere  near  the  full  cost  of  that  prop- 
erty represented  by  the  mortgage  and  by  the  bonds.  Xow,  you  must 
raise  the  rest  of  the  capital  in  some  other  way — by  stock,  or  whatever 
it  may  be.  But  say  it  is  stock. 

If  we  have  got  75  per  cent  of  the  cost  of  the  property  in  the  form 
of  bonds,  protected  by  a  mortgage,  there  must  be  at  least  25  per  cent 
more  in  the  form  of  stock,  as  we  ordinarily  think  of  our  property, 
that  is,  just  the  physical  property,  as  the  public  sees  it;  but,  in  addi- 
tion to  that,  we  have  got  to  have  another  25  per  cent,  it  may  be,  to 
cover  all  of  these  things  that  you  gentlemen  know  about — expenses 
which  you  have  incurred  and  which  do  not  appear  in  the  valuation 
at  all. 

So  I  say.  to  some  extent,  this  so-called  water  in  the  capital  account 
is  fully  and  amply  justified.  Kemember,  I  say  to  some  extent.  I 
do  not  say  it  is  all  justified,  for  I  do  not  think  it  is  in  all  cases. 

The  CHAIRMAN.  Prof.  Cooley,  did  you  hear  Mr.  Bradlce's  testi- 
mony? 

Mr.  COOLEY.  Xo;  I  just  came  in  this  morning. 

The  CHAIRMAN.  He  testified  that.it  was  quite  the  common  practice 
in  the  past  to  give  one  share  of  common  stock  with  each  share  of 
preferred  stock,  and  that  was  a  sort  of  " hope"  stock. 

Mr.  COOLEY.  Yes,  sir. 

The  CHAIRMAN.  That  represents  water,  does  it  not? 


258    PROCEEDINGS  OF  FEDERAL  ELECTRIC  "RAILWAYS  COMMISSION. 

Mr.  COOLEY.  Yes;  in  a  sense.  I  suppose  it  would  be  called  water, 
of  course;  but  that  raises  another  question  in  my  mind  that  is  very 
interesting,  indeed. 

Suppose  you  try  to  induce  some  public  gentleman,  some  citizen,  to 
buy  a  bond,  so  that  you  could  get  some  fraction  of  the  cost  of  your 
property  that  you  are  engaged  in,  and  he  is  not  satisfied  that  it  is  a 
good  investment.  He  will  not  pay  you  par  for  the  bond.  He  will 
not  pay  you  more  than  85  or  90  per  cent  for  it.  Now,  you  take  a 
share  of  stock,  or  10  shares  of  stock,  and  pin  that  stock  to  the  bond 
certificate.  That  is  the  bait  that  catches  him ;  and  you  have  sold  the 
bond,  whereas  you  would  not  have  had  a  chance  to  sell  it  without  it. 

Now,  to  what  extent  is  that  legitimate? 

The  CHAIRMAN.  Does  that  alter  the  fact  that  that  share  of  stock 
does  not  represent  money  that  is  actually  invested  in  the  property  ? 

Mr.  COOLEY.  I  will  tell  you  what  it  is,  in  my  opinion.  It  is  a 
little  more  than  the  equivalent  to  dropping  the  price  of  the  bond  a 
fewr  more  points.  If  you  were  to  ask  80  for  the  bond,  and  it  did  not 
attract  him,  you  might  drop  that  to  75,  and  it  would  not  tempt  him; 
you  might  even  drop  it  to  05,  and  you  would  not  tempt  him.  Now, 
you  leave  it  at  80,  say — the  first  proposition — and  you  attach  this  bait 
to  it,  and  it  will  go  at  80. 

Xow,  if  what  I  have  said  is  true,  then  that  water  that  you  are 
speaking  of  is  worth  the  difference  between  80  and  CO  or  65  or  TO,  or 
whatever  the  lowest  figure  was  that  he  declined.  It  is  worth  that  in 
actual  money. 

Mr.  WARREN.  It  is  what  you  have  to  pay  to  get  the  money ;  is  it  not  ? 

Mr.  COOLEY.  Yes.  I  am  just  simply  citing  this  as  an  illustration. 
1  have  not  thought  of  it  in  just  that  way  before,  sir,  but  it  is  just 
something  that  flashes  through  my  mind. 

The  CHAIRMAN.  But  the  person  who  holds  that  share  of  stock  that 
is  pinned  to  the  bond  would  like  to  have  returns  on  that  share  of 
stock. 

Mr.  COOLEY.  Yes ;  he  would. 

The  CHAIRMAN.  And  that,  in  turn,  is  based  upon  a  dollar  that  has 
not  been  invested  in  the  property. 

Mr.  COOLEY.  Precisely;  precisely.  That  is,  for  every  thousand- 
dollar  bond  that  you  have  put  on  that  property,  if  you  have  to  sell 
it  for  $850,  there  is  $150  that  has  got  to  be  provided  for  in  some 
other  way.  NOWT,  if  you  are  going  to  put  that  into  a  floating  debt 
and  amortize  it  through  a  period  of  years,  you  are  going  to  put  it  in 
there  one  way  or  the  other.  It  has  got  to  go  somewhere.  Other- 
wise, you  are  not  going  to  build  your  property. 

Right  there  comes  this  question  of  water  again.  If  you  can  get 
$850  with  one,  two,  or  three  shares  of  water,  whereas,  without  water, 
you  can  not  get  more  than  $600  or  $700  for  that  certificate,  has  not 
water  some  value — a  value  equaling  the  difference  between  $850  and, 
say,  $700  or  $600,  or  whatever  it  is  ? 

I  raise  the  question.  I  have  not  reached  a  conclusion  in  my  own 
mind.  I  am  arguing  this  thing  now.  It  is  a  new  proposition  to  me. 
It  is  a  new  angle.  I  am  inclined  to  think  it  is  is  logical.  Maybe  I 
•will  think  differently  to-morrow. 

The  CHAIRMAN.  Perhaps  you  and  I  need  not  go  into  a  debating 
society  on  that  question. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  COOLEY.  My  attitude  is  inclined  to  the  research  attitude.  It 
is  a  proposition.  It  is  something  that  may  be  or  may  not  be  true. 
I  like  to  hold  it  up  look  at  it  and  see  whether  it  can  be  true.  I  think 
just  for  the  moment  and  for  the  purposes  I  am  citing  it  is  true.  Now, 
I  ma}r  not  think  so  to-morrow. 

While  we  are  speaking  of  this  discount  on  bonds,  I  think  we  might 
as  well  dispose  of  another  element,  as  it  is  closely  connected  with  it 
in  the  public  mind. 

You  will  have  gentlemen  on  the  stand  testifying  who  can  give 
you  the  absolute  inside  facts;  give  you  things  that  they  gave  me  when 
I  went  to  investigate  it  myself,  and  things  which  the  public  has  the 
least  possible  conception  of — namely,  that  with  the  very  best  security 
that  you  can  produce,  the  very  best  security  that  you  can  offer,  you 
have  got  to  pay  at  least  5  per  cent  cost  on  getting  your  money.  This 
money  is  costing  you  actual  dollars,  just  the  same  as  steel  rails  and 
ties  and  cars  and  everything  else  you  buy.  You  have  got  to  go  into 
the  market  and  buy  that  money,  and  you  have  got  to  pay  5  per  cent 
on  it.  You  do  not  need  to  take  my  word  for  that.  I  know  that  is 
true,  but  you  can  find  it  out  directly  from  the  gentlemen  who  are 
selling  the  money. 

Now,  you  can  not  get  the  money  in  any  other  way.  You  can  not 
get  somebody  to  give  you  a  steel  rail  if  he  is  engaged  in  manufactur- 
ing or  handling  steel  rails.  You  can  not  get  anybody  to  give  you 
cars ;  you  can  not  get  anybody  to  give  you  money. 

Now,  you  are  the  gentlemen  who  are  building  this  property,  re- 
member, and  that  is  what  you  have  to  pay  when  you  go  into  the  money 
market  for  money;  and  don't  fail  to  make  a  point  on  it  when  you 
render  your  opinion,  because  you  have  a  chance  to  do  a  very  great 
good  to  the  public.  I  do  not  like  to  pay  it.  I  am  opposed  to  paying 
it.  I  am  on  the  side  of  the  public  when  it  comes  to  paying  5  per  cent 
for  the  money.  So  I  am  on  the  side  of  the  public  when  I  have  to  pay 
$1G  for  shoes;  and,  in  fact,  I  would  like  to  get  everything  for  nothing. 
There  is  no  question  about  my  attitude  on  that  score.  [Laughter.] 
But  you  can  not  do  it,  gentlemen.  You  can  not  get  these  things  for 
nothing;  and  they  are  actual,  bona  fide  costs,  and  they  have  not  any- 
thing to  do  with  discounts,  except  that  when  the  matter  comes  before 
the  public  for  the  sale  of  these  securities,  this  cost  of  money  is  really 
merged  in  with  the  discount,  covered  up.  The  total  discount  is  so 
large.  That  includes  the  cost  of  money.  As  a  matter  of  fact,  it  is  an 
absolute  separate  thing,  and  the  public  does  not  know  it.  I  did  not 
know  it  myself  three  years  ago. 

That  is  enough  for  that,  I  should  guess,  because  you  will  have  a 
chance  to  supplement  that  and  get  it  much  more  fully. 

Now,  we  have  spoken  of  the  cost  of  money,  and  we  have  spoken  of 
the  cost  of  promotion,  and  it  remains  in  this  connection  to  speak  of 
promoters'  profits.  The  public  will  not  concede  for  a  moment  that 
there  shouhl  be  any  promoters'  profit.  The  word  is  a  stench  in  the 
nostrils  of  the  public.  The  very  word  "  promoter  n  does  not  sound 
well ;  but  it  is  there,  gentlemen.  You  are  all  promoters  in  your 
projects.  If  you  are  not,  you  hire  somebody  who  is,  and  you  pay 
him  a  rattling  big  salary,  and  the  better  the  promoter  the  bigger  the 
salary  you  will  have  to  pay  him.  You  are  not  going  into  this  thing 
for  your  health.  You  are  going  into  it  for  profit,  and  you  are  going 
to  pay  a  promoter's  profit;  and  if  you  will  bring  anybody  in  here  who 


260    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

has  had  experience  in  promoting  public-utilities  properties,  or  any 
other  kind  of  property,  you  will  find  that  5  per  cent  is  a  mighty  low 
figure  for  it.  Five  per  cent  of  the  cost  of  the  property  is  a  mighty 
low  figure. 

Now,  you  do  not  have  to  take  my  word  for  that,  because  I  have 
never  promoted — well,  yes,  I  have  promoted  one  or  two  properties, 
and  they  have  turned  out  to  be  gambles,  and  they  are  written  off. 
They  were  written  off  a  long  time  ago,  and  my  regret  now  is  that  I 
have  not  more  recently  lost  them,  so  that  I  could  write  them  off  in  my 
income-tax  account. 

Commissioner  GADSDEX.  That  is  the  reason,  that  you  do  not  want 
to  act  as  a  promoter  much  longer,  I  suppose. 

Mr.  COOLEY.  Well,  I  was  not  good  as  a  promoter.  It  was  not  my 
forte. 

You  certainly  will  have  appearing  before  you  men  who  have  done 
these  things,  and  it  is  not  necessary  for  you  to  take  my  word  for  it. 
You  will  get  directly  from  these  men  the  same  thing  that  I  have 
gotten  from  them,  and  it  is  better  that  it  come  to  you  direct. 

Not  only  has  that  to  do  with  the  development  costs  of  the  projects, 
but  the  cost  of  money  and  the  promoters'  profits. 

Now,  comes  the  interest  during  construction.  Curiously  enough, 
we  have  lumped  that,  and  we  say  it  takes  three  years  to  build  a  prop- 
erty, and  money  is  spent  uniformly,  starting  at  zero.  At  the  end  of 
three  years  it  is  all  spent.  We  will  say  that  we  had  all  of  the  money 
for  half  of  the  time,  or  half  of  the  money  for  all  of  the  time,  at  6 
per  cent.  So  we  take  3  times  6  per  cent — 18  per  cent — and  divide 
it  by  2,  and  call  the  interest  9  per  cent,  and  we  stick  that  on.  Now, 
that  is  not  right,  but  we  have  been  doing  it  for  years ;  we  have  been 
doing  it  for  20  or  30  years. 

It  is  not  right,  because  that  is  not  the  way  the  money  is  borrowed. 
It  does  not  conform  to  the  facts.  If  you  can  get  hold  of  the  books 
and  the  historical  records,  you  do  not  have  to  make  any  overhead  at 
all;  you  can  go  right  through  the  books  and  dig  out  what  the  actual 
interest  was  and  find  the  thing  you  should  use;  but  if  you  can  not 
get  the  books,  you  have  to  make  some  estimate  of  it  in  the  best  way 
you  kno\v  how. 

When  you  start  a  year's  building  program,  you  either  have  to  have 
the  whole  money  at  the  beginning  of  the  year,  or  at  the  beginning  of 
each  quarter,  if  you  can  make  that  kind  of  a  deal  with  a  banker  who 
is  furnishing  you  the  money.  We  will  say  it  is  quarterly.  Now,  he 
will  let  you  have  it  at  6  per  cent,  say,  and  give  you  2  per  cent  on  all 
balances,  or  whatever  it  is,  so  that  when  you  get  through  the  year  it 
m&y  have  averaged  5  per  cent.  But  when  you  have  run  that  over 
the  construction  period,  which  includes  for  the  land  at  least  a  year, 
or  four  years — including  three  years  for  building  the  property — you 
will  find  that  that  interest,  instead  of  being  9  per  cent,  is  over  11 
per  cent.  Yet  you  did  not  know  it  until  it  was  investigated,  in 
accordance  with  the  actual  facts  which  have  been  found  to  exist. 
It  was  the  same  kind  of  an  investigation  that  developed  the  fact  that 
a  half  of  1  per  cent  or  1  per  cent  for  taxes  did  not  anywhere  near 
reach  the  result.  It  should  have  been  2  per  cent.  They  did  not 
know  it.  - 

So  I  sa}',  gentlemen,  this  is  a  research  problem.  When  we  used 
to  apply  9  per  cent  and  one-half  of  1  per  cent,  and  certain  of  these 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    261 

other  per  cents  to  these  things,  I  was  an  expert;  but  to-day  we  do 
not  do  it  that  Avay,  and  I  am  a  student.  I  found  out  that  we  do  not 
have  to  do  it  that  way.  We  have  to  do  it  some  other  way.  So  that 
explains  why  I  am  no  longer  an  expert.  [Laughter.] 

Now,  when  you  have  this  property  all  done — I  will  try  to  finish 
this  property  before  1  o'clock,  this  phj'sical  property,  I  mean — you 
have  got  the  tracks  laid  and  the  power  houses  built  and  the  cars 
bought,  and  you  have  at  the  very  end  bought  stores  and  supplies,  and 
you  have  already  arranged  for  your  quarters,  or  you  may  have  to 
rent  quarters  at  the  outset,  or  you  may  build  your  own  building; 
and  if  you  rent  it,  the  rent  becomes  an  operating  expense;  and  if  you 
build  it,  it  is  a  part  of  the  property,  and  it  becomes  a  capital  charge. 
Then  the  very  last  thing  3Tou  do  before  you  turn  a  wheel  is  to  provide 
what  we  call  a  working  capital.  That  is  another  red  rag. 

Now,  of  course,  it  does  not  need  any  great  amount  of  sense  to 
know  that  when  you  start  to  do  a  thing  in  which  you  buy  materials 
and  hire  help,  you  have,  at  the  end  of  the  week  or  at  the  end  of  the 
month,  to  have  a  pay  roll.  That  is  going  to  be  the  working  capital 
for  that  pay  roll.  That  takes  care  of  the  pay  roll,  and  that  working 
capital,  gentlemen,  is  that  fund  of  money  that  lies  idle  in  the  bank, 
subject  to  check  all  the  time.  It  is  the  amount  of  money  that  the 
company  has  found  necessary  in  order  to  do  its  business  from  day  to 
day.  And  I  take  that 'from  the  books;  I  do  not  estimate  that.  I  just 
take  that.  We  go  back  over  a  period  of  years,  and  we  find  what  lias 
been  the  average  amount  required  to  do  business,  and  we  put  it  in. 
Yet  everybody  comes  along  and  takes  it  out.  I  say  "  everybody  " ; 
I  mean  the  public.  "  Why  should  we  pay  for  that  ?  "  That  is  cash, 
but  it  is  idle  money,  and  if  it  does  not  bear  interest  in  the  banks,  it 
earns  an  interest  through  the  rate. 

Now,  we  are  ready  to  start  the  wheels  going.  We  have  a  perfectly 
inanimate  property.  It  has  not  a  particle  of  life.  It  is  a  structure 
that  merely  exists ;  and  if  you  do  not  put  it  into  use  it  would  not  be 
worth  a  dollar,  except  for  scrap,  and  whatever  value  it  may  have  in 
the  future-  depends  on  what  you  can  make  it  earn. 

That  raises  the  question  of  the  costs  that  come  along  in  connection 
with  the  operating  of  the  railroad,  which  themselves  become  ele- 
ments in  the  rate  that  you  are  going  to  fix. 

Mr.  WARREN.  Before  you  get  to  that,  Prof.  Cooley,  could  you 
state  any  general  figure  or  limits  for  a  figure  of  those  overhead  items  ? 

Mr.  COOLEY.  Yes;  I  can  do  that,  and  you  may  be  surprised  when 
I  get  through  with  you.  You  will  be  very  much  surprised. 

What  the  gentleman  means  by  this  overhead  is  something  over 
and  above  the  actual  money  that  you  invested  for  materials  and 
labor  in  the  physical  property.  That  is  what  he  means. 

You  buy  materials,  and  you  buy  labor,  and  you  put  those  costs  into 
the  physical  property ;  and  it  is  what  we  call  the  base  figure.  Now, 
how  much  in  addition  to  that  base  figure  must  you  add  for  organi- 
zation, legal  expenses,  engineering,  interest  on  the  cost  of  money,  and 
for  this  thing  and  for  that  thing — all  of  which  are  overheads,  and 
which  can  not  be  figured  directly?  They  can  not  be  inventoried. 

These  overheads  will  vary  not  only  with  the  size  of  the  property, 
but  with  the  location  of  the  property.  Out  in  my  little  town,  or  in 
any  little  town,  the  overhead  might  t>e  very  small — 10  or  1*2  per  cent, 


262    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

perhaps;  maybe  not  over  8  or  10  per  cent,  depending  upon  condi- 
tions. In  the  city  of  New  York,  they  might  be  60  per  cent.  I  heard 
a  gentleman,  a  very  prominent  engineer,  testify  before  Judge  Tayler 
tli at,  under  certain  conditions  in  the  city  of  New  York,  the  overheads 
were  60  per  cent.  I  did  not  know  it.  I  was  just  as.  much  surprised 
a.s  Judge  Tayler  was. 

Xow,  let  us  see  how  that  figures  out. 

Certain  items  of  overheads  to-day,  instead  of  being  put  on  over- 
head, are  put  inside  in  connection  with  the  item.  A  certain  percent- 
age for  overheads  comes  in  with  grading,  .a  certain  percentage  for 
track  laying,  and  a  certain  percentage  for  this  thing  and  that  thing. 
It  comes  into  unit,  costs,  and  disappears  as  a  part  of  unit  costs. 
That  is  happening,  and  some  engineers  are  very  adroit,  enough  so 
that  they  can  conceal  a  very  large  proportion  of  the  overhead,  and 
nobody  will  ever  know.  That  is  being  done.  That  is  the  way  they 
keep  their  overheads  down.  But  if  you  will  be  honest  about  it  and 
put  your  overheads  where  they  belong — and  by  "  overheads  "  I  mean 
the  contingency  items,  the  engineering  item,  the  legal  item,  the  or- 
ganization item,  the  interest  during  course  of  construction — and 
not  yet  consider  cost  of  developing  the  project,  costs  of  money,  or 
promoters'  profit,  but  leaving  those  out,  they  amount  to  12^  per 
cent.  They  run  from  15  to  18  per  cent  up  to  25  or  30  per  cent. 
NOAV,  if  you  add  all  of  these  other  things,  they  actually  come  up  to 
between  30  and  40  per  cent,  and  in  certain  instances,  as  high  as  50 
or  60  per  cent,  as  this  gentleman  testified  to  in  the  city  of  Xew  York. 

The  CHAIRMAN.  If  it  is  convenient,  Professor,  we  will  stop  now 
to  meet  at  2  o'clock. 

Mr.  COOLET.  Yes;  I  have  given  you  everything  up  to  the  point 
of  operating  expenses. 

Commissioner  MEEKER.  How  much  are  we  worth  now  \ 

Mr.  COOLET.  You  may  find  out  that  you  may  not  have  made  a 
cent,  and  you  will  be  lucky  to  escape  without  going  into  your 
pockets. 

Commissioner  MEEKER.  I  was  afraid  that  we  were  going  to  be  a 
bankrupt  concern,  and  I  was  going  to  protest.  [Laughter.] 

(Whereupon,  at  1  o'clock  p.  m^  a  recess  was  taken  until  2  o'clock 
p.  m.) 

AFTER  RECESS. 

Appearance:  Mr.  C.  J.  Joyce,  Philadelphia,  Pa.,  representing  T. 
E.  Mitten. 

MR.  MORTIMER  E.  COOLEY— Resumed. 

The  CHAIRMAN.  You  may  proceed,  Mr.  Warren. 
,  Mr.  WARREN.  I  want  to  read  a  telegram  which  was  received  in  re- 
sponse to  our  request  of  the  vice  president  of  the  San  Diego  Co.,  to 
come  on  and  appear  before  the  commission.  He  could  not  come,  but 
has  sent  this  telegram  which  explains  the  reason  and  also  throws  some 
light  on  the  situation.  It  is  dated  San  Diego,  Calif.,  July  15 : 

JOHN  H.  PABDEE,  President, 

950  Munsey  Building,  Washington  D.  C. 

Utterly  impossible  for  me  representing  our  company  he  in  Washington.  We 
indorse  every  word  your  statement  before  committee  reported  by  Associated 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    263 

Press  tills  morning.  Speaking  for  San  Diego  Electric  Railway  Co.,-  we  luive 
been  preparing  our  case  for  18  months  and  same  has  been  partially  submitted 
to  State  railroad  commission.  Our  accounts  show  that  December  31,  1918, 
our  investment  amounted  to  $5,000,000  and  company  had  deficit  of  $1,240,000. 
At  the  same  time  depreciation  had  accrued  to  amount  of  $1,664,000  but  not 
1  per  cent  of  this  accrued  depreciation  is  on  hand  for  replacements  due  to  in- 
adequate fares.  This  day  there  have  been  presented  to  me  memoranda  showing 
that  for  first  6  months  1919.  total  operating  revenue  has  been  $525.700  with 
operating  expenses  including  interest,  taxes,  etc.,  amounting  to  $568.200  which 
leave  actual  operating  deficit  of  $42,500.  This  deficit  is  exclusive  of  deprecia- 
tion for  first  6  months  1919,  which  depreciation  amounts  to  $155,200,  making 
total  deficit  of  $197,600  for  the  6-months  period.  The  expenditures  during  those 
6  months  do  not  include  adequate  maintenance  becaiise  we  have  not  got  the 
money.  The  company  is  in  default  of  bond  interest  for  1918  and  1919,  and 
no  dividend  has  been%paid  since  1914.  Unless  we  receive  large  measure  of  re- 
lief from  railroad  commission,  this  company  can  not  continue  operating  this 
road  and  public  must  suffer.  It  offers  absolutely  no  satisfactory  security  for 
anyone  to  advance  money  to  it  in  its  present  condition.  Present  holders  of  its 
securities  decline  to  further  contribute  to  an  institution  which  has  no  credit  and 
to  which  public  itself  will  not  contribute,  with  absolutely  no  assurance  of  re- 
turn of  principal  or  even  interest  on  same. 

The  burdens  of  this  company  have  been  increased  and  accentuated  by  war 
conditions.  Wages  of  all  employees  have  been  largely  increased.  Cost  of 
supplies  have  advanced  anywhere  from  50  per  cent  to  300  per  cent.  Actual 
average  increased  cost  between  1914  and  December,  1918,  amounts  to  134  per 
cent,  but  the  fare  still  remains  at  5  cents.  Street  railways  and  other  public 
utilities  of  the  country  have  been  for  years  the  vehicle  of  misstatement,  and 
vituperation  of  cheap  politicians  for  their  own  political  advancement  until  the 
public  mind  has  been  so  poisoned  it  will  not  accept  the  truth  of  their  con- 
dition to-day.  As  a  consequence  there  is  in  many  States  hesitance  and  in  some 
cases  refusal  to  grant  railway  companies  proper  and  just  relief.  Power  to 
increase  fares  consistent  with  increased  wages  should  go  together.  The  arbi- 
trary increase  of  wages  through  War  Board  without  power  increase  fares  has 
brought  some  companies  to  verge  of  bankruptcy.  Electric  street-railways  of 
United  States  need  prompt  relief  and  if  that  relief  can  not  be  had  through 
State  institutions,  Congress  should  take  action  to  establish  Federal  control.  The 
control  should  be  a  permanent  Federal  board  so  constituted  as  to  be  beyond  or 
outside  any  political  interference,  control  or  even  suggestion. 

W.  CLAYTON, 
Vice  President,  San  Diego  Electric  Railway  Co. 

Mr.  WARREN.  Now,  Mr.  Cooley,  that  telegram  speaks  of  deprecia- 
tion in  connection  with  those  operating  expenses.  What  can  you  tell 
us  about  depreciation  as  a  proper  charge  against  income  in  addition 
to  the  regular  cash  operating  expenses? 

Mr.  COOLEY.  The  subject  of  depreciation  is  probably  as  little  under- 
stood as  any  subject  connected  with  a  public  utility.  It  is  almost  im- 
possible, apparently,  for  even  well-informed  men  to  get  a  clear  con- 
ception of  what  is  meant  by  depreciation  in  connection  with  a  utility 
company,  particularly  with  an  electric  street-railway  property.  I 
think  the  best  way  to  present  it  is  like  this: 

When  we  build — when  you  gentlemen  build — a  street-railroad 
property,  all  the  elements  are  brand  new,  the  ties  and  rails  and  cars, 
power  house,  engines,  dynamos,  overhead  wire,  everything  is  new, 
brand  new ;  it  stands  in  what  we  call  a  100  per  cent  condition:  Some 
of  these  elements  are  long-lived,  some  are  short-lived.  An  engine 
may  last  30  years,  a  tie  may  last  6,  8,  or  10  years;  a  car  may  last  in 
between  somewhere.  But  the  elements  have  different  lengths  of 
lives  and  it  becomes  necessary  to  replace  them  at  different  intervals. 

After  the  property  has  been  running  for  10  or  12  years,  say,  or  15 
years,  it  will  be  made  up  of  items  some  of  which  are  brand  new,  some 


264     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

of  which  are  partly  worn  out,  and  some  of  which  are  all  worn  out. 
After  it  has  been  running  through  25  to  30  years — the  length  of 
the  longest-lived  element^— it  will  be  made  up  of  elements  of  all 
conditions  as  the  length  of  remaining  life. 

Thus,  when  you  make  an  appraisal,  you  examine  these  different 
elements  and  you  find  some  standing  at  100  per  cent,  some  standing 
at  75  per  cent,  some  standing  at  50  per  cent,  and  some  standing  at 
zero.  But  when  you  have  taken  the  weighted  average  of  all  these 
elements,  you  find  they  stand  somewhere  between  80  and  90  per  cent 
of  the  original  100.  In  other  words,  there  has 'been,  say,  15  per  cent 
of  accumulated  wear,  or  of  wear  that  has  come  into  the  elements,  so 
that  the  100  per  cent  condition  is  represented  by»an  85  per  cent  con- 
dition. 

Xow  here  comes  the  point  that  is  so  hard  to  understand.  It  makes 
no  difference  if  the  property  lasts  a  thousand  years,  the  per  cent  con- 
dition in  which  it  remains  after  it  has  come  through  its  longest  cycle 
remains  practically  constant,  say  85  per  cent.  You  can  not  raise  that 
85  per  cent,  if  that  is  the  mean,  because  in  order  to  raise  it,  you  have 
got  to  throw  away  property  before  it  is  worn  out.  A  tie  will  not  "  3 
entirely  worn  out,  a  car  may  not  be  worn  out,  and  if  you  replace  them 
too  soon,  you  will  bring  up  the  average  condition  at  the  expense  of 
property  still  usable. 

Likewise,  you  can  not  let  that  property  drop  very  much  below,  be- 
cause then  it  becomes  dangerous  to  operate  and  it  does  not  render  the 
service  for  which  it  is  designed. 

Then  the  conclusion  is  this:  That  the  85  per  cent  condition  that  I 
am  speaking  of  for  all  practical  purposes  throughout  all  the  life, 
whether  10  years  or  30  years  or  1,000  years,  is  the  100  per  cent 
operating  condition. 

Xow  you  can  not  have  that  85  per  cent  except  3-011  buy  it  with  100 
per  cent.  Thus  you  must  allow  the  100  per  cent  as  the  basis  for  rate 
making  and  not  the  85  per  cent.  You  can  not  have  the  85  except 
you  pay  100  for  it.  It  is  the  cost  of  the  85  per  cent  condition  which  is 
the  maximum  practical  operating  condition.  All  this  money  that 
comes  into  the  treasury  of  the  railroad  comes  through  a  property  that 
necessarily  exists  at  an  85  per  cent  condition. 

Xov  that  is  one  kind  of  a  depreciation.  You  might  call  that  a 
fixed  depreciation.  And  the  proper  way,  if  you  are  not  going  to 
allow  the  100  per  cent  as  an  earning,  is  to  allow  out  of  earnings  some- 
thing in  the  nature  of  a  sinking  fund.  You  must  contribute  to  this 
sinking  fund  through  an  annuity  taken  out  of  earnings  which  in  a 
given  time — say  the  life  of  the  franchise — will  bring  you  back  the 
difference  between  85  and  100  per  cent.  So  whether  you  allow  the 
100  per  c^nt  or  allow  the  annuity,  its  equivalent,  it  comes  out  of 
earnings. 

Xow  the  second  depreciation 

Mr.  -WARREN.  May  I  ask  one  question  there  ?  Suppose  instead  of  a 
determinate  franchise  you  had  an  indeterminate  franchise,  would  you 
alloAv  15  per  cent? 

Mr.  COOOLEY.  There  would  be  difficulty  in  an  indeterminate  fran- 
chise to  determine  what  the  annuity  would  be. 

Mr.  WARREX.  Because  if  a  property  was  expected  to  last  forever 
you  wTould  never  make  up  the  15  per  cent  2 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.    265 

Mr.  COOLEY.  Not  at  all ;  and  so  I  say  we  should  always  figure  our 
rate  of  return  on  what  it  costs  to  get  that  property  in  its  working 
coimition. 

Now  with  regard  to  this  second  depreciation  item.  In  order  to 
keep  this  property  in  the  85  per  cent  condition  you  have  got  to 
renew  elements  as  they  wear  out.  Cars,  engines,  boilers,  rails,  ties — 
they  all  have  to  be  renewed  from  time  to  time  as  they  wear  out;  and 
you  have  to  put  aside  a  sum  of  money  to  do  that  work,  to  make  those 
renewals.  A  car  may  wear  out  or  it  may  become  obsolete  even  when 
it  is  in  splendid  working  condition,  as  was  the  case  in  Detroit  with 
the  old  single-truck  cars.  They  stood  at  a  physical  condition  close 
onto  80  per  cent  and  yet  every  last  one  of  them  was  scrapped  because 
the  public  demanded  double-truck  cars  and  they  had  to  throw  them 
away. 

Now  this  second  fund  that  I  speak  of,  to  keep  the  property  in  the 
85  per  cent  condition,  has  likewise  to  come  out  of  earnings,  and  it  is 
a  much  bigger  amount  than  people  think.  And  I  could  give  you  a 
demonstration  of  that.  If  you  will  take  all  the  elements  of  the 
physical  property  which  can  wear  out,  and  take  the  length  of  life  of 
those  different  elements  and  perform  the  arithmetical  computations, 
you  will  find  that  the  average  life  of  the  elements  that  can  wear  out 
is,  say,  12.  13,  or  14  years — something  of  that  sort,  the  composite  life. 
So  that  it  is  necessary  to  put  into  this  fund  for  renewal  somewhere 
around  6.  7,  or  8  per  cent  of  the  items  that  wear  out. 

Now  it  happens  that  the  items  that  wear  out  are  only  about  one- 
third  or  perhaps  one-quarter  of  the  total  cost  of  the  property.  So 
when  you  spread  this  6,  7,  or  8  per  cent  over  the  total  cost,  it  means 
that  anyAvhere  from  1£,  2,  or  24  per  cent  of  the  total  cost  of  the  prop- 
erty has  got  to  go  into  this  renewal  fund  or  what  is  ordinarily  spoken 
of  as  a  depreciation  fund,  being  a  different  fund  from  the  one  I  first 
spoke  of,  namely,  the  one  that  makes  up  the  difference  between  the 
85  and  100  per  cent. 

Now  what  is  1£  or  2  per  cent  on  the  total  cost  of  the  property?  It 
may  be  a  quarter  of  the  bond  interest;  it  just  adds  that  much  to  the 
earnings  which  that  road  has  got  to  make,  and  it  must  be  just  as 
religiously  saved  as  bond  interest,  because  if  you  do  not  save  it  and 
put  it  back  into  the  property  the  integrity  of  the  property  is  not 
maintained.  So  I  say  it  is  a  religious  duty  to  put  into  this  deprecia- 
tion fund  as  much  money  as  is  necessary  to  maintain  the  integrity  of 
the  property,  which  as  I  have  illustrated  it  is  around  about  85  per 
cent  of  the  original  100  per  cent  of  the  elements  all  being  new.  So 
that  is  my  idea,  gentlemen,  of  this  whole  question  of  depreciation. 

Mr.  WARREN.  Now,  Prof.  Cooley,  will  you  say  just  a  word  about 
the  different  methods  of  valuation,  and  then  I  will  be  through. 

Mr.  COOLEY.  Yes,  that  comes  very  aptlv  rigjit  at  this  point.  In 
talking  about  the  valuation  we  are  askea,  AY  hat  do  you  mean  by 
valuation?  AYrell,  of  course  we  have  the  historical  valuation  or  the 
book  valuation  or  the  cost  of  reproduction  method  or  the  cost  of  repro- 
duction less  depreciation,  the  cost  of  reproduction  less  depreciation 
being  frequently  spoken  of  as  the  present  value,  a  very  misleading 
term. 

Now,  what  I  have  just  said  about  depreciation  distinguishes  the 
difference  between  the  cost  of  reproduction  and  the  cost  of  reproduc- 
tion less  depreciation,  because  the  cost  of  reproduction  less  deprecia- 
100643°— 20 18 


266    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

tion  is  about  85  per  cent,  so  I  do  not  need  to  say  anything  more  about 
that.  Now  the  historical  method,  of  course,  does  not  need  any  dis- 
cussion, because  that  means  just  what  it  says;  likewise  the  book  ac- 
count. Those  are  the  different  ones. 

Xow,  we  do  not  have  the  historical  value.  If  the  property  is  old 
and  the  books  have  been  lost,  we  do  not  have  the  book  value.  So  we 
attempt  to  get  at  them  in  the  only  practical  way  that  we  seem  to  know 
anything  about,  namely,  by  estimating  the  cost  of  reproducing  the 
property  under  normal  conditions  or  under  the  conditions  as  nearly  as 
may  be  which  existed  at  the  time  the  property  was  built  with  respect 
to  the  purchasing  power  of  a  dollar. 

Mr.  WARREN.  I  think  that  is  all  I  want  to  ask,  Mr.  Chairman. 

Commissioner  GADSDEN.  Will  you  follow  up  there  and  say  a  few 
words  on  the  subject  of  obsolescence? 

Mr.  COOLET.  Yes.  Take  the  electric  street-railway  art  as  an  ex- 
ample and  compare  it,  if  you  like,  with  the  art  of  gas  making.  Now, 
the  electric  street-railway  art  represents  an  art  which  has  been  chang- 
ing very,  very  rapidly  in  the  last  quarter  of  a  century,  whereas  the 
gas-making  art,  which  has  existed  for  75  or  100  years  or  more,  has 
been  changing,  but  the  changes  have  been  relatively  slight.  In  other 
words,  the  gas-making  art  in  comparison  with  the  electric  is  a  fixed 
art  and  there  is  not  much  obsolescence.  Take  the  street  railway  and 
take  its  history.  We  all  of  us  remember  horse-car  days  and  remember 
how  the  horse-car  was  changed  into  the  cable  road  in  San  Francisco, 
Grand  Rapids,  Chicago,  and  elsewhere.  And  then  came  the  electric 
road  back  in  the  late  eighties  and  early  nineties.  And  perhaps  aa 
good  a  practical  illustration  as  any  I  can  give  is  the  situation  in 
Grand  Rapids,  Mich.  Succeeding  the  horse-car  days  they  built  there 
a  cable  road  up  those  hills.  I  do  not  think  they  operated  that  cable 
road  more  than  a  year — perhaps  not  as  long  as  that,  but  a  very  short 
time — when  they  recognized  the  handwriting  on  the  wall,  and  they 
then  scrapped  that  whole  cable  road  and  converted  it  into  an  electric 
road — the  boldest  and  bravest  bit  ^of  financing  I  have  ever  known 
anything  about.  Now,  there  was  a  case  of  obsolescence.  The  prop- 
erty had  only  been  running  a  year  or  so ;  it  was  practically  new ;  and 
yet  it  was  scrapped  for  obsolscence,  and  so  far  as  the  duct  and  the 
cable  machinery  was  concerned,  it  was  pretty  nearly  100  per  cent  obso- 
lescent. 

The  CHAIRMAN.  Did  the  company  stand  that  loss  or  did  they  amor- 
tize part  of  it? 

Mr.  COOLEY.  I  have  never  heard.    I  have  often  wondered. 

Commissioner  GADSDEN.  How  ought  it  to  be  treated  economically  ? 

Mr.  COOLET.  Treated  economically.  Of  course  they  went  into  it  hi 
the  best  faith  in  the  world  and  with  the  knowledge  and  consent  of 
everyone ;  and  economically  or  morally,  at  least,  they  should  be  per- 
mitted to  earn  on  that  investment  until  they  could  wipe  it  out ;  that 
is,  they  should  be  permitted  to  earn  enough  so  they  could  gradually 
wipe  out  that  tremendous  investment.  And  so  far  as  my  experience 
with  commissions  goes,  they  are  permitted  to  earn  it  and  wipe  it  out. 

Take  another  case  right  there  in  Michigan:  The  Commonwealth 
Power  Co.  built  a  high-transmission  line  from  one  of  the  dams  up  the 
Muskegan,  I  think  it  is,  and  carried  the  current  into  Grand  Rapids 
and  the  southern  towns.  They  went  into  the  market  for  copper. 
They  thought  copper  was  going  up — everybody  thought  copper  was 


PROCEEDINGS  OF  F^_,ERAL  ELECTRIC  RAILWAYS  COMMISSION".    267 

going  up — and  they  paid  30  or  32  cents,  say,  for  copper,  and  bought 
enough  for  the  whole  job  so  as  to  have  it  on  hand,  thinking  thereby 
to  profit  by  the  market.  But  before  they  got  that  line  erected  copper 
dropped  to  16  or  18  cents,  ai.  there  was  13  or  14  cents.  What  would 
we  do  with  it?  We  were  valuing  the  property  under  the  Michigan 
Railroad  Commission;  and  the  commission  had  a  special  hearing  on 
it,  and  the  facts  were  related  to  them ;  and  they  said,  "  Gentlemen,  we 
will  allow  them  30  cents  for  the  copper — what  they  paid  for  it.  They 
invested  their  money  honestly,  and  it  was  simply  one  of  the  turns 
nobody  could  anticipate."  And  it  went  into  the  capital,  or  was  set 
up  in  a  fund  to  be  amortized. 

Commissioner  MEEKER.  But  if  the  amount  paid  had  been  subject  to 
the  suspicion  that  good  judgment  had  not  been  used  in  making  the 
purchase  would  the  amount  have  been  allowed  just  the  same? 

Mr.  COOLEY.  Well,  you  say  good  judgment.    In  my 

Commissioner  MEEKER.  What  the  courts  usually  term,  ordinary 
business  judgment. 

Mr.  COOLEY.  Well,  I  do  not  know  just  where  we  would  draw  the 
line  there  as  to  what  would  be  good  judgment. 

Commissioner  MEEKER.  There  is  a  difference  of  principle  there  that 
I  want  to  get  at. 

Mr.  COOLEY.  I  would  say  this:  If  the  contract  had  been  carelessly 
made  or  they  had  not  properlv  looked  into  the  question  and  just  sim- 
ply had  gone  in  without  any  foresight  and  done  it,  they  should  stand 
for  it.  But  the  investigation  showed  it  was  honestly  done. 

Now,  one  of  the  best  illustrations  of  this  obsolescence  was  those 
sti-eet  cars  in  Detroit  which  I  cited  a  moment  ago — splendid  cars. 
They  maintained  them  out  of  operating  expenses  up  to  this  very 
high  condition;  and  they  were  maintained  in  that  condition  up  to 
the  day  they  were  scrapped  and  double-truck  cars  took  their  place. 

Now,  take  the  electric  art,  going  back  to  the  early  days  when  we 
had  the  little  high-speed  engine  driving  our  belted  dynamo;  it  was 
not  long;  it  was  in  1893,  at  the  time  of  the  World's  Fair,  when  we 
had  the  direct  unit  still,  a  small  unit.  It  was  not  very  long  until 
we  began  to  build  big  dynamos  and  hook  them  onto  slow-moving 
engines;  and  in  a  few  years — say,  along  toward  1900,  I  do  not  re- 
member the  date — came  the  steam  turbine  and  small  units,  first  used 
as  exciters  for  the  dynamos  driven  by  steam  engines,  a  few  kilo- 
watts capacity,  now  thrown  up  to  60,000  kilowatts  capacity  with  the 
steam  turbine;  and  all  that  since  1890,  say.  Now,  that  shows  a  suc- 
cession of  scrapping  of  machinery  and  street-car  material  through 
obsolescence. 

Mr.  WARREN.  Is  the  cost  of  establishing  the  business  a  capital 
charge  or  an  operating  charge? 

Mr.  COOLKY.  I  think  it  has  up  to  very  recently  been  considered  a 
capital  charge. 

Mr.  WARREX.  In  that  case  it  enters  into  the  valuation  and  I  want 
to  ask  you  about  it. 

Mr.  COOLEY.  Yes;  but  I  think  the  modern  tendency  is  to  carry  the 
cost  of  establishing  the  business  as  a  floating  debt  and  amortize  it. 
In  other  words,  it.  partakes  more  of  the  nature  of  an  operating 
expense  in  these  days  than  it  did  a  few  years  ago. 

Mr.  WARREN.  How  substantial  is  it  in  an  ordinary  case) 


268    PROCEEDINGS  OF  .FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  COOLEY.  It  is  a  very,  very  substantial  item.  It  is  so  sub- 
stantial that  in  a  great  many  cases  it  runs  from  25  to  35  per  cent 
of  the  cost  of  the  physical  property.  It  is  so  big  an  item  as  that, 
so  it  is  very,  verv  important.  I  know  one  property  in  Milwaukee, 
for  instance;  it  is  the  heating  property  owned  by  the  Milwaukee 
Electric  Light  &  Eailway  Co.  They  have  kept  the  books  separate 
for  that  business.  When  I  made  the  first  analysis  of  it,  in  1907,  they 
had  10  or  15  years  of  life  and  they  must  now  have  25  or  30  years' 
life.  They  were  plotting  the  curves  for  those  earnings  and  for 
operating  expenses.  It  looked  at  the  time  as  if  it  would  take  10 
or  15  years  for  the  earnings  from  that  company  to  reach  the  operat- 
ing expenses.  That  is,  a  period  of  25  years,  we  will  say,  has  been 
required  to  make  the  business  what  we  call  a  going  concern — by 
that  meaning  a  concern  in  which  the  earnings  of  the  company, 
the  income,  is  sufficient  to  meet  all  of  the  outgoes. 

So  I  would  emphasize  the  necessity  of  taking  into  consideration 
the  cost  of  establishing  the  business.  It  has  several  names.  That, 
I  think,  is  the  clearest  name.  I  would  emphasize  it  particularly  as 
the  tendency  to-day  seems  to  be  to  treat  it  as  an  operating  expense. 

Mr.  WARREN.  How  would  you  define  it,  Prof.  Cooley? 

Mr.  COOLEY.  Well,  I  think  the  Wisconsin  definition  is  perhaps  the 
best  or  most  generally  accepted.  It  is  really  a  summation,  if  you  like, 
of  the  early  deficits — that  is,  a  sum  of  losses  that  the  company  en- 
counters up  to  the  time  its  income  meets  its  outgoes;  and  it  is  very 
hard  to  obtain  it,  because  companies  until  recent  years  have  not  ap- 
preciated the  necessity  of  so  keeping  their  books  that  the  items  of 
loss  can  be  actually  taken  out.  So  it  is  a  very  difficult  thing  to  sus- 
tain in  dollars  and  cents.  But  in  the  future  it  probably  will  be  a 
well-known  factor ;  no  doubt  about  it  at  all,  because  they  are  keeping 
their  books  now  so  as  to  tell  us  what  it  is. 

Mr.  WARREN.  But  as  relates  to  income  and  operating  expense,  it  is 
something  like  the  interest  during  construction,  if  you  were  valuing 
the  property. 

Mr.  COOLEY.  Yes ;  interest  during  construction  period.  Now  I 
might  say  just  a  word  on  that.  Now,  for'example,  when  before  lunch- 
eon we  had  completed  our  physical  structure  and  were  ready  to  start 
the  property  into  operation,  we  had  just  secured  stores  and  supplies 
and  working  capital  to  enable  us  to  begin  to  turn  the  wheels.  We 
start  in  and  it  may  take  six  months  or  a  year  before  we  get  that  prop- 
erty settled  so  that  the  machinery  all  works  well  and  gets  the  wrinkles 
ironed  out.  It  is  the  same  kind  of  treatment  of  the  property  that  we 
have  to  make  with  a  locomotive.  When  we  buy  it  and  put  it  on  a 
steam  railroad,  we  have  to  run  it  a  few  weeks  under  easy  conditions, 
we  will  say,  so  as  to  work  out  the  troubles — precisely  the  same  thing 
you  have  to  do  on  board  a  battleship  after  it  comes  from  the  yard : 
It  has  to  be*  run  and  tuned  up.  All  those  things  have  to  be  done  be- 
fore your  property  is  in  final  shape  for  operation.  Now,  that  all 
costs  money ;  and  when  you  start  to  earn,  you  do  not  earn  anything 
the  first  day  or  the  day  before  the  first  day ;  it  is  zero.  Then  as  you 
begin  to  operate  your  business  the  earnings  begin  to  mount. 

Meantime  you  are  carrying  along  as  expenses  all  these  daily 
operating  expenses  of  whatever  character,  including  taxes  and  in- 
terest on  the  cost  and — well,  perhaps  you  would  not  start  any  sink- 
ing fund  or  depreciation  fund  at  that  time,  but  if  you  did  that  would 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    269 

also  come  in.  And  of  course  the  earnings  are  almost  nothing,  we 
will  say,  the  first  week  or  two  or  three  weeks,  and  the  operating  ex- 
penses are  very  large.  Now  the  difference  or  that  deficienc}'  is  one 
element  of  this  so-called  cost  of  establishing  the  business.  And 
when  you  aggregate  those  losses  for  a  period  of  years  up  to  the  time 
the  gross  earnings  line  crosses  the  gross  operating  expense  line,  and 
when  you  sum  up  all  of  those  losses,  you  have  the  cost  of  establish- 
ing the  business  as  it  is  ordinarily  understood.  Now  it  is  frequently 
argued,  and  apparently  with  a  good  deal  of  sense,  that  the  greater 
these  early  losses  the  more  valuable  your  property,  because  with  every 
loss  you  are  adding  to  the  cost  of  the  property,  if  it  goes  into  capital. 
But  that  is  fallacious,  it  seems  to  me,  because  the  utility  when  it  is 
built  is  built  to  meet  a  public  necessity.  Now  the  public  knows  that 
that  property  is  not  going  to  pay  to  start  with,  if  they  know  anything 
about  it  at  all ;  and  that  property  has  been  built  and  accepted  by  the 
public  with  full  knowledge  that  it  has  got  to  grow  into  its  business 
and  with  a  full  knowledge  that  these  early  losses  are  to  be  there; 
therefore  they  are  a  proper  cost  of  the  property. 

Mr.  WARREN.  Now  I  want  to  ask  just  one  other  question,  if  you 
are  familiar  with  current  prices  of  labor  and  material  to-day,  and  I 
presume  you  are,  in  connection  with  your  valuations 

Mr.  COOLEY.  Yes. 

Mr.  WARREX.  What  should  you  say  would  be  a  proper  percentage 
either  of  income  or  of  operating  expense — I  should  say  preferably  of 
income — to  allow  for  maintenance,  which  I  understand  covers  main- 
tenance of  track  and  roadbed  and  maintenance  of  equipment? 

Mr.  COOLEY.  Answering  it  in  a  perfectly  general  way,  first — I  had 
occasion  to  investigate  the  relative  expense  of  building  such  properties 
as  electric-railway  and  gas  properties  under  prewar  conditions  and 
under  early  war  conditions  and  under  late  war  conditions.  I  sup- 
pose in  the  last  six  or  eight  months  we  have  made  a  dozen  or  15 
different  valuations  with  different  units  of  cost. 

Now,  the  fact  appears  to  be  that  if  we  were  to  build  properties 
within  the  last  year,  say,  or  quite  recently,  we  would  have  to  pay 
fully  50  per  cent  more  to  secure  the  same  property,  I  think  50  per 
cent  is  a  very  conservative  estimate,  and  that  of  course  is  for  the  cost 
of  the  property.  It  is  due  to  the  advance  in  labor  and  materials  and 
other  elements  which  come  in.  Now,  when  you  come  to  operate  that 
property  of  course  there  are  the  platform  expenses  of  the  motorman 
and  conductor — and  all  the  labor  has  advanced  tremendously;  I  think 
in  some  instances,  doubled,  perhaps,  and  with  a  request  for  a  trebling. 

The  importance  of  that  labor  element  alone — that  wage  element 
alone — almost  is  conclusive  answer;  because  under  prewar  conditions, 
as  I  recall  the  figures,  about  50  per  cent  of  the  gross  operating  ex- 
penses were  required  to  pay  the  labor,  the  platform  expenses  and  the 
other  help  that  entered  into  it.  This  whole  operating  cost  excluding 
taxes  was  about  one-half  the  gross  income.  So  one-quarter  of  the 
gross  income  was  labor  and  wages.  Now,  suppose  you  double  them ; 
that  25  per  cent  becomes  50  per  cent.  Suppose  you  treble  them ;  see 
where  you  go.  You  have  simply  absorbed  all  the  difference  between 
the  original  50  per  cent  that  you  had  to  pay  for  taxes,  depreciation 
fund  and  interest  on  the  capital,  on  the  funded  debt  and  the  other 
things  that  had  to  be  paid  out  of  the  income  over  and  above  the  cost 
of  operation  per  se.  Now  you  double  the  cost  of  operation,  you  havo 


270    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

wiped  out  everything.  This  telegram  that  was  just  read  is  very  per- 
tinent and  makes  it  clear.  I  do  not  know  that  I  could  say  very 
much — it  does  not  seem  as  if  I  could  say  very  much,  because  it  is  so 
patent,  it  is  so  apparent — but  right  there,  if  I  may  just  say  some- 
thing showing  how  the  public  gets  things  wrong  end  to,  we  have  been 
making  arguments  right  along,  all  of  us,  that  we  must  have  greater 
wages  in  order  to  meet  this  increased  high  cost  of  living.  That  is 
the  argument.  But  you  will  correct  me,  Dr.  Meeker,  if  I  am  wrong — 
I  understand  that  is  your  field — but  as  I  see  it,  it  is  putting  the  cart 
before  the  horse,  for  I  believe  it  is  an  accepted  fact  that  the  cost  of 
everything  we  have  to  buy  is  very  largely  the  cost  of  wages.  I  have 
heard  it  stated  that  from  50  to  75  per  cent  of  the  cost  of  every  article 
we  buy  in  the  world  is  the  cost  of  labor  that  went  into  that  article. 
Now  if  that  is  true,  and  I  have  no  reason  to  doubt  it,  it  means  that 
as  we  advance  the  price  of  labor  we  advance  the  cost  of  living. 

Mr.  WARREN.  Now,  Prof.  Cooley,  you  stated  that  the  depreciation 
which  ought  to  be  taken  care  of  was  about  2  per  cent. 

Mr.  COOLEY.  I  said  from  1|  to  2£  per  cent  on  the  cost  of  the  prop- 
erty. 

Mr.  WARREN.  On  the  entire  cost  of  the  property  ? 

Mr.  COOLEY.  Yes. 

Mr.  WARREN.  Supposing  that  is  set  aside  or  provided  for — if  the 
company  is  fortunate  enough  to  have  money  to  do  it — how  much 
more  under  present  prices  of  labor  and  material  should  you  say  ought 
to  be  allowed  for  maintenance — I  mean  for  current  maintenance  ? 

Mr.  COOLEY.  I  do  not  think  I  answered  the  first  question  you  asked 
completely,  now  that  you  ask  me  this  second  question.  I  stalled  to 
speak  generally  and  to  say  that  the  company  should  be  allow-ed  to 
earn  in  direct  proportion  to  the  increased  costs  of  building  the 
property.  If  the  property  costs  50  per  cent  more  to-day  than  it  did 
5  or  10  years  ago,  the  company  should  be  permitted  to  earn  50 
per  cent  more.  I  speak  of  that  generally. 

Mr,  WARREN.  In  other  words,  the  maintenance  cost  would  have  a 
very  direct  relation  to  the  cost  of  building  a  new  property  \ 

Mr.  COOLEY.  Oh,  everything  has  gone  up.  I  do  not  think  50  per 
cent  is  enough.  I  think  it  is  very  conservative.  It  seems  to  be  borne 
out  in  certain  instances,  as  I  observe  the  reports.  The  old  fare  of  4£ 
and  5  cents  has  been  supplanted  by  G-cent  fares.  That  is  about  a  50 
per  cent  increase.  The  old  5-cent  fare  in  Boston  has  gone  up  to  8 
cents,  I  believe.  That  is  more  than  50  per  cent. 

Mr.  WARREN.  Up  to  10  cents. 

Mr.  COOLEY.  Then  that  is  more  than  50  per  cent. 

The  CHAIRMAN.  When  you  speak  of  the  company  earning  more  on 
account  of  the  high  cost  are  you  speaking  of  the  gross  earnings  or 
net  earnings  ? 

Mr.  COOLEY.  Gross.  That  brin.o^  up  the  question  whether  we 
should  use  present-day  costs  or  before  the  war;  in  other  words, 
whether  we  should  use  the  cost  of  reproduction  to-day  or  the  histori- 
cal cost.  I  think  that  is  answered  splendidly  by  comparing  the  pur- 
chasing power  of  a  dollar  to-day  with  what  it  was  when  the  property 
Avas  built.  I  have  frequently  said  that  our  dollar  of  to-day  was  the 
50-cent  piece  prior  to  the  war.  So  if  you  are  going  to  build  a  prop- 
erty to-day  you  will  have  to  build  it  so  far  as  purchasing  power  is 
concerned  out  of  50-cent  pieces. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    271 

Mr.  WARREN.  That  has  been  the  experience  of  the  Boston  Elevated. 
They  have  just  been  double  what  they  were  in  the  past. 

Mr.  COOLEY.  Well,  as  I  understand  it,  the  purchasing  power  of 
the  dollar  is  about  50  cents.  So,  if  a  property  were  valued  before  the 
Avar  at  about  around  $100,000,000,  it  would  to-day  be  valued  around 
$200,000,000 ;  if  you  are  allowed  to  earn  the  same  percentage  on  the 
$200,000,000,  of  course  it  would  double  the  income,  we  will  say. 

Commissioner  MEEKER.  But  the  answer  is  not  quite  clear  to  me, 
however.  If  you  are  arriving  at  a  fair  valuation  on  which  earnings 
are  to  be  allowed,  would  you  depend  upon  the  cost  of  reproduction 
to-day  or  would  you  take  the  historical  cost,  or  what  would  you  do? 

Mr.  COOLEY.  I  do  not  think  it  would  make  any  diiference,  if  you 
will  keep  in  mind  the  purchasing  power  of  the  dollar  and  let  your 
earnings  vary  with  the  purchasing  power  of  the  dollar;  that  is  what 
I  mean.  For  example 

Commissioner  MEEKER.  It  seems  to  me  the  difference  between 
$100,000,000  and  $200,000,000  is  quite  considerable. 

Mr.  COOLEY.  True,  it  is  quite  considerable;  but  the  $200,000,000  is 
precisely  equal  to  the  $100,000,000  as  we  are  taking  it.  They  are 
different  figures  but  they  are  not  different  quantities. 

Commissioner  MEEKER.  That  is,  the  company  should  be  allowed 
to  earn  upon  the  value  of  the  property  valued  upon  the  cost  of  repro- 
ducing under  current  prices? 

Mr.  COOLEY.  Yes. 

Commissioner  MEEKER.  Does  that  exactly  jibe  with  your  state- 
ment made  this  forenoon  that  the  original  cost  should  be  taken  as 
the  basis?  For  example,  the  tunnel  through  the  Detroit  River  which 
eventually  became  the  tunnel  under  the  Detroit  River;  there  was 
about  100  per  cent,  was  it,  of  contingency,  or  50  per  cent? 

Mr.  COOLEY.  Very  large. 

Commissioner  MEEKER.  Very  large? 

Mr.  COOLEY.  Yes,  I  have  forgotten  which. 

Commissioner  MEEKER.  $1,000,000,  which  was  actually  spent,  and 
that  should  not  be  disregarded  in  valuing  the  property  to-day,  but 
the  original  cost  should  be  taken  into  account. 

Mr.  COOLEY.  That  is  all  right.  Suppose  we  do  take  in  the  original 
cost,  and  I  think  fundamentally  that  is  of  course  right,  there  can  not 
be  any  question  about  that.  You  should  take  in  what  your  invest- 
ment is ;  that  is,  what  the  proper  investment  is,  I  mean.  Now,  prior 
to  the  war,  that  investment  was  permitted  to  earn,  say  5  per  cent,  and 
we  got  5  per  cent  and  we  were  satisfied,  and  we  were  able  to  do 
everything  we  wanted,  with  it — everything  that  we  had  to  do.  Now, 
to-day  what  would  that  5  per  cent  do?  It  would  do  only  half  the 
things  we  have  to  do.  So  ir  you  are  going  to  hang  onto  the  original 
cost  that  we  have  been  discussing,  the  investment  cost,  you  have  to 
allow  twice  the  income  from  it  or  else  you  have  got  to  double  the 
value  and  take  the  same  rate  of  per  cent,  both  being  precisely  equal. 

Mr.  WARREN.  But,  Prof.  Cooley,  that  raises  the  question,  I  think — 
or  the  commissioner's  question  raises  the  other  question — of  whether 
the  return  on  the  capital  ought  to  be  double  because  of  the  reduced 
purchasing  power  of  the  dollar  or  the  higher  cost  of  living;  leaving 
that  to  one  side  for  the  moment,  because  many  of  our  street  railways 
are  trying  to  earn  their  operating  expenses  and  fixed  charges,  this 


272    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

would  be  true,  would  it  not,  that  if  the  cost  of  construction — that  is 
only  a  yardstick  by  which  to  measure 

Mr.  COOLEY.  Yes. 

Mr.  WARREN.  If  the  cost  of  construction  to-day  would  bo  twice 
what  it  was  when  the  road  was  built,  then  the  operating  expenses, 
apart  from  the  return  on  the  capital,  would  be  twice  to-day,  roughly, 
what  they  would  have  been  previously. 

Mr.  COOLEY.  Yes;  I  think  so. 

Mr.  WARREN.  That  is  all  I  want  to  ask.  I  am  very  much  obliged 
to  you,  Prof.  Cooley — unless  the  commission  has  some  questions. 

Commissioner  MEEKER.  The  commission  is  a  little  bit  afraid  of 
this  question  of  going  into  the  fair  valuation  of  property.  I  do  not 
want  to  dwell  upon  that  any  more  than  is  absolutely  necessary,  but 
first  of  all  I  would  like  to  know  what  is  the  pamphlet  from  which  you 
have  been  quoting. 

Mr.  CooLEr.  I  am  very  grateful  to  you  for  asking  that  question, 
because  I  wanted  the  permission  of  the  commission  to  send  copies  of 
this  pamphlet  to  them.  It  is  a  pamphlet  that  I  read  five  or  six  years 
ago  before  the  electrical  engineers,  also  before  the  Western  Society  of 
Engineers,  and  it  is  entitled  "  Factors  Determining  a  Reasonable 
Charge  for  Public  Utility  Service."  There  would  have  to  be  a  few 
changes  made  to  meet  the  new  conditions  that  we  are  encountering 
now,  but  this  at  the  time  it  was  written  represented  my  best  knowl- 
edge, and  I  have  used  it  in  refreshing  my  mind  as  to  topics,  and  I 
would  like  to  send  enough  so  each  member  of  the  commission  can  havo 
a  copy.  It  is  very  short — you  can  read  it  in  40  minutes. 

Commissioner  MEEKER.  I  was  about  to  ask  if  I  might  obtain  a 
copy. 

Mr.  COOLEY.  Yes;  I  will  be  very  happy  to  do  it. 

Commissioner  MEEKER.  How  should  improvements  and  extensions 
which  are  made  out  of  earnings  be  treated  ? 

Mr.  COOLEY.  If  they  are  made  out  of  earnings — the  answer  has 
to  be  a  double-barreled  one — if  they  are  made  out  of  earnings  which 
ordinarily  would  go  into  the  pockets  of  the  people  who  have  their 
money  invested  in  the  property,  it  is  equivalent  to  new  capital.  If, 
on  the  other  hand,  the  earnings  have  been  very  large,  far  in  excess 
of  what  would  be  regarded  to-day  as  proper  earnings,  then  I  do 
not  think  it  ought  to  go  into  capital  except  there  be  some  legal 
phases  which  would  require  it. 

Commissioner  MEEKER.  You  think 

Mr.  COOLEY.  I  hope- 1  make  that  clear.  Say  an  8  per  cent  earning 
is  permissible  and  all  right,  and  suppose  the  earnings  have  been  20 
per  cent — if  in  the  first  case  you  have  got  your  8  per  cent  and  have 
taken  some  part  of  that  8  per  cent  and  invested  it  in  new  property, 
it  belongs  to  capital. 

Commissioner  MEEKER.  Some  part  of  a  reasonable  return  ? 

Mr.  COOLEY.  Yes;  surely. 

Commissioner  MEEKER.  But  anything  in  excess  of  what  might  be 
regarded  as  a  reasonable  return,  you  think  that  should  not  be 
counted  as  a  part  of  the  original  investment  upon  which  the  com- 
pany is  entitled  to  earn? 

Mr.  COOLEY.  No;  I  would  call  that  investment  by  the  public,  ex- 
cept" there  be  some  legal  requirement  which  of  course  might  control. 
I  do  not  know  what 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    273 

Commissioner  GADSDEN.  Let  me  ask  a  question  right  there.  Take 
a  railway — I  think  it  is  entirely  a  hypothetical  question  as  applicable 
to  street  railroads,  because  in  my  judgment  none  of  them  ever  made 
a  fair  return  on  any  proper  valuation — but  do  you  mean  to  say  that 
a  railroad  which  had  a  franchise  with  the  city  and  a  fixed  fare  of  5 
cents — suppose  such  a  railroad  made,  we  will  say,  12  per  cent  net 
return  after  operating  expenses  and  fixed  charges,  amortization  and 
depreciation— do  you  mean  to  say  that  4  per  cent  of  that,  say,  ought 
to  go  back  into  the  property  ? 

Mr.  COOLEY.  No;  not  necessarily. 

Commissioner  GADSDEX.  Or  3  per  cent,  or  any  proportion  of  it? 
What  I  mean  is  if  we  had  a  legal  right  to  charge  5  cents,  whatever 
the  net  return  may  be,  does  not  that  belong  to  the  stockholders? 

Mr.  COOLEY.  Well.  I  do  not  mean  to  say  that  at  all,  because  there 
is  a  legal  phase  I  refer  to. 

Commissioner  GADSDEX.  But  I  wanted  to  distinguish  that  point. 

Mr.  COOLEY.  I  was  answering  in  the  broad  way.  Of  course,  the 
real  answer  as  to  what  is  the  proper  earning  is  the  amount  which  is 
necessary  to  induce  capital  to  come  into  the  business.  That  may  be 
8,  10,  or  maybe  12  per  cent;  it  may  be  one  thing  in  one  town  and 
another  thing  in  another  town.  I  just  answered  your  question, 
Dr.  Meeker,  broadly,  without  regard  to  its  being  a  question  which 
might  have  different  answers  in  different  localities  and  under  dif- 
ferent conditions. 

Commissioner  MEEKER.  We  do  not  want  to  confine  our  attention 
too  much  to  hypothetical  questions.  You  stated,  however,  that  any- 
thing above  a  reasonable  return  upon  investment,  if  turned  back  into 
the  property,  might  be  regarded  as  an  investment  by  the  public  and 
therefore  would  not  constitute  property  value  upon  which  the  com- 
pany was  entitled  to  earn  in  the  future. 

Mr.  COOLEY.  Yes;  that  was  my  answer  to  the  general  question, 
namely,  and  we  at  once  put  in  8  per  cent  as  an  example  of  a  reason- 
able rate 

Commissioner  MEEKER.  As  a  point  to  argue  from? 

Mr.  COOLEY.  Yes. 

Commissioner  MEEKER.  But  as  I  understand  it,  Mr.  Gadsden  has 
made  the  proposition  that  the  company  is  entitled  to  everything  that 
it  does  earn. 

Mr.  COOLEY.  There  comes  the  legal  thing.  I  made  that  point,  top. 
that  Mr.  Gadsden  made,  namely,  there  is  the  legal  obligation,  it 
you  please,  or  the  legal  element  which  permits  the  company  to  have 
everything  it  earns  regardless  of  how  much  it  is. 

Commissioner  MEEKER.  Everything  it  earns  so  long  as  the  fare  is 
fixed,  and  the  fare  being  the  public's  idea  of  regulating  the  income 
of  the  company? 

Mr.  COOLEY.  Yes. 

Commissioner  MEEKER.  So  if  a  company  earns  50  per  cent  on  its 
investment,  it  is  entitled  to  the  50  per  cent  and  can  do  with  it  as  it 
chooses  ? 

Mr.  COOLEY.  Yes;  and  go  into  court  and  get  it.  That  is  what  I 
meant,  but — 

Commissioner  MEEKER.  So  that  must  be  taken  account  of  in  valu- 
ing the  property  to-day? 


274    PEOCEEDLNGS  OF  FEDERAL,  ELECTEIC  EAILWAYS  COMMISSION. 

Mr.  COOLEY.  Yes. 

Commissioner  MEEKER.  In  case  there  be  such  returns,  such  invest- 
ment in  improvements  and  extensions  to  property  out  of  earnings 
so  obtained,  such  investments  are  bona  fide,  the  property  of  the  stock- 
holders of  the  company  and  the  company  is  entitled  to  earn  upon 
them ;  is  that  correct  ? 

Mr.  COOLEY.  Well 

Commissioner  MEEKER.  All  investments  made  out  of  earnings  as 
the  conditions  have  been  laid  down,  the  company  is  entitled  to  as 
part  of  its  property  and  that  property  must  be  valued  in  determining 
the  property  upon  which  the  company  is  entitled  to  earn  in  the 
future  ? 

Mr.  COOLEY.  Yes. 

Commissioner  MEEKER.  Do  you  know  of  any  cases  where  improve- 
ments and  new  equipment  and  even  extensions  have  been  made  under 
the  guise  of  operating  expenses  ? 

Mr.  COOLEY.  Oh,  yes;  any  number  of  them.  Not  perhaps  within 
a  year  or  two,  but  I  think  one  of  the  most  notable  examples  of  that 
is  the  Michigan  Central  Railroad.  For  years  and  years  it  paid  its 
stockholders  4,  5,  or  6  per  cent,  whatever  it  was,  and  all  the  rest  of 
that  property  went  into  second  track  and  new  station  buildings  and 
new  property. 

Commissioner  MEEKER.  I  had  in  mind  street-railway  properties. 

Mr.  COOLEI".  Well,  I  do  not  think  at  this  moment  of  any  street- 
railroad  property;  but  there  is  a  very  interesting  outcome  or  sequel 
to  that  Michigan  Central  case,  if  I  may  dwell  upon  it  for  a  moment. 
They  had  a  very,  very  valuable  property  with  absolutely  no  addi- 
tions to  capital  for  a  great  many  years,  under  Mr.  Ledyard,  the 
president.  Then  the  Michigan  Central  and  the  Lake  Shore  and  all 
these  roads  were  merged  into  the  New  York  Central  lines,  and  they 
had  to  finance  them  in  order  to  build  this  Grand  Central  Terminal 
in  New  York;  and  then  it  becomes  necessary  to  dig  out  all  these 
sums  of  money  that  had  been  hidden  and.  expended  from  earnings 
and  put  them  into  capital.  Now  I  may  not  have  stated  that  precisely 
in  accordance  with  the  facts,  but  that  is  the  idea  in  my  own  mind — 
that  lots  of  the  hew  construction  was  built  out  of  earnings  and  paid 
for  by  the  public,  if  you  like. 

Commissioner  MEEKER.  You  would  call  such  new  construction  and 
new  equipment  as  made  out  of  earnings,  would  you  ? 

Mr.  COOLEY.  Yes;  I  call  it  in  that  case  made  out  of  earnings, 
surely,  because  they  did  not  add  a  dollar  to  capital  for  all  those 
years. 

Commissioner  MEEKER.  Made  out  of  gross  earnings  but  not  out 
of  net? 

Mr.  COOLEY.  I  do  not  know  just  how  it  was  divided,  but  it  was 
made  out  of  their  earnings  because  they  did  not  add  a  dollar  of 
capital  for  a  great  many  years,  and  yet  they  double-tracked  their 
entire  system  and  built  very  elaborate  new  stations  with  gardens  and 
everything  of  that  sort. 

Commissioner  MEEKER.  Do  you  know  of  any  such  instances  where 
street-railway  companies  have  made  improvements  and  extensions 
in  the  same  manner  ? 

Mr.  COOLEY.  No ;  I  can  not  identify  any  instances  at  this  moment. 


PROCEEDINGS  OF  FEDERAL,  VJ.KCTBIC  RAILWAYS  COMMISSION.    275 

Commissioner  MEEKER.  You  see,  I  am  trying  to  differentiate  be- 
tween improvements  made  out  of  net  earnings  and  improvements 
made  under  the  guise  of  operating  expenses. 

Mr.  COOLEY.  Yes;  I  know. 

Commissioner  MEEKER.  It  seems  to  me  there  is  a  distinction  there 
which  should  be  drawn.  You  have  stated,  have  you  not,  that  im- 
provements made  out  of  net  earnings,  out  of  earnings  that  might 
have  been  paid  as  dividends  under  the  legal  contract  entered  into 
by  municipalities,  is  bona  fide  the  property  of  the  company? 

Mr.  COOLEY.  Yes. 

Commissioner  MEEKER.  Would  you  state  also  that  improvements 
made  out  of  gross  earnings  under  the  guise  of  operating  expenses 
would  be  entitled  to  the  same  treatment  even  though  the  company 
may  have  paid  no  more  than  a  reasonable  dividend  on  the  stock  ? 

Mr.  COOLEY.  Well,  let  me  put  my  answer  this  way,  if  I  may :  If 
the  net  earnings  have  been  sufficient  to  give  what  we  are  speaking 
of  as  a  fair  return,  meaning  by  that  as  much  of  a  return  as  would 
be  necessary  to  induce  capital  to  come  into  the  business,  then  I 
should  think  all  this  new  property  built  out  of  gross  earnings  should 
belong  to  the  public  who  contributed  the  money  for  it,  if  it  could 
be  done  legally.  Now,  does  that  answer  your  question? 

Commissioner  MEEKER.  Well,  will  you  restate  it? 

Mr.  COOLEY.  Let  me  restate  it.  Assuming  that  the  net  earnings 
have  been  sufficient  to  pay  a  fair  return — a  return  which  would 
induce  capital  to  come  into  the  property — and  then  that  with  those 
net  earnings  there  had  been  expended  out  of  gross  earnings  sums 
of  money  for  building  new  property  not  affecting  the  net  earnings 
except  that  had  they  not  been  spent  out  of  gross  earnings  they 
would  have  gone  into  net  earnings  and  increased  the  same  beyond 
the  figure  required  to  secure  the  investment  of  money  in  the 
property— now,  I  say  under  those  conditions  and  speaking  from  the 
moral  point  of  view,  I  believe  that  property  built  out  of  gross  earn- 
ings should  belong  to  the  public.  It  should  not  belong  to  capital. 

Commissioner  MEEKER.  How  could  the  public  gain  possession? 

Mr.  COOLEY.  They  could  not,  as  a  matter  of  fact,  I  suppose. 

Commissioner  GADSDEN.  May  I  ask  another  question  right  there? 
Are  you  still  of  that  opinion,  if  that  railroad,  we  will  say  the  Michi- 
gan Central,  was  charging  a  rate  at  that  time  by  law? 

Mr.  COOLEY.  Yes;  it  was. 

Commissioner  GADSDEN.  In  other  words,  if  the  commission  should 
authorize  them,  if  the  rate  was  2^  cents  per  mile  for  passenger 
travel,  say,  and  they  had  made  not  only  what  you  call  a  fair  return 
upon  the  investment,  but  this  surplus,  do  you  think  that  surplus 
under  a  legal  rate  fixed  by  the  commission  belongs  to  the  public  and 
not  to  the  stockholders? 

Mr.  COOLEY.  No;  not  at  all.  In  the  Michigan  Central  case  the 
public  had  not  anything  to  do  with  it.  It  was  a  question  between 
the  Michigan  Central  and  its  stockholders.  The  stockholders  got  4 
per  cent  when,  if  they  had  not  built  all  this  property,  they  would 
have  got  8  ^r  10  per  cent. 

Commissioner  GADSDEN.  Is  not  that  the  distinction  that  I  am 
trying  to  draw,  that  if  the  public  through  a  commission  has  laid 
down  a  legal  rate,  then  is  not  the  stockholder  entitled  to  the  return 
under  that  rate,  whatever  it  is? 


276    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  COOLEY.  Absolutely,  as  I  see  it. 

Commissioner  GADSDEN.  Until  the  commission  changes  it. 

Mr.  COOLEY.  Absolutely,  he  is  entitled  to  it.  That  is  a  different 
question  from  the  one  Commissioner  Meeker  asked. 

Commissioner  MEEKER.  Will  you  elucidate  the  difference?  It  is 
not  clear  to  me. 

Mr.  COOLEY.  Well,  you  are  asking  a  hypothetical  question  which 
brought  in  a  question  of  a  moral  return,  as  I  took  it — that  is,  a  fail- 
return — not  a  legal  return  but  a  fair  return.  And  the  assumption 
•was,  as  I  got  the  question,  that  the  net  earnings  had  been  sufficient 
to  pay  a  fair  return — a  return  which  would  induce  capital  to  come 
into  the  business.  That  was  the  first  assumption.  Now,  that  is  per- 
haps all  the  company  should  be  permitted  to  earn.  If,  in  addition 
to  that,  it  did  earn  enough  so  that  it  could  build  property  exten- 
sions— new  property — that  property,  I  said,  might  properly  belong 
to  the  public  or  at  least  not  enter  into  the  capital  account. 

The  CHAIRMAN.  Let  me  give  you  a  practical  illustration. 

Mr.  COOLEY.  Yes. 

The  CHAIRMAN.  In  the  Eastern  Advanced  Rate  case,  tried  two 
years  ago,  known  as  the  Fifteen  Per  Cent  case,  President  Rea,  of  the 
Pennsylvania  Railroad,  testified  that  during  the  past  10  years  that 
road  had  expended  $350,000,000  in  new  property  taken  from  earn- 
ings and  that  during  all  of  that  time  the  stockholders  had  received 
their  regular  dividends.  In  your  judgment,  should  the  $350,000,000 
taken  out  of  earnings  in  that  way  be  permitted  to  be  capitalized  ? 

Mr.  COOLEY.  Well,  I  think  that  perhaps  brings  up  the  sharp  dis- 
tinction  

.    The  CHAIRMAN.  That  is  the  distinction,  is  it  not  ? 
ff   Mr.  COOLEY.  Yes.     In  one  case  there  is  the  legal  right  and  the 
other  was  the  moral  right.    As  you  set  up  this  question  it  is  the  legal 
right,  as  I  understand,  to  include  it  in  the  capital  account. 

The  CHAIRMAN.  That  is  the  question  I  presented  to  you. 

Mr.  COOLEY.  And  the  other  question  presented  the  moral  right. 
Now,  my  idea  is  this:  That  public  utilities  in  the  future  should 
only  be  permitted  to  earn  just  enough  to  induce  capital  to  come 
into  the  property— 

The  CHAIRMAN.  What  is  your  answer  to  the  $350,000,000  propo- 
sition ? 

Mr.  COOLEY.  That,  I  would  say,  is  precisely  the  same  case  as 
Commissioner  Gadsden  spoke  about:  That  the  company  was  per- 
mitted to  earn  that  legally  and  therefore  it  belonged  in  the  property. 

The  CHAIRMAN.  That  it  ought  to  be  capitalized? 

Mr.  COOLEY.  Yes. 

Mr.  WARREN.  That  is  on  the  theory  it  was  earned  at  a  rate  which 
was  legally  charged  ? 

Mr.  COOLEY.  Yes.    I  hope  I  have  made  myself  clear. 

Commissioner  MEEKER.  I  intended  to  ask  my  question  in  such  a 
way  that  it  would  be  a  practical  question.  I  do  not  want  to  ask 
questions  up  in  the  air.  I  think  I  have  your  point  clearly  now.  Does 
it  boil  down  to  about  this:  That  for  the  past,  whatever  has  been 
done,  we  must  accept  it,  but  in  the  future  street-railway  companies 
and  other  utilities  will  be  permitted  to  earn  a  reasonable  return  upon 
actual  investment  and  anything  over  and  above  that  will  be  taken 
in  part  or  in  whole  by  the  public? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".    277 

Mr.  COOLEY.  That  is  my  own  view  of  it,  regardless  of  any  legal 
aspects.  I  firmly  believe  that  a  public  utility  should  be  permitted  to 
earn  enough  to  make  it  able  to  serve  the  public  in  the  way  it  wants 
to  be  served  and  to  bring  the  investor  a  sufficient  amount  to  satisfy 
him  and  enable  him  to  do  all  the  things  he  has  to  do  and,  being  a 
public  utility,  I  should  not  want  them  to  earn  any  more  than  that. 
Now,  that  is  my  own  view.  Of  course,  there  comes  the  legal  question 
as  to  the  right,  and  that  is  another  matter. 

Mr.  WARREN.  Do  you  know  of  any  street  railway  which  falls 
either  in  the  class  of  the  Pennsylvania  Railroad  or  the  Michigan 
Central  Railroad? 

Mr.  COOLET.  Not  a  single  case, 

Mr.  WARREN.  Or  even  within  long-distance  telephone  reach  of  it? 

Mr.  COOLEY.  No.  We  have  been  talking  about  a  purely  hypo- 
thetical case  all  the*  time  when  we  are  speaking  of  the  electric  street 
railroad.  It  is  a  peculiar  case,  in  that  it  has  not  yet  become  a  stable 
proposition,  although  it  is  30  years  old;  and  I  do  not  know  of  any 
electric-railroad  property  which  approaches  a  fair  return. 

The  CHAIRMAN.  I  think  it  is  very  interesting  to  realize,  however, 
that  in  the  hearings  before  the  Senate  committee  last  December,  the 
railway  executives  declared  it  to  be  their  view  that,  as  to  all  future 
construction  paid  out  of  earnings,  there  should  not  be  any  capitali- 
zation ;  so  it  at  least  represents  a  very  marked  change  in  their  belief. 

Mr.  COOLEY.  Yes.  I  gathered  from  my  talk  with  public-utility 
men  that  they  would  be  tickled  to  death  with  conditions  that  would 
permit  them  to  earn  a  fair  return  on  their  investment. 

Commissioner  MEEKER.  I  would  like  to  ask,  in  regard  to  forms  of 
securities — you  spoke  this  forenoon  of  bonds  and  stocks  and  of  any 
other  way  of  raising  money — is  there  any  other  way  ? 

Mr.  COOLEY.  I  was  trying  to  convey  the  idea  without  being  too 
specific  as  to  the  character  of  the  securities,  having  in  mind  this — 
that  the  senior  securities,  the  highest  grade  securities,  would  be  those 
that  were  protected  by  a  first  mortgage.  Now  there  might  be  another 
issuance  of  securities  which  would  oe  protected  by  a  second  mortgage, 
or  it  may  be  in  the  form  of  preferred  stock  or  common  stock,  but 
I  do  not  care  to  differentiate  as  between  these  different  securities  any 
further  than  to  say  that  after  you  have  issued  your  bonds  protected 
by  a  mortgage,  some  other  form  of  security  must  come  along  to  en- 
able you  to  get  the  rest  of  the  money,  and  it  might  be  stock. 

Commissioner  MEEKER.  Just  one  other  question.  You  spoke  of 
the  cost  of  money  and  certain  other  charges  that  came  in  the  over- 
head. Those  charges  would  all  be  lumped  by  the  economist,  would 
they,  under  the  hazard  of  the  enterprise?  ^The  fixed  return  upon 
capital  investment  is  spoken  of  as  interest.  Anything  in  excess  of 
that  is  paid  for  the  insurance  against  the  risk  of  the  enterprise.  Is 
that  what  you  had  in  mind  in  speaking  af  the  cost  of  money? 

Mr.  COOLEY.  No,  not  that.  I  had  in  mind  that  money  has  a  regular 
market  value.  Of  course,  I  may  not  be  speaking  correctly,  because  it 
all  comes  to  me  second-handed,  or  as  hearsay,  but  I  take  it  for  granted 
that  you  will  have  testimony  that  will  set  forth  precisely  the  facts. 
But  my  idea  is  this — that  you  have  to  go  into  the  money  market  and 
buy  this  money.  Now  the  expense  of  that  money  is  a  real  expense, 
because  the  bond  house  will  send  out  and  have  its  own  investigation 
made  of  that  property.  That  will  cost  a  considerable  sum.  And  it 


278    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

will  cost  perhaps  a  good  part  of  the  5  per  cent  before  they  get  through 
with  that  investigation.  Then  they  must  provide  in  this  cost  of 
money  for  fluctuations  or  market  conditions  which  no  one  can  foresee. 
Money  may  go  up  or  it  may  go  down,  but  they  have  constantly  to  fur- 
nish the  utility  with  the  money  it  needs  for  construction  purposes,  and 
there  is  a  risk  involved  there. 

Commissioner  MEEKER.  I  see  what  you  mean,  I  think.  It  is  the 
risk  or  hazard  of  the  enterprise.  That  is  all. 

Mr.  COOLEY.  It  is  partly  that. 

Commissioner  SWEET.  You  evidently  have  thought  a  good  deal 
about  the  present  street-railroad  situation. 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  And  regard  it  as  very  precarious. 

Mr.  COOLEY.  Very. 

Commissioner  SWEET.  And  you  have  also,  frern  what  you  have 
said  here  to  us,  come  to  a  very  acute  recognition  of  the  difficulty  of 
bringing  the  public  up  to  the  point  of  understanding  correctly  this 
situation  and  various  features  connected  with  it. 

Mr.  COOLEY.  Yes,  that  is  correct. 

Commissioner  SWEET.  If  I  understand  you  right,  this  pamphlet 
you  have  referred  to  was  written  four  or  five  years  ago.  • 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  And  that  treated  of  the  subject  you  have 
been  discussing  here  with  us. 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  The  proper  method  of  arriving  at  cost  and 
what  should  be  allowed,  and  so  forth. 

Mr.  COOLEY.  Yes ;  and  written  with  special  reference  to  informing 
the  public. 

"Commissioner  SWEET.  I  suppose  that  others,  experts  and  students, 
have  presented  similar  arguments  and  explanations  to  the  public  ? 

Mr.  COOLEY.  Undoubtedly. 

Commissioner  SWEET.  And  yet  the  public  is  not  informed  ? 

Mr.  COOLEY.  It  is  not  informed,  absolutely  not  informed. 

Commissioner  SWEET.  Now  don't  you  think,  Prof.  Coolej7,  that  the 
situation  with  regard  to  the  street-railroad  companies  is  so  acute 
that  it  is  practically  hopeless  for  us  to  attempt  or  for  anybody  to 
attempt  now  to  educate  the  public  and  bring  it  up  to  the  point  of 
doing  what  is  right  and  advisable  in  this  matter  in  time  to  meet  the 
requirements  of  the  situation? 

Mr.  COOLEY.  I  think  it  will  take  almost  a  generation  to  educate 
the  public. 

Commissioner  SWEET.  Then  we  have  to  find  some  other  solution. 

Mr.  COOLEY.  Precisely ;  you  have  to  do  it  right  away,  to-morrow  if 
you  can,  because  it  is  very,  very  critical. 

Commissioner  SWEET.  You  are  not  personally,  directly  interested 
in  street  railroads,  or  are  yon? 

Mr.  COOLEY.  Not  at  all. 

Commissioner  SWEET.  You  are  simply  employed  by  them  to  do  the 
work 

Mr.  COOLEY.  I  am  not  even  employed  by  them  hi  this  case. 

Commissioner  SWEET.  Very  well,  I  think  you  are  a  very  good  man 
for  us  to  talk  to  on  this  subject  a  little  bit.  What  would  you  recom- 


PEOCEEDIXGS  OF  FEDEBAL  ELECTBIC  RAILWAYS  COMMISSION.    279 

mend  in  view  of  the  situation  just  exactly  as  it  is  to  be  done  to  help 
out  this  situation? 

Mr.  COOLEY.  I  would  recommend  that  the  request  of  the  street- 
railroad  companies  be  granted,  that  they  be  given  an  increased  fare 
sufficient  first  to  meet  their  operating  expenses  and  all  the  things 
they  have  to  meet  to  prevent  them  going  into  the  hands  of  a  receiver, 
to  fix  them  up  so  they  can  keep  on  serving  the  public  and  maintain 
their  property  intact,  as  far  as  you  can.  You  can  not  give  them 
enough  at  this  time  to  do  all  the  things  which  will  have  to  be  done 
in  the  next  5  or  10  years.  That  will  give  ample  time  to  make 
investigation  of  the  actual  needs  of  the  different  companies.  You 
can  satisfy  yourself  in  10  years  as  to  what  they  actually  need,  but 
you  can  not  satisfy  it  yourself.  You  can  know  that  they  have  all  got 
to  have — not  a  4£  or  5  cent  fare,  but  at  least  50  per  cent  more,  if  not 
greater  than  that. 

Commissioner  SWEET.  Where  the*  fares  have  been  increased,  as  they 
have  been  in  Boston  and  other  parts  of  Massachusetts,  and  I  think  in 
some  other  parts  of  the  country,  has  there  not  been  more  or  less  of 
a  falling  off  in  patronage? 

Mr.  COOLEY.  Yes,  I  think  so;  to  some  extent  I  know  it  has. 

Commissioner  SWEET.  Is  it  your  opinion  that  raising  fares  alone 
would  be  a  cure  for  this  trouble  that  now  exists  ? 

Mr.  COOLEY.  No,  I  do  not  believe  it  would. 

Commissioner  SWEET.  What  more,  then,  would  you  recommend  ? 

Mr.  COOLEY,  It  would  be  in  the  nature  of  a  palliative. 

Commissioner  SWEET.  Then  what  would  be  your  further  recom- 
mendation? Let  me  help  you  a  little  bit.  It  has  been  suggested 
here  that  what  is  needed  in  this  industry  is  bringing  it  into  a  better 
relation  and  greater  correspondence  with  other  legitimate  industries, 
and  that  is,  introducing  an  element  of  elasticity  into  the  possible 
returns,  which  is  absolutely  impossible  if  you  have  a  regulated  and 
definite  fare  fixed  by  law.  Is  that  true? 

Mr.  COOLET.  I  think  that  is  true,  and  I  have  in  mind  one  or  two 
instances  which  I  think  go  to  prove  it.  This  was  a  case  of  a  company 
that  had  a  very  large  surplus.  After  it  had  done  everything  it  had 
to  do,  it  still  had  money,  and  they  put  it  into  a  surplus.  It  had  so 
large  a  surplus  that  it  was  able  to  finance  all  its  new  undertakings 
and  wrhen  they  were  put  on  their  feet  and  had  reached  an  earning 
condition  the  money  was  returned  to  this  surplus. 

Now,  that  company  has  been,  you  may  say,  perfectly  independent 
during  this  war.  It  has  been  able  to  meet  every  requirement  made 
on  it.  It  has  been  a  flywheel.  And  I  think  one  of  the  safest  and 
one  of  the  sanest  things  to  do  is  to  permit  every  public  utility  to 
have  something  which  we  may  call  a  surge  tank  which  you  can  draw 
out  of  and  put  back  into,  so  you  can  meet  thase  various  fluctuating 
conditions. 

Commissioner  SWEET.  Would  that  involve  necessarily  in  your 
opinion  a  fluctuating  in  the  fares  that  could  be  charged? 

Mr.  COOLEY.  Well,  I  did  not  have  in  mind  that  so  much,  but  it 
might  possibly  work  out  in  that  form  before  you  got  through  with  it. 
It  might  be  the  Cleveland  plan;  for  example,  a  shding-scale  business. 
That  still  I  consider  in  the  experimental  stage. 


280    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  If  that  were  to  be  adopted  and  this  greater 
elasticity  introduced  into  the  earning  side  of  the  business,  do  you 
think  the  service-at-cost  plan  would  fill  the  bill  ? 

Mr.  COOLEY.  No ;  I  do  not  believe  it  would ;  because,  if  I  am  cor- 
rectly informed,  the  Cleveland  situation  is  not  satisfactory  in  that 
not  enough  money  has  been  allowed  to  maintain  that  property  in  the 
condition  which  it  ought  to  be  maintained.  It  has  not  been  able  to 
do  the  things  it  ought  to  do  for  the  public. 

Commissioner  SWEET.  Well,  is  not  that  a  defect  in  carrying  out 
the  plan? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  In  that  particular  case? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  Rather  than  a  defect  in  the  plan  itself? 

Mr.  COOLEY.  Well,  perhaps  so,  but  the  surge  tank  is  too  small 
there,  which  I  think  is  necessary  to  that. 

Commissioner  SWEET.  Service  at  cost  might  very  properly  be  ar- 
ranged on  the  basis  of  taking  care  of  the  repairs  and  deterioration 
expenses  and  everything  else,  might  it  not  ? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  And  should,  of  course? 

Mr.  COOLEY.  Yes,  sir. 

Commissioner  SWEET.  That  should  be  done? 

Mr.  COOLEY.  Yes,  sir. 

Commissioner  SWEET.  And  at  the  same  time  provide  for  a  proper 
return  to  the  investors? 

Mr.  COOLEY.  Yes,  sir. 

Commissioner  SWEET.  And  such  a  return  as  would  induce  further 
investment  ? 

Mr.  COOLEY.  Yes,  sir. 

Commissioner  SWEET.  And  still  at  the  same  time  be  absolutely 
just  to  the  public? 

Mr.  COOLEY.  Yes,  sir.  I  think  Judge  Tayler's  idea  was  a  beautiful 
idea ;  and  it  has  worked  out  much  better,  I  guess,  than  a  great  many 
people  expected  it  would,  but  it  needs  some  perfecting,  as  I  see  it. 

Commissioner  SWEET.  Can  you  suggest  any  better  plan? 

Mr.  COOLEY.  Well,  I  was  thinking  of  what  seems  to  me  to  be  a 
better  plan. 

Commissioner  SWEET.  Well,  tell  me  what  you  think  the  objections 
to  the  plan  are.  That  would  be  the  best  way  to  do  it. 

Mr.  COOLEY.  The  main  objection  to  the  plan  is  that  it  is  not  elastic 
enough.  It  does  not  permit  them  to  do  things  as  quickly  as  they 
ought  to  do  them.  Now,  I  may  be  misinformed  in  regard  to  that.  I 
have  not  looked  into  the  matter  within  a  year  or  two  years,  but  it  is 
not  big  enough.  The  plan  is  not  big  enough.  It  is  held  in  top  small 
units.  They  have  not  got  enough  money  to  work  with.  I  think  the 
Chicago  plan  is  more  practicable. 

Commissioner  SWEET.  What  is  that? 

Mr.  COOLEY.  The  straight  5-cent  fare  has  been  in  existence  there 
for  years,  and,  after  all  the  expenses  of  all  kinds  have  been  paid, 
the  city  and  the  company  have  shared  profits  in  the  proportion  of 
55  per  cent  to  the  city  and  45  per  cent  to  the  company,  and  the  last 
I  heard,  four  or  five  years  ago,  the  city  had  accumulated,  since  1906 
or  1907,  some  twenty-odd  million  dollars,  and  put  it  into  a  fund 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    281 

•which  it  has  accumulated,  and  which  would  enable  them  in  time  to 
buy  the  property  outright  and  have  municipal  ownership. 

Commissioner  SWEET.  Do  you  understand  at  the  present  time  those 
companies  are  making  money  ? 

Mr.  COOLEY.  I  doubt  it.    I  very  much  doubt  it. 

Commissioner  BEALL.  I  can  answer  that,  Mr.  Commissioner.  Both 
systems  there  are  running  at  a  deficit. 

Commissioner  SWEET.  They  are  losing  money? 

Mr.  COOLEY.  Yes. 

Commissioner  BEALL.  Very  fast. 

Commissioner  SWEET.  Why  do  you  advocate  a  plan  in  a  crisis  like 
this  has  proven  to  be,  which  has  not  permitted  it  to  do  its  work  ? 

Mr.  COOLEY.  Well,  that  Chicago  plan  will  work  all  right  if  you 
let  them  increase  the  fare.  Of  course,  the  Chicago  plan  is  very 
practical. 

Commissioner  SWEET.  But  you  have  already  answered  that  by 
saying  that  an  increase  of  fare  does  not  always  increase  the  results 
on  account  of  loss  of  patronage  sometimes. 

Mr.  COOLEY.  Well,  that  is  true,  too ;  but  I  do  not  believe  anybody 
could  say  just  how  much  loss  there  is.  The  automobile  has  had  a 
tremendous  effect.  Jitneys  have  had  a  tremendous  effect.  I  do  not 
believe  you  could  differentiate  at  this  time  the  effect  of  the  increase 
of  the  fare  from  5  to  6  or  7  cents. 

Commissioner  SWEET.  Well,  street-railway  service  is  something  that 
the  public  must  have;  must  it  not? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  And  they  must  pay  what  it  costs? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  Now,  to  induce  the  public  to  depart  from 
the  old  nickel  idea  and  pay  what  this  service  is  fairly  worth  it  must 
be  demonstrated  to  the  public  in  some  way  that  the  nickel  idea  is 
wrong? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  And  that  in  order  to  have  the  benefit  of  this 
service,  something  has  got  to  be  done? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  Now  it  has  been  stated  here  that  there  are 
only  two  things  practical  that  can  be  done.  One  is  to  have  this  serv- 
ice performed  by  municipalities 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET  (continuing).  And  municipal  ownership 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET  (continuing).  And  the  other  is  by  having 
some  form  of  relief 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET  (continuing).  Brought  to  the  private  cor- 
porations in  charge  of  it. 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  Now  objections  have  been  made  to  muni- 
cipal ownership. 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  The  question  that  we  are  trying  to  get  at 
now  is  what  form  of  relief  is  most  practicable? 

Mr.  COOLEY.  Yes. 

543°— 20 19 


282    PROCEEDINGS  OF  FEDERAL  ELECTBIC  RAILWAYS  COMMISSION. 

.Commissioner  SWEET.  What  can  be  done  and  done  quickly  ? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  To  bring  the  public  to  such  a  frame  of 
mind.  Because  there  is  some  psychology  in  this  thing,  is  there  not  ? 

Mr.  COOLEY.    Yes. 

Commissioner  SWEET.  It  is  quite  a  psychological  question? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  So  as  to  enable  the  public  to  get  the  bene- 
fit of  the  best  way  for  the  public  ? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  As  well  as  for  the  corporations  themselves? 

Mr.  COOLEY.  Yes.  I  think  I  can  answer  your  question  more  in- 
telligently now.  Considering  the  fact  that  the  Cleveland  plan  has 
been  running  for  15  or  20  years,  and  that  the  public  already  knows 
a  great  deal  about  it,  and  it  is  on  a  sliding  scale — the  fare  being  pro- 
portioned to  whatever  is  necessary  to  run  the  property — that  would 
seem  to  be  the  plan  which  would  win  the  favor  of  the  public  more 
speedily  than  any  other  plan  that  I  know  of.  Now,  whether  it  is 
a  better  plan  than  the  zone  system  that  is  being  advocated  to-day,  and 
•which  has  been  in  use  in  Europe,  of  course  I  do  not  suppose  anybody 
could  say.  I  think  the  zone  system  is  likely  to  be  fairer;  that  is, 
the  man  who  rides  10  miles  pays  twice  as  much. as  the  man  who  rides 
5  miles.  I  think  that  has  all  the  elements  of  fairness  in  it,  but 
,1  am  afraid  it  is  going  to  meet  with  considerable  opposition, 
although  it  may  be  the  fairest  thing,  because  the  public  in  this 
country  does  not  know  anything  about  it,  and  they  are  opposed 
to  it,  and  it  would  not  get  there  quickly  enough,  however  much 
merit  it  may  have  over  the  Cleveland  plan,  for  example.  I  think 
the  Cleveland  plan  is  a  more  practicable  one  to  meet  this  existing 
situation;  but  even  that  does  not  meet  it  to-day,  because  these  rail- 
roads have  got  to  have  help  to-morrow,  and  the  only  practical  way 
that  I  know  of  getting  help  to  them  is  to  give  them  the  increased 
fare  which  they  are  asking  for.  Now,  that  does  not  need  to  go  in- 
definitely. It  can  .go  for 

Commissioner  BEALL.  May  I  break  in  there  a  minute,  Mr.  Sweet? 

Commissioner  SWEET.  Just  a  minute.  Right  there,  let  me  ask 
you  this:  If  I  understand  you  right,  that  would  merely  be  a 
sort  of  sedative  to  keep  the  patient  alive  until  some  real  curative 
medicine  could  be  administered? 

Mr.  COOLEY.  Precisely.  That  increased  fare  would  keep  them 
going  until  you  could  find  out  what  they  ought  to  have — what  ought 
to  be  done  for  the  patient  to  cure  it. 

Commissioner  BEALL.  That  is  what  I  wanted  to  find  out. 

Mr.  COOLEY.  .Yes. 

Commissioner  BEALL.  You  can  not  raise  money  ? 

Mr.  COOLEY.  No;  you  can  not.     You  are  quite  right. 

Commissioner  SWEET.  As  a  permanent  matter,  it  would  not  fill 
the  bill? 

Mr.  COOLEY.  Not  at  all;  not  in  my  judgment.  This  is  a  very  sick 
patient,  gentleman,  as  I  see  it,  and  it  has  to  be  something  more  than 
doctoring  a  pimple  on  the  skin.  '  You  have  to  get  at  the  constitution 
of  the  patient. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    283 

Commissioner  SWEET.  And  what  you  have  been  telling  us  about 
— about  the  methods  of  arriving  at  the  cost — would  be  too  intricate 
altogether  ? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  For  a  case  of  this  kind,  just  now? 

Mr.  COOLEY.  It  does  not  seem  to  me  to  have  any  particular  bearing 
for  the  immediate  needs. 

Commissioner  SWEET.  No. 

Mr.  COOLEY.  It  will  have  a  very  great  bearing,  however,  when  you 
come  to  treating  the  patient. 

Commissioner  SWEET.  Yes. 

Mr.  CooiiEY.  So  as  to  cure  him. 

Commissioner  SWEET.  There  is  one  thing  that  I  want  to  ask  you 
in  connection  with  that  Grand  Rapids  case  that  you  spoke  of.  Your 
memory  is  a  little  bit  faulty  in  one  particular.  The  original  street- 
railway  company  there  did  not  build  a  cable  line,  but  another  com- 
pany built  that,  because  the  company  that  was  first  operating  there 
refused  to  obey  a  request  or  mandate  of  the  common  council  with  re- 
gard to  building  a  line  up  the  hill.  Subsequently,  the  original  com- 
pany bought  out  the  cable  company,  and  my  recollection  is  that  it 
was  at  a  very  much  lower  price  than  the  actual  cost  of  the  cable 
line.  In  other  words,  that  those  who  went  into  that  lost  money. 

Mr.  COQLEY.  Yes. 

Commissioner  SWEET.  Now,  who  should  stand  that  loss? 

Mr.  COOLEY.  Well,  I  guess  those  ohaps  who  accepted  a  lower  price 
for  it. 

Commissioner  SWEET.  But  the  old  company  that  bought  out  the 
cable  company  got  the  benefit  of  the  lower  price.  In  figuring  the 
cost,  would  you  do  it  at  what  they  paid  for  it  ? 

Mr.  COOLEY.  Yes. 

Commissioner  SAVEET.  Or  at  what  it  cost? 

Mr.  COOLEY.  I  would  figure  it  on  what  they  paid  for  it. 

Commissioner  SWEET.  Does  not  this  system  of  yours  involve  a 
great  many  qualities  that  might  be  considered  to  be  historical?  Is 
not  that  one  right  there? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  Where  the  same  property,  if  what  you  stated 
was  correct,  o?nd  the  cable  line  had  been  built  by  the  company  then 
in  existence.  As  you  put  it  to  us  in  your  direct  testimony,  that  would 
be  a  legitimate  part  of  the  cost  that  should  be  figured  into  a  valua- 
tion  of  the  property? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  Now,  when  I  ,tell  you  that  it  was  built  by 
.-ouiebody  else,  and  they  bought  it  at  a  .reduced  valuation — • — 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET  (continuing).  Then  you  say  that  what  they 
paid  for  it  should  be  figured  in? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  In  other  words,  in  figuring  precisely  the 
same  property,  of  the  street-railway  property  at  Grand  Rapids  to- 
day, on  the  basis  of  your  original  statement,  as  I  understand  it,  it 
would  be  one  amount,  and  on  the  basis  of  your  present  statement  it 
would  be  another  amount;  is  not  that  so? 


284    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  How  do  you  reconcile  that  inconsistency  ? 

Mr.  COOLEY.  Perhaps  I  can  not,  but  here  is  what  I  had  in  mind, 
namely,  that  there  was  no  practical  way  of  paying  those  chaps  who 
lost  their  money.  As  I  understand  it,  the  chaps  who  sold  out  went 
out  of  the  railway  business  entirely. 

Commissioner  SWEET.  Yes,  they  did. 

Mr.  COOLEY.  How  are  you  going  to  pay  them?  They  have  not 
made  their  money  serving  the  public.  It  was  a  gambling  loss. 

Commissioner  SWEET.  And  yet  the  two  systems  of  figuring  would 
bring  different  results? 

Mr.  COOLEY.  Morally,  that  money  was  wisely  spent;  that  is,  hon- 
estly spent,  at  least,  and  the  public  was  required  to  support  the  whole 
investment;  but  there  was  no  practical  way  of  paying  those  chaps 
who  gambled  and  got  out  of  the  field  that  I  can  see. 

Commissioner  SWEET.  We  have  had  some  testimony  here  with  re- 
gard to  a  western  city,  in  which  a  valuation  was  made  by  experts 
representing  the  corporation,  a  private  corporation,  and  also  the 
municipality,  and  that  they  got  together  without  very  much  difficulty 
on  the  valuation. 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  That  has  led  me  to  think  perhaps  a  similar 
process  might  be  adopted  without  much  difficulty  in  other  cities,  and 
without,  perhaps,  going  into  all  of  the  details  and  niceties,  and  with- 
out trying  to  educate  the  public  especially  on  the  subject.  If  the 
representatives  of  the  city — their  experts — agreed  with  the  experts  of 
the  company,  I  dare  say  the  cities  would  generally  acquiesce,  would 
they  not,  in  the  decision,  and  say,  "  Well,  that  is  all  right "? 

Mr.  COOLEY.  One  would  think  so,  really,  but  it  does  not  seem  to 
work  out  that  way.  Detroit  is  a  beautiful  example  of  that.  The 
city's  experts  and  the  company's  experts  have  all  agreed,  but  they 
have  not  any  solution. 

Commissioner  SWEET.  Well,  that  involves  other  questions. 

Mr.  COOLEY.  Yes ;  it  involves  another  question. 

Commissioner  SWEET.  Yes;  several  of  them. 

Mr.  COOLEY.  Yes ;  several  of  them. 

Commissioner  SWEET.  I  think  that  is  all. 

Mr.  COOLEY.  Let  me  go  right  back  again.  I  was  thinking  of  the 
case  in  Grand  Rapids  there,  about  those  chaps  who  lost  their  money. 
Of  course,  if  they  staj7ed  in  the  company,  and  their  investment  was 
still  there  for  the  public,  I  think  I  would  have  given  them  a  return 
on  the  whole  of  it,  and  I  think  I  would,  anyhow,  if  you  could  give  it 
to  them ;  but  I  do  not  see  any  practical  way  of  doing  it. 

Commissioner  SWEET.  Prof.  Cooley,  there  are  other  ways  in  which 
the  companies  might  be  helped,  besides  increasing  the  fare,  like  the 
refund  of  taxes,  are  there  not  ? 

Mr.  COOLEY.  Certainly. 

Commissioner  SWEET.  And  especially  the  matter  of  paving  be- 
tween the  tracks  ? 

Mr.  COOLEY.  Yes,  sir. 

Commissioner  SWLET.  Is  not  that  very  heavy  on  some  of  the  com- 
panies ? 

Mr.  COOLEY.  That  is  very  heavy  in  some  cities.  It  really  cor- 
responds to  a  franchise  payment.  It  amounts  practically  to  an  an- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    285 

nual  franchise  tax.  That  is,  the  city  contracts  to  let  the  railroad 
company  go  through  the  street,  providing  they  will  keep  either  the 
whole  street  paved,  or  a  part  of  it. 

Commissioner  SWEET.  Do  you  know  what  the  origin  of  that  cus- 
tom was  which  required  the  companies  to  pave  between  the  tracks 
and  a  little  outside? 

Mr.  COOLEY.  I  don't  think  I  do. 

Commissioner  SWEET.  Does  it  go  back  to  the  horse-car  days? 

Mr.  COOLEY.  It  goes  back  to  the  horse-car  days ;  yes,  sir. 

Commissioner  SWEET.  That  was  because  the  horses  that  drew  the 
cars  were  supposed  to  wear  out  that  part  of  the  street  ? 

Mr.  COOLEY.  Yes,  sir. 

Commissioner  SWEET.  Do  you  see  any  inequality  in  that  as  between 
the  different  elements  in  the  community? 

Mr.  COOLEY.  I  do  not  know  as  I  clearly  understand  the  "  elements 
in  the  community." 

Commissioner  SWEET.  If  the  patrons  of  the  street-railway  com- 
pany are  required  to  pay  enough  fares  to  meet  all  expenses,  including 
this  paving — 

Mr.  COOLEY.  Yes? 

Commissioner  SWEET  (continuing).  Then  that  part  of  the  com- 
munity would  be  the  only  part  of  the  community  that  would  actually 
furnish  the  money  to  do  the  paving,  would  it  not,  under  the  present 
system? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  Now,  are  there  not  many  people  in  the  com- 
munity who  have  automobiles  and  other  means  of  conveyance  who 
very  seldom  if  ever  use  street  railways? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  And  would  they  not  be  exempt  from  that 
taxation  ? 

Mr.  COOLEY.  Well,  they  are  wearing  out  the  pavement. 

Commissioner  SWEET.  And  they  get  just  as  much  use  of  it;  in  fact,, 
more. 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  Than  those  who  ride  in  the  cars? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  And  yet  they  do  not  pay  any  part  of  the  tax 
under  the  present  system  ? 

Mr.  COOLEY.  I  do  not  believe  I  could  analyze  that  question  suffi- 
ciently to  answer  you. 

Commissioner  SWEET.  If  the  paving  is  paid  for  out  of  the  nickels 
that  come  in,  and  they  do  not  furnish  any  of  the  nickels,  they  do 
not  furnish  any  part  of  it? 

Mr.  COOLEY.  Not  to  the  company,  certainly,  but  they  pay  another 
tax — the  automobile  tax. 

Commissioner  SWEET.  Yes;  but  that  has  nothing  to  do  with  this 
particular  paving  between  the  tracks  and  just  outside? 

Mr.  COOLEY.  "ies,  sir;  I  see  your  point. 

Commissioner  SWEET.  Now,  is  there  any  good  reason  why  Hie 
street-railway  companies  should  be  required  to  do  that  paying f 

Mr.  COOLEY.  No;  I  do  not  think  so. 

Commissioner  SWEET.  Is  there  any  good  purpose  served  by  it  I 

Mr.  COOLEY.  No;  I  do  not  think  so. 


286    PROCEEDINGS  OP  EEDEEAL  ELECTBIC  RAIL.WAYS  COMMISSION. 

Commissioner  SWEET.  Do  you  think  it  is  an  unjust  ibur.tlen  upon 
them  ? 

Mr.  COOLEY.  Yes ;  it  is  to-day ;  it  surely  is  to-day,  and  in  the  final 
adjustment  you  might  excuse  them  from  that,  taking  account  .of  :the 
difference — the  saving  in  the  fare. 

Commissioner  SWEET.  Do  you  think  it  would  be  more  equitable  if 
spread  over  the  community  in  the  same  way  that  other  paving  re- 
pairs are  ? 

Mr.  COOLEY.  Yes ;  I  believe  it  would. 

Commissioner  SWEET.  How  about  the  taxation  of  its  physical 
properties?  Do  you  think  there  .would  Jbe  any  justice,  or  do  you 
think  the  public  would  stand  for  remitting  taxation  under  present 
conditions? 

Mr.  COOLEY.  I  do  not  know,  sir;  I  do  not  know,  sir.  I  do  nqt 
know  whether  it  would  stand  for  the  remitting  of  anything  to-day. 
I  do  not  know  how  far  we  can  go  toward  remitting  taxes. 

Commissioner  SWEET.  Well,  if  the  public  had  to  walk  instead  of 
ride  for  a  week  or  two,  or  a  month  or  so,  they  would  reconsider  some 
of  these  matters,  maybe,  would  they  not? 

Mr.  COOLEY.  I  think  that  is  quite  true.  It  is,  however,  one  .way 
of  helping  in  the  present  emergency  to  remit  their  taxes,  for  example. 

Commissioner  SWEET.  It  is  just  as  important  to  reduce  the  costs— 
'Mr.  COOLEY.  Yes. 

Commissioner  SWEET  (continuing).  'To  reduce  the  burden  of  these 
companies — 

Mr.  COOLEY.  Yes,  sir. 

Commissioner  SWEET  (continuing).  As  it  is  to  .increase  the.ir  in- 
come, is  it  not  ? 

Mr.  COOLEY.  Precisely. 

Commissioner  SWEET.  The  result  is  practically  the  same? 

Mr.  COOLEY.  Precisely. 

Mr.  WARREN.  It  is  even  surer? 

Mr.  COOLEY.  Yes. 

Commissioner  SWEET.  Yes. 

Mr.  COOLEY.  The  companies  are  putting  very  materially  -  the 
moneys  required  to  keep  the  property.  They  are  .not  making  any 
renewals  or  replacements,  but  they  are  allowing  the  property  to  run 
down.  It  is  a  deferred  maintenance.  They  are  doing  everything 
they  can.  They  are  even  going  too  far  in  it.  They  are  not  rendering 

food  service.  Of  course,  they  have  simply  got  to  do  it.  They  can  not 
elp  themselves.  They  have  got  to  do  it. 

Commissioner  SWEET.  Somebody, has  to  do  it,  and  if  the  companies 
can  not  do  it,  then  the  public  has  to  do  it  for  .itself? 

Mr.  COOLEY.  The  company  has  to  do  the  very  least  it  can  do. 

Commissioner  SWEET.  Yes,  but  there  is  a  limit ;  is  there  not  ? 

Mr.  COOLEY.  There  is  a  limit,  because  they  can  let  this  maintenance 
go  down  to  such  a  point  as  to  be  absolutely  dangerous  to  the  public. 

Commissioner  SWEET.  Yes. 

Mr.  COOLEY.  Yes.  And  they  will  have  to  stop  there,  surely. 

Commissioner  SWEET.  The, only  recourse  would  be  municipal  own- 
ership  and  operation,  would  it  not? 

Mr.  COOLEY.  Yes.  Now,  I  have  favored  municipal  ownership, 
not  that  I  believe  it  to  be  successful,  but. I  have  been  an  advocate  of 
municipal  ownership  for  5  or  10  years. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    287 

Commissioner  SWEET.  And  operation? 

Mr.  COOLEY.  And  operation — the  whole  thing.  I  have  advocated  it 
strongly,  but  I  do  not  believe  it  would  be  a  success. 

Commissioner  SWEET.  Why  do  you  advocate  a  thing  that  you  do 
not  believe  would  be  a  success? 

Mr.  COOLEY.  Simply  because  it  is  the  quickest  way  to  teach  the 
public.  I  have  worked  for  it.  I  have  urged  it.  I  have  said,  "  No- 
body can  answer  that  question ;  nobody  knows.  Let  us  try  it." 

Commissioner  SWEET.  Then  you  think  the  way  to  make  a  boy 
better  is  to  punish  him  ? 

Mr.  COOLEY.  No ;  I  think  it  is  a  case  of  giving  candy  to  the  person 
who  wants  it  until  he  gets  the  belly-ache.  [Laughter]. 

Commissioner  SWEET.  What  worse  punishment  could  there  be  than 
that? 

Mr.  COOLEY.  Well,  that  comes  to  the  same  thing;  yes. 

Commissioner  SWEET.  Then,  you  really  do  not  believe  in  the 
efficacy  of  municipal  ownership  as  a  permanent  proposition  ? 

Mr.  COOLEY.  Theoretically,  it  is  altogether  better  than  private 
ownership.  There  is  no  question  about  that.  Every  analysis  you 
make  of  a 'public-utility  property,  worked  under  ideal  conditions,  it 
shows  a  better  thing  for  the  public  under  municipal  ownership; 
but  when  you  go  to  put  it  into  practice,  I  think  it  will  go  way  the 
other  way.  I  think  it  is  a  beautiful  thing  as  an  ideal,  but  absolutely 
a  fruitless  prospect  from  the  practical  point  of  view. 

Commissioner  SWEET.  In  the  matter  of  the  water  supplies,  munici- 
pal ownership  has  proven  successful,  has  it  not? 

Mr.  COOLEY.  That  is  fine.  There  are  other  things  there,  because 
there  is  policing  required.  The  public  is  willing  to  pay  a  price  for 
such  a  thing  as  that.  Their  health  is  involved.  It  is  the  same  way 
with  the  sewers.  The  public  has  got  to  do  that.  I  think  water  sup- 
plies and  sewers  have  to  be  run  by  municipalities. 

Commissioner  SWEET.  Do  jou  remember  the  fight  we  had  in 
Grand  Rapids  against  the  corporation  there? 

Mr.  COOLEY.  Very  distinctly.  We  had  the  same  sort  of  trouble 
down  in  Ann  Arbor. 

Commissioner  SWEET.  So  that,  as  far  as  private  corporations  en- 
.gaged  in  water  supplies  are  concerned,  you  think  it  is  better  to  put 
them  out  of  business? 

Mr.  COOLEY.  I  think  so,  although  it  is  cheaper,  when  you  buy  it 
from  a  private  corporation ;  I  mean  practically. 

Commissioner  SWEET.  Yes.  How  about  lighting?  Would  you  put 
that  on  the  same  basis  as  water? 

Mr.  COOLEY.  If  there  was  the  same  controversy  going  on  to-day 
in  connection  with  lighting  and  electric  power,  lighting  particularly, 
that  is  going  on  with  respect  to  the  electric  street  railways,  I  would 
favor  municipal  ownership  until  the  people  could  find  out  whether 
it  was  a  good  thing  or  a  bad  tiling  to  have  municipal  ownership.  I 
would  answer  their  question  in  a  practical  way. 

Commissioner  SWKET.  Do  you  think  the  people  of  the  country 
want  municipal  ownership  of  the  street  railways? 

Mr.  COOLEY.  I  do  not  think  they  do. 

Commissioner  SWEET.  Then  what  is  the  use  of  advocating  it  ? 

Mr.  COOLEY.  Because  I  believe  the  people  that  do  want  it  make  so 
much  noise  that  the  other  fellows  are  entirely  smothered  out. 


288    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  That  is  all. 

The  CHAIRMAN.  As  a  rule  the  fellow  who  makes  the  noise  does  not 
pay  the  taxes. 

Mr.  COOLEY.  That  is  right.     I  thank  you  very  much,  gentlemen. 

Mr.  WARREN.  I  want  to  file,  if  I  may,  Mr.  Chairman,  without 
taking  the  time  to  read  it,  a  memorandum  of  the  valuation  of  elec- 
tric-railway properties  by  A.  Merritt  Taylor,  of  Philadelphia,  who, 
as  the  commission  may  know,  is  the  president  of  the  Philadelphia 
&  West  Chester  Traction  Co.,  a  former  president  of  the  New  Jersey 
&  Hudson  River  Railway  &  Ferry  Co.,  and  who  was  transit  com- 
missioner of  the  city  of  Philadelphia,  from  July,  1912,  to  July,  1913; 
a  director,  department  of  city  transit,  city  of  Philadelphia,  July, 
1913,  to  January,  1915,  in  charge  of  location,  design,  and  construc- 
tion of  municipal  subways  and  elevated  lines,  and  in  charge  of  prepa- 
ration of  legislation  required  to  enable  the  city  of  Philadelphia  to 
finance  and  establish  its  municipal  system;  and  more  recently  the 
manager  of  the  division  of  passenger  transportation  and  housing, 
United  States  Shipping  Board,  Emergency  Fleet  Corporation. 

The  memorandum  thus  referred  to  by  Mr.  Warren  is  as  follows : 

MEMORANDUM  IN  RE  VALUATION  OF  ELECTRIC-RAILWAY  PROPERTIES. 

By  A.  MERRITT  TAYLOR,  Philadelphia. 

An  electric-railway  company  engaged  in  a  legitimate  constructive  enterprise 
is  entitled  to  charge  rates  for  service  which  will  yield  a  profitable  return  on 
the  true  cost  of  establishing  and  developing  its  property  and  business.  Any- 
thing short  of  this  means  confiscation  of  money  invested  in  public  service. 

In  order  that  exact  justice  shall  be  accorded  all  parties  at  interest,  and 
electric-railway  property  must  be  valued*  at  the  true  legitimate  cost  of  its  estab- 
lishment and  development  up  to  the  date  when  the  valuaion  is  made. 

If,  in  the  early  stages  of  development,  the  net  results  of  operation  produce 
a  return  which  is  short  of  the  amount  required  to  duly  compensate  the  owners 
of  capital  invested  in  the  property  for  its  use  during  such  period,  and  to  pro- 
vide for  normal  depreciation  and  obsolescence,  such  shortage  plus  accrued  in- 
terest on  accumulated  portion  of  just  return  withheld  from  investors  must 
necessarily  be  considered  to  be  a  part  of  the  cost  of  the  development  of  the 
property  and  its  business  and  be  included  as  an  element  of  value. 

If  an  electric-railway  property  be  valued  (as  is  proposed  by  impractical 
theorists)  at  its  cost  less  depreciation  and  obsolescence,  or  at  what  would  be 
the  cost  of  reproducing  it  less  depreciation  and  obsolescence,  in  instances  where 
the  net  revenue  has  been  insufficient  to  yield  a  return  on  the  capital  invested 
therein  duly  compensatory  for  the  service  performed  and  the  risks  assumed, 
or  where  the  net  revenue  has  been  insufficient  to  provide  for  depreciation  and 
obsolescence  in  addition  to  yieding  a  just  return  upon  the  capital — such  valua- 
tion is  unjustifiable  and  rates  based  thereon  are  confiscatory. 

An  electric-railway  enterprise  is  entitled  to  charge  such  rates  as  are  re- 
quired to  protect  the  capital  legitimately  invested  therein  and  to  yield  to  the 
owners  of  such  capital  a  cumulative  return  which  will  adequately  compensate 
them  for  its  use,  for  the  risks  assumed  and  the  service  performed,  and  which 
are  required  to  properly  meet  cumulative  depreciation  and  obsolescence,  to 
invite  corporate  initiative  and  to  maintain  the  credit  and  ability  of  the  enter- 
prise to  procure  such  additional  capital  as  is  required  from  time  to  time  for  the 
purpose  of  expanding  its  facilities  for  public  service. 

Capital  will  not  be  available  for  electric-railway  requirements  In  States  and 
municipalities  where  there  be  question  as  to  whether  electric-railway  com- 
panies will  be  prevented  by  regulatory  authorities  from  establishing  rates  re- 
quired to  yield  and  inviting  cumulative  return  on  the  capital  invested  therein. 
This  fact  must  be  recognized  and  steps  must  be  promptly  taken  to  remove  the 
grounds  for  reasonable  doubt  in  the  premises.  Nothing  short  of  a  clear  and 
common  understanding  of  how  valuations  of  electric-railway  properties  made 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    289 

for  rate-making  purposes  shall  be  arrived  at,  and  of  what  elements  must  be 
regarded  in  the  fixation  of  rates,  will  enable  the  electric-railway  enterprise 
to  raise  the  capital  which  is  required  to  meet  their  obligations  and  expand  their 
facilities  as  required  for  public  service. 

There  is  a  serious  and  inherent  risk  which  confronts  every  investor  who  in- 
vests in  electric-railway  constructive  enterprises,  namely,  the  risk  that  such, 
enterprise  will  not  yield  a  just  return  on  the  capital  investe-  therein  at  any 
rate  which  its  customers  would  be  willing  to  pay  for  the  service.  In  such  in- 
stances where  the  rates  are  so  high  as  to  invoke  the  law  of  diminishing  re- 
turn, the  management  of  the  enterprise  will  necessarily  have  to  decrease  rates 
to  such  a  basis  as  will  yield  the  maximum  net  return,  and  the  investor,  in  the 
absence  of  public  assistance,  will  necessarily  have  to  accept  a  lesser  return  on 
his  capital  unless  through  development  of  business  the  shortage  can  be  made 
up  and  paid  in  later  years. 

Many  electric-railway  companies  which  are  rendering  essential  service  are 
now  confronted  with  the  fact  that  there  is  no  rate  of  fare  which  will  enable 
them  to  continue  efficient  operation  of  their  properties  and  which  will  yield 
to  them  a  return  sufficient  to  meet  the  new  level  of  operating  and  renewal  costs 
resultant  from  the  war,  onerous  conditions  and  charges  imposed  upon  them  by 
municipal,  State,  and  Government  authority,  and  to  pay  a  just  return  on  the 
capital  invested  in  their  properties.  In  such  instances  the  credit  of  the  electric- 
railway  company  is  impaired ;  it  can  raise  no  money  with  which  to  provide  the 
additional  facilities  which  are  required  from  time  to  time  for  the  service  of  the 
public  in  a  growing  community  ;  and  the  public  must  augment  its  net  revenue  in 
one  way  or  another  to  an  extent  sufficient  to  enable  it  to  maintain  its  credit 
and  meet  its  just  obligations,  or  be  deprived  of  essential  service.  There  are 
many  electric  railways  which  will  be  completely  abandoned  with  the  resultant 
incalculable  loss  to  the  communities  which  they  serve  unless  their  credit  be 
promptly  restored  and  maintained  through  public  cooperation. 

STATEMENT  OF  MR.  W.  D.  GEORGE. 

Mr.  WARREN.  Mr.  George,  will  you  state  your  full  name,  please  ? 

Mr.  GEORGE.  William  D.  George. 

Mr.  WARREN.  William  D.  George? 

Mr.  GEORGE.  Yes,  sir. 

Mr.  WARREN.  And  your  business  ordinarily  is  that  of 

Mr.  GEORGE.  Real  estate. 

Mr.  WARREN.  And  you  have  taken  on  a  new  business  recently; 
have  you  not? 

Mr.  GEORGE.  Yes,  sir. 

Mr.  WARREN.  And  what  is  that? 

Mr.  GEORGE.  I  am  one  of  the  receivers  of  the  Pittsburgh  Railways 
Co. 

Mr.  WARREN.  How  long  have  you  been  such  receiver? 

Mr.  GEORGE.  Since  December  21,  1918. 

Mr.  WARREN.  Was  that  when  the  road  first  went  into  a  receiver- 
ship? 

Mr.  GEORGE.  No;  the  road  was  in  the  hands  of  receivers  since 
March  or  April — I  believe  it  was  in  April,  1918. 

Mr.  WARREN.  And  you  are  a  successor  to  the  receivers? 

Mr.  GEORGE.  I  am  successor  to  one  of  the  original  receivers. 

Mr.  WARREN.  You  are  not  a  street-railway  man  in  the  sense  of 
having  been  connected  with  the  street-railway  business  before  you 
were  appointed  receiver? 

Mr.  GEORGE.  No. 

Mr.  WARREN.  Have  you,  since  vour  appointment,  made  a  pretty 
thorough  study  of  the  Pittsburgh  Railways  system  situation? 

Mr.  GEORGE.  I  have  tried  to. 


290    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  When  you  became  receiver,  what  fares  were  being 
charged  on  the  Pittsburgh  Railways  Co.  ? 

Mr.  GEORGE.  They  had  two  rates  of  fare  in  the  city  at  that  time. 
One  was  5  cents,  which  prevailed  in  the  congested  area,  the  down- 
town district;  and  the  other  rate  was  7  cents,  which  was  in  the  out- 
lying district;  and  the  7-cent  fare  also  was  charged  for  those  pas- 
sengers who  rode  from  the  downtown  area  out  to  the  outlying  dis- 
trict, where  the  7-cent  fare  prevailed. 

Mr.  WARREN.  Was  it  roughly  two  zones,  like  my  hat,  one  zone  here, 
covering  the  center  of  the  city,  a  circle,  and  then  .going  around  the 
circle  where  the  7-cent  fare  applied? 

Mr.  GEORGE.  Yes. 

Mr.  WARREX.  And  a  ride  anywhere  in  the  outer  zone  was  7  cents? 

Mr.  GEORGE.  Yes. 

Mr.  WARREN.  Long  or  short? 

Mr.  GEORGE.  Yes. 

Mr.  WARREX.  But  it  also  enabled  them  to  come  from  the  outer  zone 
to  the  inner  zone? 

Mr.  GEORGE.  Yes. 

Mr.  WARREX.  A  ride  in  the  inner  zone  was  5  cents? 

Mr.  GEORGE.  Five  cents. 

Mr.  WARREN.  And  I  suppose  that  prior  to  that  it  was  a  5-cent  fare 
in  the  whole  territory. 

Mr.  GEORGE.  That  is  right. 

Mr.  WARREN.  Also  if  a  person  went  from  this  inner  congested  zone 
to  the  outer  outlying  zone,  he  paid  7  cents? 

Mr.  GEORGE.  You  are  speaking  now  of  the  new  fare? 

Mr.  WARREX.  No;  I  mean  the  fare  that  you  found  in  effect. 

Mr.  GEORGE.  It  was  7  cents  from  the  center  of  the  town  out  to  the 
districts — the  7-cent  district. 

Mr.  WARREN.  Something  like  the  zone  system  which  was  put  in  in 
Springfield,  Mass.,  except  that  fare  was  the  same  for  each  ^one,  with 
a  reduced  rate  less  than  the  sum  of  the  two  for  a  ride  from  one  zone 
to  the  other. 

How  long  had  that  fare  been  in  effect  when  you  were  appointed  in 
December  $ 

Mr.  GEORGE.  They  made  a  change  from  the  flat  5-cent  fare  in 
January  of  1918.  They  first  attempted  a  6-cent  cash  fare  and  two 
tickets  for  11  cents. 

Mr.  WARREN.  That  was  a  flat  fare  all  over  the  whole  territory? 

Mr.  GEORGE.  Yes ;  but  they  found  that  that  did  not  give  them  the 
revenue  which  they  needed,  and  very  shortly  after  it  was  put  into 
effect  they  put  the  5  and  7  cent  fares  into  effect. 

Mr.  WARREN.  Did  the  6-cent  fare,  or  two  tickets  for  11  cents,  or 
5^-cent  ticket,  give  them  some  increased  revenue  ? 

Mr.  GEORGE.  Well,  they  did  not  get  any  increased  revenue  out  of 
it.  It  was  in  effect  a  very  short  period  of  time,  and  during  a  period 
of  time  when  the  situation  was  very  much  disturbed,  due  to  war 
conditions  and  other  conditions,  and  they  could  not  very  well  meas- 
ure what  the  effect  of  that  fare  was,  but  they  realized  that  they  were 
not  going  to  get  from  it  the  revenue  which  was  necessary,  and  they 
immediately  changed  to  the  other  system. 

Mr.  WARREN.  Did  *ne  second  system,  of  5  and  7-cent  fares,  pro- 
duce an  increased  income  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    291 

Mr.  GEORGE.  Yes ;  it  has. 

Mr.  WARREN.  A  substantial  increase? 

•Mr.  GEORGE.  Well,  the  .receipts  from  the  5  and  7-cent  fare,  meas- 
ured by  the  first  5  months  of  this  year,  as  compared  with  the  first 
5  months  of  last  year,  have  netted  an  increase  of  approximately  15 
per  cent.  The  average  rate  of  fare  under  the  5 -cent  fare,  of  course, 
was  approximately  5  cents,  and  there  were  some  deviations  in  some 
of  the  outlying  districts,  which  made  it  slightly  less  than  that,  but 
it  was  approximately  5  cents.  The  new  rate  of  fare,  when  it  was  put 
into  effect,  made  an  average  rate  of  fare  of  approximately  6.23  cents. 
:The  average  rate  of  fare  now  as  received  has  risen  until  it  is  6/28 
cents,  which  indicates  that  the  riding  habit  in  the  7-cent  zone  has  a 
little  better  than  maintained  the  average  increase  that  it  it  did  in  the 
5-cent  zone. 

The  CHAIRMAN.  Is  that  because  they  are  longer  rides,  and  they 
must  ride? 

Mr.  GEORGE.  Well,  that  would  no  doubt  have  some  effect  on  it.  Of 
course,  any  conclusion  which  you  draw  from  a  mere  statement ^of  one 
factor  must  be  a  hasty  conclusion  and  eliminate  other  factors.  No 
cloubt  it  must  have  some  effect,  but  we  were  encouraged  to  believe 
that  increased  rates  of  fare  were  going  to  produce  an  increased 
revenue. 

Commissioner  BEALL.  Your  fare  is  now  a  IQ-centcash  fare,  is  it  not? 

Mr.  GEORGE.  We  have  filed  a  new  tariff  with  the  public-service 
commission  to  become  effective  on  the  1st  of  August,  which  pro- 
vides a  10-cent  cash  fare,  or  4  tickets  for  30  cents  and  8  tiqkets  for 
60  cents. 

Mr.  WARREN.  That  becomes  effective  on  August  1  ? 

Mr.  GEORGE.  August  1. 

Mr.  WARREN.  Well,  you  are  doing  that  because  your  income,  ;even 
with  this  15  per  cent  increase,  is  still  insufficient? 

Mr.  GEORGE.  Yes. 

Mr.  WARREN.  Can  you  tell  the  commission  approximately  for  any 
particular  period  how  your  income  ,and  operating  expenses  have 
run,  and  what  balance  there  is,  or  deficit? 

Mr.  GEORGE.  Early  in  the  year  we  .made  a  budget  estimate  for  the 
year,  and  we  estimated  our  income*  for  the  year  at  something  over 
$15,000.000.  Our  experience  so  far  this  year— six  months — -has  very 
accurately  approached  the  estimate,  or  rather,  the  estimate  is  a  pretty 
accurate  determination  of  wrhat  the  rate  of  fare  has  actually  earned. 
Xow,  at  the  time  we  made  that  estimate,  we  estimated  also  our  oper- 
ating expense  for  the  year,  and  we  figured  that  at  the  end  of  the 
year  we  would  have  an  operating  profit  of  about  $1,600,000, 
if  we  were  able  ,to  induce  tjie  city  to  forego  certain  municipal 
charges  which  ..were  assessed  against  us,  which  we  felt  we  were  .not 
able  to  pay. 

The  CHAIRMAN.  What  was  the  amount  of  those  charges? 

Mr.  GEORGE.  Those  charges  were  approximately  $300,000. 

Commissioner  BEALL.  You  were  also  behind  in  your  power  bills, 
were  you  not? 

Mr.  GEORGE.  Well,  we  had  prereceivership  bills  of  about  $000,000, 
which  ,were  still  outstanding,  and  which  the  court  had  authorized 
the  receivers  to  pay  at  their  discretion.  We  have  made  about  20 


292    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

per  cent  of  the  payment  on  that  $900,000  of  prereceivership  bills. 
The  power  bill  was  in  that,  but  this  $1,600,000  of  operating  revenue, 
of  course,  was  after  the  power  bills  for  the  current  were  taken  care 
of.  Now,  that  $1,600,000  did  not  take  care  of  any  of  the  extraordi- 
nary maintenance  charges — any  depreciation  charge — nor  did  it  take 
care  of  any  of  our  fixed  charges,  or  any  interest  charges  of  any  nature 
at  all.  The  fixed  charges  amount  to  about  $3,500,000  a  year. 

Commissioner  GADSDEN.  Three  million  five  hundred  thousand 
dollars? 

Mr.  GEORGE.  Three  million  five  hundred  thousand  dollars  a 
year,  about.  So  our  situation  is  really  very  important  at  the  pres- 
ent time,  because  we  have  in  default  something  between  $2,500,000 
and  $3,000,000  of  fixed  charges,  and  we  owe  the  city  a  very — 

Commissioner  GADSDEN.  Is  that  from  the  1st  of  January,  the  cur- 
rent deficit? 

Mr.  GEORGE.  What  is  that? 

Commissioner  GADSDEN.  Is  that  the  current  deficit,  from  the  1st 
of  January? 

Mr.  GEORGE.  I  am  speaking  about  the  defaults  which  have  actually 
occurred,  not  the  ones  which  are  occurring. 

Commissioner  GADSDEN.  Oh,  yes. 

Mr.  GEORGE.  But  merely  those  defaults  which  have  actually  oc- 
curred up  to  the  1st  of  July. 

Mr.  WARREN.  How  much  did  you  say  they  were,  roughly  ? 

Mr.  GEORGE.  Well,  I  said  $2,500,000  to  $3,000,000. 

Mr.  WARREN.  That  is  interest  ? 

Mr.  GEORGE.  That  is  interest  and  rentals. 

Mr.  WARREN.  Yes;  and  you  started  to  say  that  you  were  also  in 
arrears  in  your  payments  to  the  city. 

Mr.  GEORGE.  In  our  payments  to  the  city  for  bridge  tolls,  for  street 
cleaning,  for  franchise  charges  of  one  nature  and  another,  and,  in 
addition  to  that,  the  city  is  trying  to  force  us  into  cooperating  in 
certain  changes  which  they  are  making,  which  would  entail  a  re- 
alignment and  change  of  grade  of  our  tracks ;  and  we  have  no  money 
to  meet  that  with.  When  we  put  the  old  rate  of  fare  into  effect,  wo 
did  it  without  the  sanction  of  the  public-service  commission,  and  we 
were  compelled  to  issue  rebate  slips,  and  there  is  approximately 
$1,300,000  of  those  rebate  slips  which  are  in  the  hands  of  the  public. 
If  the  public-service  commission  refuses  to  allow  the  rate  of  fare 
which  is  now  prevailing 

Mr.  WARREN.  That  is  the  5  and  7-cent  fares  ? 

Mr.  GEORGE.  The  5  and  7-cent  fares — and  if  they  are  presented, 
why,  the  receivers  are  insolvent.  [Laughter.] 

Mr.  WARREN.  And  nobody  would  take  the  job? 

Commissioner  GADSDEN.  The  only  thing  left  would  be  to  put  the 
receivers  in  jail ;  would  it  not  ? 

Mr.  GEORGE.  I  don't  know  wrhat  would  happen. 

Mr.  WARREN.  Mr.  George,  you  say  that  $1,600,000,  without  the  pay- 
ment of  any  fixed  charges,  was  your  estimate  for  the  year,  at  the  5 
and  7-cent  rates  ? 

Mr.  GEORGE.  Yes. 

Mr.  WARREN.  My  attention  was  diverted  for  a  minute.  Did  you 
say  to  the  commission  what  }^ou  estimated  the  depreciation  deduction 
should  be  on  that  $1,600,000? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    293 

Mr.  GEORGE.  Well,  it  has  been  suggested  that  we  should  build  26 
miles  of  new  track  each  year,  to  keep  the  plant  in  perfect  condition. 
We  have  600  miles  of  track  there,  and  26  miles  of  track  a  year  would 
cost,  I  imagine,  $60,000  to  $70,000  a  mile ;  and  you  can  imagine  what 
that  would  be.  Then,  we  have  to  buy  new  cars,  and  they  say  we 
should  have  about  $300,000  a  year  to  invest  in  new  equipment. 

Commissioner  SWEET.  How  many  receivers  are  there? 

Mr.  GEORGE.  Three. 

Commissioner  SWEET.  Are  they  all  rich  men?     [Laughter.] 

Commissioner  MEEKER.  Do  you  have  in  mind  the  third  set  of  re- 
ceivers? [Laughter.] 

Mr.  GEORGE.  I  am  really  embarrassed  to  state  this  situation;  but 
it  is  true,  nevertheless. 

Commissioner  WEHLE.  How  many  constituent  companies  are  there 
in  the  present  Pittsburgh  Railways  system  ? 

Mr.  GEORGE.  Something  over  60  underlying  companies. 

Commissioner  WEHLE.  When  were  the  most  recently  formed  com- 
panies in  this  group  of  units  organized  ? 

Mr.  GEORGE.  Well,  the  last  consolidation  which  took  place  was  the 
formation  of  the  Pittsburgh  Railways  Co.,  which  brought  together 
three  companies — the  Consolidated  fraction  Co.,  the  United  Trac- 
tion Co.,  and  the  Southern  Traction  Co.  The  Southern  Traction 
Co.'s  name  was  changed  to  the  Pittsburgh  Railways  Co.,  and  the 
other  two  companies  were  brought  into  the  system  under  an  operating 
agreement.  The  operating  agreement  is  subject  to  cancellation  notice 
of  90  days ;  and  those  notices  have  been  served. 

Commissioner  WEHLE.  Were  any  of  these  three  companies  operat- 
ing a  service  to  the  outlying  portions  of  Pittsburgh — excuse  me,  Mr. 
Warren. 

Mr.  WARREX.  I  only  wanted  to  finish  one  line,  and  then  have  tho 
commission  take  him  up. 

Commissioner  WEHLE.  You  have  some  questions  along  a  certain- 
line  which  you  wish  to  ask  ? 

Mr.  WARREX.  Yes.  I  have  not  quite  finished  the  only  line  that  I 
had  in  mind  asking  him  about,  and  which  I  wanted  to  find  out  about,, 
because  I  do  not  have  a  chance  to  talk  with  -him  myself  to  any  great 
extent. 

As  I  understand  it,  Mr.  George,  you  estimated  $1,600,000  above 
operation  for  the  year.  Was  that  above  operation  and  taxes  or  above 
operation? 

Mr.  GEORGE.  Well,  that  was  above  operation,  with  about  40  per 
cent  of  the  taxes  included.  We  have  about  a  half  million  dollars 
of  annual  taxes,  and  about  60  per  cent  of  them  are  local  taxes  and 
about  40  per  cent  of  them  are  State  and  national  taxes.  That  in- 
cludes the  State  and  national  taxes,  because  we  thought  there  was  no 
chance  of  having  any  relief  from  that  source,  but  we  still  had  hopes 
that  perhaps  we  could  get  the  city  to  recognize  the  situation  and  re- 
lieve us  of  the  local  taxes. 

Mr.  WAHREX.  Then  I  understand  that  your  experience  for  the  first 
six  months  of  the  year  with  your  5  and  7-cent  fares  indicates  that 
your  estimate  of  $1,600,000  is  substantially  correct? 

Mr.  GEORGE.  Very,  very  close  indeed  to  the  actual. 

Mr.  WARREX.  Assuming  it  to  be  correct,  you  would  then  have  about 
$300,000  for  taxes  or  city  charges,  unless  you  are  relieved  of  them,  and 


294    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

you  would  have  ,a  depreciation  that  would  exhaust  those  two  items, 
that  would  exhaust  the  entire  balance  above  the  operating  expense; 
is  that  correct  ? 

Mr.  GEORGE.  Undoubtedly. 

Mr.  WARREN.  Can  you  say  <a  word  .about  your  wage  situation? 
What  rate  are  you  paying  now  to  the  train  men  ? 

Mr.  GEORGE.  Forty-eight  cents  is  the  maximum-wage  pay. 

Mr.  WARREN.  Was  that  a  War  Labor  Board  award  '. 

Mr.  GEORGE.  That  was  a  War  Labor  Board  award. 

Mr.  WARREN.  Is  there  any  movement  with  reference  to  its  change 
or  increase  of  that? 

Mr.  GEORGE.  The  men  demanded  60  cents  as  a  maximum  wage,  and 
the  receivers  refused,  on  the  ground  that  they  did  not  have  the  money 
to  pay,  and  the  men  went  on  a  strike.  Then  it  was  agreed  that  the 
matter  should  be  left  to  the  War  Labor  Board  for  arbitration;  and 
the  matter  has  been  heard  by  the  War  Labor  Board,  but  no  decision 
has  been  rendered.  A  60-cent  rate  of  wages,  if  it  is  made  effective, 
and  a  corresponding  increase  .given  fo  other  employees  of  the  com- 
pany  

Mr.  WARREN.  And  have  they  asked  for  a  corresponding  increase? 

Mr.  GEORGE.  Yes ;  they  will  have  to  have  it — would  mean  an  addi- 
tional expenditure  of  about  $2,000,000. 

Mr.  WARREN.  Do  you  mean  per  annum  or  for  six  months? 

Mr.  GEORGE.  For  the  year.  It  would  cause  us  an  increase  of 
about  $2,000,000. 

Mr.  WARREN.  For  this  current  }7ear? 

Mr.  GEORGE.  Yes. 

Mr.  WARREN.  For  12  months? 

Mr.  GEORGE.  At  the  rate  of  $2,000,000  a  year. 

Mr.  WARREN.  Or,  in  other  words,  another  million  dollars  for  this 
year  on  which  the  budget  was  $1,600,000? 

Mr.  GEORGE.  Yes. 

Mr.  WARREN.  That  would  put  you  something  over  a  million  dollars 
in  the  hole  ? 

Mr.  GEORGE.  Yes. 

Mr.  WARREN.  Well,  as  a  matter  of  fact,  if  you  have  that  $1,600,000 
is  it  all  committed  in  one  way  or  another  for  existing  liabilities  or 
prereceivership  liabilities  or  extraordinary  expenses;  or  do  you  ex- 
pect to  have  some  of  it  in  cash. at  the  end  of  the  year? 

Mr.  GEORGE.  Well,  if  we  have  any  of  it  in  cash  it  will  be  because  we 
have  refused  to  pay  it  out. 

Mr.  WARREN.  Not  because  there  .are  not  liabilities  on  which  you 
could  pay  it  out? 

Mr.  GEORGE.  Not  because  there  are  not  claimants  for  it. 

Mr.  WARREN.  You  seem  to  have  a  number  of  specific  charges,  some 
of  which  sound  a  little  unusual  to  me,  although  I  thought  I  knew  of 
a  great  many.  Can  you  tell  the  commission  what  they  are?  You 
spoke  of  street  cleaning.  What  does  that  mean  ? 

Mr.  GEORGE.  Well,  the  franchises  call  for  the  street-car  companies 
to  maintain  the  track,  as  is  customary,  the  paving,  and  also  to  clean 
the  streets  along  which  they  operate. 

Mr.  WARREN.  How  much  of  the  street  ? 

Mr.  GEORGE.  Well,  that  was  the  question;  and  it  was  finally,  after 
years  of  litigation,  resolved  to  a  fixed  sum  of  money  which  the  trac- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    295 

tion  -company  and  the  city  agreed  would  be  an  actual  charge,  which 
would  take  care  of  that  obligation,  whatever  it  was. 

Mr.  WARREN.  And  the  obligation,  in  its  nature,  when  it  was  ex- 
pected to  be  performed  in  kind,  was  to  actually  sweep  up  the  streets  ? 

Mr.  GEORGE.  Yes,  sir. 

Mr.  WARREN.  Such  as  most  cities  do? 

Mr.  GEORGE.  Well,  I  think  it  was  built  on  the  theory  that  the 
mules  in  the  old  horse-car  days  defiled  the  streets,  and  that  it  was 
necessary  to  keep  them  clean,  and  it  was  handed  down  as  a  tradition 
of  the  old  mule  day. 

Mr.  WARREN.  There  was  no  corresponding  tax  on  the  private 
driver  of  the  mule,  was  there? 

Mr.  GEORGE.  No. 

Mr.  WARREN.  What  else  of  that  nature? 

Mr.  GEORGE.  Well,  we  have  the  bridge  tolls.  The  city  of  Pitts- 
burgh and  the  county  of  Allegheny  some  years  ago  joined  and  pur- 
chased from  private  owners  the  bridges  which  connected  different 
portions  of  the  city,  from  the  main  section  of  the  city  to  the  south 
side  and  to  the  north  side,  which  was  then  Allegheny.  The  old 
private  corporations  had  agreements  with  the  railway  company  for 
operating  their  cars  over  their  bridges,  and  when  the  city  and  county 
purchased  them  they  freed  them  to  everybody,  except  to  the  street- 
car company,  but  the  street-car  company  was  still  made  to  pay  for 
crossing  the  bridges. 

Mr.  WARREN.  And  still  does  pay? 

Mr.  GEORGE.  Well,  up  until  the  time  [laughter] 

Mr.  WARREN.  There  is  still  a  claim  on  the  $1,600,000  ? 

Mr.  GEORGE.  Yes;  it  is. 

Mr.  WARREN.  Well,  do  you  mean,  Mr.  George,  that  the  street-car 
riders,  who,  I  suppose,  in  Pittsburgh,  as  elsewhere,  were  the  people 
of  less  affluent  means,  taking  it  generally,  are  charged  a  toll  for 
crossing  free  bridges  in  street-cars? 

Mr.  GEORGE.  Yes,  sir. 

Mr.  WARREN.  And  the  automobile  owners  and  carriage  owners  and 
all  other  residents  use  the  bridges  free? 

Mr.  GEORGE.  Yes;  that  is  time. 

Mr.  WARREN.  Are  there  any  other  charges  of  that  sort  against 
the  car  rider? 

Mr.  GEORGE.  Well,  they  have 

Commissioner  MEEKER.  Pittsburgh  is  a  civilized  community? 

Mr.  GEORGE.  Well,  there  has  been  a  conflict  between  the  city  and 
the  street-car  company  there,  which  has  been  going  on  for  years  and 
years,  and  the  city  would  not  relinquish  any  hold  it  had  on  the  trac- 
tion company,  or  any  charge  it  had  made  in  the  franchise.  It  held 
religiously  to  them,  in  order  that  they  could  exercise  some  degree  of 
penalty  for  what  it  conceived  to  be  the  failure  of  the  traction  com- 
pany to  properly  perform  its  duties  to  the  city ;  so  these  charges  were 
not  built  up  as  a  proper  system  at.  all.  It  was  merely  the  remnants 
of  a  conflict  between  the  company  and  the  city.  I  make  that  ex- 
planation in  defense  of  the  intelligence  of  the  city  administration. 

Mr.  WARREN.  How  much  do  those  bridge  tolls  amount  to  per  year? 

Mr.  GEORGE.  About  eighty-odd  thousand  dollars.  I  am  wrong  on 
that,  now.  I  will  have  to  ask  Mr.  Robinson  to  correct  me  on  that. 

Mr.  ROBINSON.  $125,000. 


296    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  GEORGE.  $125,000. 

Mr.  WARREN.  $125,000? 

Mr.  GEORGE.  Yes.  The  bridge  tolls  and  the  street-cleaning  item  I 
confused.  The  street  cleaning  is  $80,000. 

Mr.  WARREN.  That  makes  about  $200,000.  I  think  you  said 
altogether  there  was  about  $300,000. 

Mr.  GEORGE.  There  is  a  gross-receipt  tax  in  former  Allegheny  that 
still  prevails. 

Mr.  WARREN.  Is  former  Allegheny  a  part  of  the  city  of  Pitts- 
burgh now? 

Mr.  GEORGE.  It  is  now,  the  north  side  of  Pittsburgh. 

Mr.  WARREN.  And  what  is  that  for? 

Mr.  GEORGE.  Well,  they  have  in  some  places,  toll  taxes.  They 
asked  the  company  to  contribute  in  relation  to  the  number  of  poles, 
trolley  poles  that  it  has.  In  another  instance,  they  have  been  asked 
to  contribute  in  proportion  to  the  number  of  cars  which  they  operate. 
That  is  not  all  of  the  city  of  Pittsburgh.  This  is  in  the  communities 
around  the  city,  as  well  as  in  the  city  proper ;  but  those  are  different 
charges  of  one  nature  or  another,  which  would  go  to  the  franchise 
charges  which  were  made  at  the  time  the  company  was  given  its 
original  grant. 

Mr.  WARREN.  Have  you  in  mind  how  much  the  car  charges 
amount  to? 

Mr.  GEORGE.  Well,  I  could  not  separate  those  from  memory. 

Mr.  WARREN.  Well,  I  mean,  have  you  in  mind  how  much  the 
charge  per  car  is  in  different  parts  of  the  system  ? 

Mr.  GEORGE.  Well,  there  was  quite  a  dispute  regarding  that,  and 
the  public-utilities  commission  regarded  a  certain  charge  as  a  legal 
charge.  Mr.  Robinson  can  tell  you  that,  too,  probably. 

Mr.  ROBINSON.  There  is  not  any  charge  per  car  in  the  citv  of 
Pittsburgh,  but  in  the  outlying  boroughs  they  have. 

Mr.  GEORGE.  Well,  that  is  what  I  am  speaking  of. 

Mr.  WARREN.  I  think  that  is  all  I  want  to  ask  Mr.  George. 

The  CHAIRMAN.  Commissioner  Wehle,  you  may  proceed. 

Commissioner  WEHLE.  Did  the  commission  understand  you  cor- 
rectly, Mr.  George,  as  saying  that  the  last  consolidation  of  the  200 
or  so  separate  companies  which  composed  the  Pittsburgh  system • 

Mr.  GEORGE.  Sixty. 

Commissioner  WEHLE  (continuing).  The  60  companies,  which 
composed  the  Pittsburgh  system,  was  in  the  form  of  a  consolidation 
of  three  constituent  companies? 

Mr.  GEORGE.  The  last  consolidation  was  between  three  of  the 
parent  companies  then  existing. 

Commissioner  WEHLE.  And  those  three  parent  companies,  between 
them,  represented  what  originally  had  been  about  60  companies? 

Mr.  GEORGE.  Yes.  Some  of  those  were  legal  fictions,  of  course,  of 
companies,  but  they  were  not  all  of  them  operating  companies. 

Commissioner  WEHLE.  Were  some  of  them  power  companies? 

Mr.  GEORGE.  No. 

Commissioner  WEHLE.  That  sold  current  to  street-railway  com- 
panies? 

Mr.  GEORGE.  No. 

Commissioner  WEHLE.  Well,  what  were  those  parent  companies? 
What  were  their  functions? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    297 

Mr.  GEORGE.  The  Consolidated  Traction  Co.  was  a  street-railway 
company.  The  United  Traction  Co.  was  a  street-railway  company; 
and  the  Southern  Traction,  which  is  now  the  Pittsburgh  Railways 
Co.,  was  also  purely  a  street-railway  company. 

Commissioner  WEHLE.  That  is,  all  three  of  those  companies  were 
the  constituent  companies  of  the  three  parent  companies,  although 
you  say  some  of  them  are  not  really  traction  companies,  but  had 
other  functions? 

Mr.  GEORGE.  Oh,  no,  No;  I  say  that  they  were  street-railway 
companies,  but  they  never  operated  the  property.  It  was  merely 
forming  a  nev  company  for  the  purpose  of  building  a  line  and  to 
issue  its  securities,  and  then  become  a  constituent  part  of  the  older 
company.  That  was  necessary  for  legal  purposes,  merely. 

Commissioner  WEHLE.  On  what  basis  was  the  stock  of  the  three 
constituent  companies  converted  into  the  stock  of  the  main  company  ? 

Mr.  GEORGE.  It  never  has  been  entirely  converted.  A  great  por- 
tion of  that  stock  is  outstanding.  The  operating  power  which  we 
have  over  those  companies  is  merely  an  operating  agreement. 

Commissioner  WEHLE.  When  you  say,  "  We  have  operating 
rights  "- 

Mr.  GEORGE.  I  am  speaking  of  the  Pittsburgh  Railways  Co. 

Commissioner  WEHLE.  They  only  have  operating  agreements? 

Mr.  GEORGE.  Yes,  sir;  operating  agreements.  Of  course,  the  rail- 
ways company  has  stock  in  some  of  the  companies  which  they  are 
operating,  and  in  some  cases  they  own  all  of  the  stock  of  the  com- 
pany they  are  operating,  but,  nevertheless,  the  power  to  control 
is  through  the  operating  agreement  which  they  have,  or  lease. 

Commissioner  WEHLE.  In  what  year  was  this  arrangement  put 
through  ? 

Mr.  GEORGE.  I  think  it  was  in  1902. 

Commissioner  WEHLE.  And  in  what  proceeding?  Was  it  the 
subject  of  inquiry  at  all? 

Mr.  GEORGE.  Well,  it  has  been  the  subject  of  a  great  deal  of  in- 
quiry before  the  Public  Service  Commission  of  the  State  of  Penn- 
sylvania. 

Commissioner  WEHLE.  I  did  not  catch  the  answer. 

Mr.  GEORGE.  The  Public  Service  Commission  of  the  State  of 
Pennsylvania  did  investigate  these  affairs  before  it  quite  frequently. 

Commissioner  WEHLE.  Did  the  public-service  commission  law  of 
Pennsylvania  exist  at  the  time  of  this  consolidation,  or  when  it  was 
pending  in  Pittsburgh? 

Mr.  GEORGE.  I  think  not.  I  do  not  know  what  the  date  of  our  pub- 
lic-service commission  law  was. 

Mr.  ROBINSON.  January  1,  1914. 

Mr.  GEORGE.  1914. 

Commissioner  WEHLE.  Under  what  terms  is  the  present  Pitts- 
burgh Railways  Co.  operating  over  the  lines  of  the  constituent 
companies? 

Mr.  GEORGE.  I  did  not  get  the  question. 

Commissioner  WEHLE.  Under  what  terms  is  the  operation  being 
carried  on,  as  to  lease  or  otherwise? 

Mr.  GEORGE.  Do  you  mean  what  are  the  terms  of  the  agreement 
of  the  Consolidated  Traction,  the  United  Traction  Co.,  and  tho 
other  companies? 

100043°— 20 20 


298    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  WEIILE.  Under  which  the  Pittsburgh  Railways  Co. 
is  operating  over  the  trackage  of  those  three  constituent  companies. 

Mr.  WARREN.  Do  you  mean  under  the  receivership,  Mr.  Wehle  ? 

Commissioner  WEHLE.  No.  I  mean  before  the  receivership. 

Mr.  GEORGE.  Well,  the  operating  agreement  called  for  the  payment 
of  certain  fixed  charges  of  the  company  first,  and  then  we  have  some 
payments  of  dividends  on  some  stocks,  but  the  dividends  on  the 
stock  were  only  temporarily  paid  and  were  soon  waived,  and  the 
operating  agreement  kept  in  force  merely  for  the  payment  of  the 
fixed  charges. 

Commissioner  WEHLE.  Well,  was  there  no  fixed  rental  of  any  sort? 

Mr.  GEORGE.  No. 

Commissioner  WEHLE.  Then  just  exactly  how  was  this  compensa- 
tion to  be  determined? 

Mr.  GEORGE.  Well,  it  was  to  be  determined  merely  by  their  meet- 
ing these — in  the  first  instance  it  was  to  be  determined  by  their 
meeting  these  fixed  charges  and  by  paying  the  dividends  on  the 
stock,  but  when  they  failed  to  pay  the  dividends  on  the  stock,  that 
portion  of  the  contract  was  waived,  and  merely  the  payment  of  the 
fixed  charges  was  had. 

Commissioner  WEHLE.  When  was  that  failure  found  to  be  neces- 
sary, the  failure  to  pay  the  dividends  on  the  stock  ? 

Mr.  GEORGE.  I  could  not  state  just  exactly  what  the  date  of  that 
was,  but  the  payments  on  the  stock  failed  very  early  in  the  case  of  the 
Consolidated  Traction  Co. 

Mr.  WARREN.  Do  you  know  when  that  was  ? 

Mr.  GEORGE.  I  can  not  give  you  that.  Can  you  give  that,  Mr. 
Robinson  ? 

Mr.  ROBINSON.  It  was  complete  before  1912,  but  I  do  not  know 
just  the  exact  date. 

Mr.  GEORGE.  The  failure  was  complete  before  1912. 

Mr.  WARREN.  On  the  part  of  the  Consolidated  Co.,  or  the  other 
company  ? 

Mr.  ROBINSON.  The  Consolidated  and  the  United.  No  dividends 
were  ever  paid  on  the  Pittsburgh  Railways  Co. 

Commissioner  WEHLE.  Well,  the  Pittsburgh  Railways  Co.  is  the 
operating  company,  I  understand.  I  am  asking  you  about  the  divi- 
dends of  the  three  companies,  over  whose  property  the  Pittsburgh 
Railways  Co.  is  operating. 

Mr.  ROBINSON.  One  of  those  three  was  the  Pittsburgh  Railways  Co. 
At  first  it  was  under  the  name  of  the  Southern  Traction  Co.,  and  as 
to  the  other  two,  as  I  said,  the  default  was  complete  before  1912. 

Commissioner  WEHLE.  Was  any  new  stock  issued  by  any  of  the 
three  companies  at  the  time  of  the  consolidation  agreement  in  1912  ? 

Mr.  GEORGE.  I  am  not  familiar  with  that.  You  see  that  is  not  a 
matter  of  concern  to  the  receivers  of  the  companies,  because  we  have 
long  passed  the  consideration  of  the  stock.  We  are  merely  now 
struggling  with  operating  expenses  and  primary  lines.  If  we  get 
that  far  along,  we  would  be  comparatively  comfortable. 

Commissioner  WEHLE.  Still,  you  see,  one  of  the  purposes  of  this 
commission  is  to  inquire  into  causes  as  well  as  results ;  and  it  would 
be  interesting,  when  you  present  present  conditions,  to  know  what 
may  possibly  have  led  up  to  them.  In  view  of  some  of  the  testimony 
that  has  been  given  here,  it  has  simply  occurred  to  me  to  inquire 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  HALLWAYS  COMMISSION.    299 

whether,  perhaps,  there  was  some  bonus  stock,  or  some  stock  based  on 
a  fictitious  or  imaginary  value,  or  a  value  based  on  hope,  which  may 
have  been  used  in  1902  in  connection  with  the  consolidation  agree- 
ment, in  order  to  induce  the  necessary  financial  assistance  to  the  whole 
plan  of  consolidation. 

Mr.  GEORGE.  Well,  that  will  all  be 

Commissioner  WEHLE.  Do  you  know  whether  or  not  that  took 
place  ? 

Mr.  GEORGE.  No;  but  that  will  all  be  straightened  out  in  the  valu- 
ation which  is  now  being  made  of  the  property.  The  valuation  of 
the  property  has  been  undertaken  under  the  direction  of  the  Public 
Service  Commission  of  the  State  of  Pennsylvania;  and  that  com- 
mittee, in  connection  with  the  engineers  appointed  by  the  railways 
company  and  engineers  appointed  by  the  city  of  Pittsburgh,  presided 
over  by  the  engineer  of  the  Public  Service  Commission  of  the  State 
of  Pennsylvania,  is  about  to  conclude  an  agreed  valuation  of  the 
property,  which  will  be  the  basis  of  the  determination  of  the  return 
which  the  company  is  entitled  to  if  it  can  get  it  from  the  property. 

The  CHAIRMAN.  Will  that  valuation  consider  the  property  as  a 
whole  ? 

Mr.  GEORGE.  Yes. 

Commissioner  WEHLE.  Then  you  are  really  not  able  to  give  us  the 
history  of  the  company?  All  you  can  say  is  that  you  are  one  of  the 
receivers,  and  the  company  is  in  very  bad  way  financially  ? 

Mr.  GEORGE.  Well,  I  can  speak  about  the  operating  profit  of  the 
company,  and  I  can  tell  you,  of  course,  about  the  charges  which  it  is 
expected  to  meet.  Now,  about  the  history  of  the  company — we  would 
be  here  for  several  days  if  I  were  able  to  go  back  and  go  through  the 
history  of  that. 

Commissioner  WEHLE.  It  might  be  worth  the  time,  Mr.  George. 

Mr.  GEORGE.  Well,  if  you  are  interested  in  it,  there  are  several 
volumes  that  have  been  prepared  on  it,  I  think,  and  have  been  put  in 
book  form,  and  I  will  be  pleased  to  send  you  a  copy  of  it. 

Commissioner  WEHLE.  Well,  anything  of  that  kind  would  have  to 
go  through  the  commission  here,  of  course. 

Mr.  WARREN*.  Will  the  history  enable  yon  to  explain  why  the  com- 
pany is  not  earning  its  real  operative  expenses? 

Mr.  GEORGE.  I  do  not  think  it  would.  I  do  not  think  it  has  any- 
thing to  do  with  the  situation  at  the  present  time. 

Mr.  WARREN.    You  say  that  as  a  receiver? 

Mr.  GEORGE.  Yes.  The  property  is  there,  the  physical  property  is 
there,  and  it  has  to  be  operated  in  a  certain  community,  and  it  is 
reasonable  to  suppose  that  it  has  some  value,  and  that  whatever  the 
overcapitalization  of  the  property  may  be,  that  what  value  there  is 
there  is  entitled  to  some  return. 

Commissioner  MEEKER.  Well,  as  a  matter  of  fact,  you  have  not  yet 
been  able  to  meet  operating  expenses. 

Mr.  GEORGE.  That  is  what  we  are  struggling  with  to-day  to  meet 
operating  expenses. 

Commissioner  MEEKER.  And  the  question  of  watered  stock,  and 
whether  it  is  entitled  to  an  income  or  not,  has  not  yet  come  up  as  one 
of  your  troubles? 

Mr.  GEORGE.  No. 


300    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  But  you  have  600  miles  of  track ;  and  have  you  any 
power  stations? 

Mr.  GEORGE.  No;  we  buy  our  power. 

Mr.  WARREN.  You  buy  your  power? 

Mr.  GEORGE.  Yes. 

Mr.  WARREX.  But  you  have  a  good  many  cars,  and  you  are  not 
thus  far  earning  anything  on  any  of  that  property  ? 

Mr.  GEORGE.  No;  we  have  1,300  cars. 

Mr.  WARREN.  Has  the  valuation  proceeded  far  enough  to  indicate 
anything  about  the  probable  value  of  the  property  that  you  can  state  ? 

Mr.  GEORGE.  No.  Anybody  who  can  foretell  what  the  vakie  would 
be  would  certainly  be  a  very  interesting  citizen  in  Pittsburgh  just 
now. 

The  CHAIRMAN.  What  have  you  done,  Mr.  George,  as  a  receiver,  to 
try  to  economize  in  the  operation  of  the  plant  ? 

Mr.  GEORGE.  Well,  I  think  that  we  have  economized  as  far  as  we 
could,  taking  into  consideration  the  degree  of  safety  which  the  riding 
public  are  entitled  to  and  the  service  wThich  we  feel  that  we  should 
give  to  them. 

The  CHAIRMAN.  What  are  those  economies? 

Mr.  GEORGE.  Well,  you  are  speaking  about  operating  economies  ? 

The  CHAIRMAN.  Yes,  sir. 

Mr.  GEORGE.  Well,  I  can  not  say  that  there  has  been  any  particu- 
lar economy  in  operation  that  was  possible  under  the  receivers  over 
what  was  possible  under  the  management.  I  think  the  management 
of  the  company,  up  to  the  time  that  we  took  hold  of  it,  could  not  be 
criticized  from  the  point  of  view  of  economy. 

The  CHAIRMAN.  Have  you  directed  your  officers  to  make  a  study  of 
that  question? 

Mr.  GEORGE.  Yes. 

The  CHAIRMAN.  What  was  the  report? 

Mr.  GEORGE.  We  did  that  in  the  budget.  I  made  an  examination 
of  all  of  the  charges  that  were  included  in  the  budget,  and  it  was  gono 
over  very,  very  thoroughly.  The  company  has  been  investigated  year 
after  year,  by  expert  after  expert,  who  has  been  employed  by  the 
city  to  come  there  and  make  a  study  of  it  to  see  what  could  bo  done 
about  bringing  about  a  more  efficient  operation  of  the  property,  and 
many  recommendations  have  been  made.  Mr.  Bion  J.  Arnold  was 
there  some  years  ago,  and  other  operating  men  have  been  there,  and 
experts  have  been  there  since. 

The  CHAIRMAN.  Has  the  company  accepted  the  recommendations 
made  by  these  experts? 

Mr.  GEORGE.  In  so  far  as  they  could. 

The  CHAIRMAN.  In  your  judgment,  what  is  it  necessary  to  do  then 
to  take  care  of  your  situation? 

Mr.  GEORGE.  Well,  the  only  thing  that  I  can  see  that  can  be  clone 
at  the  present  time  is  to  get  the  fare  on  the  best  possible  basis  that  it 
can  be  put  on  for  producing  revenue  and  to  get,  if  possible,  relief 
from  some  of  these  municipal  obligations.  I  think  progress  is  being 
made  in  that  direction. 

The  CHAIRMAN.  To  what  extent  do  you  expect  relief  from  these 
municipal  obligations  ? 

Mr.  GEORGE.  Well,  I  do  not  know  that  I  have  any  ground  to  state 
that  I  expect  the  city  to  cancel  what  charges  it  has  and  to  agree  to 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    301 

forego  the  levying  of  more  charges  against  the  company ;  but  in  the 
study  which  is  being  made  by  the  valuation  in  -which  it  is  taking 
part,  it  must  be  brought  to  a  realization  of  the  fact  that  either  serv- 
ice will  be  very  materially  reduced  or  will  break  down  at  some  points,, 
unless  there  is  some  relief  afforded  to  the  company. 

The  CHAIRMAN.  In  your  study,  did  you  discover  that  the  company 
had  been  making  extensions  to  lines  out  of  earnings  and  charging  it 
to  operating  cost  ? 

Mr.  GEORGE.  The  railways  company? 

The  CHAIRMAN.  Yes. 

Mr.  GEORGE.  The  Pittsburgh  Eailways  Co.? 

The  CHAIRMAN.  Yes. 

Mr.  GEORGE.  I  do  not  think  it  has.  I  do  not  think  it  lias  ever  been 
accused  of  that. 

The  CHAIRMAN.  That  is  not  done  while  you  have  been  receiver  ? 

Mr.  GEORGE.  No;  it  has  not. 

The  CHAIRMAN.  Do  you  believe  that  an  increase  in  fare  is  neces- 
sary in  Pittsburgh? 

Mr.  GEORGE.  I  do. 

The  CHAIRMAN.  "Will  that  bring  in  the  needed  money? 

Mr.  GEORGE.  It  will  bring  in  a  portion  of  it,  at  least. 

The  CHAIRMAN.  Is  it  your  thought  that  an  increase  in  fare  will  be 
a  temporary  arrangement? 

Mr.  GEORGE.  No. 

The  CHAIRMAN.  Do  you  believe  the  present  high  operating  costs 
of  that  plant  will  remain  for  some  time  ? 

Mr.  GEORGE.  I  do. 

The  CHAIRMAN.  Upon  what  do  vou  base  that  judgment? 

Air.  GEORGE.  "Well,  I  do  not  look  for  a  reduction  in  the  cost  of  labor 
or  commodities  for  some  years  to  come,  and  I  think  that  that  has  ac- 
counted for  the  high  operating  costs. 

The  CHAIRMAN.  Do  you  expect  that  the  operating  costs  will  in- 
crease or  remain  stationary? 

Mr.  GEORGE.  Well,  I  would  look  for  it  to  remain  rather  stationary, 
but  in  the  late  months,  the  increase  in  the  index  figures  indicates  that 
there  are  still  high  prices  for  commodities — in  the  last  two  months — 
and  I  do  not  like  to  set  my  judgment  up  as  being  expert  on  that. 

The  CHAIRMAN.  Prior  to  the  receivership  did  you  have  any  ex- 
perience with  street-railway  affairs? 

Mr.  GEORGE.  Just  as  a  citizen. 

The  CHAIRMAN.  Just  as  a  citizen?  ' 

Mr.  GEORGE.  Yes. 

The  CHAIRMAN.  Have  you  made  a  study  of  this  service-at-cost 
plan? 

Mr.  GEORGE.  Yes,  I  have. 

The  CHAIRMAN.  Is  your  city  making  a  study  of  that  also? 

Mr.  GEORGE.  Yes. 

The  CHAIRMAN.  Has  any  conclusion  been  reached  in  respect  to 
that  plan? 

Mr.  GEORGE.  I  think  that  is  the  idea  that  is  behind  the  valuation — 
that  a  new  agreement  will  have  to  be  entered  into  after  the  valua- 
tion is  determined  which  will  practically  be  a  service-at-cost  plan. 

The  CHAIRMAN.  Under  such  a  plan  would  you  favor  a  zone  system 
in  your  city? 


302    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  GEORGE.  Personally,  I  would  not. 

The  CHAIRMAN.  You  prefer  a  straight  fare? 

Mr.  GEORGE.  A  flat  rate  of  fare. 

The  CHAIRMAN.  Is  it  in  contemplation  that  under  a  cost-of-service 
plan",  the  company  should  be  under  a  regulating  body  of  the  city,  or 
by  the  State  commission? 

Mr.  GEORGE.  The  State  commission.  Under  the  laws  of  the  State 
of  Pennsylvania,  the  valuation  will  be  used  by  the  State  commission 
to  determine  what  are  adequate  rates  of  fare  in  the  effort  to  produce 
a  return  on  the  valuation  which  had  been  agreed  upon. 

The  CHAIRMAN.  At  present,  what  body  controls  the  service  and 
rates  of  your  city — the  State  commission  or  the  municipality? 

Mr.  GEORGE.  The  State  commission. 

The  CHAIRMAN.  And  is  that  a  satisfactory  arrangement  in  Penn- 
sylvania ? 

Mr.  GEORGE.  I  think  it  is.  The  city  has  a  right  to  complain  to  the 
State  public-service  commission  and  to  be  heard  there,  and  the  com- 
pany has  a  right  to  defend  itself  before  that  body. 

The  CHAIRMAN.  Is  there  anything  in  the  contract  which  prevents 
the  State  commission  from  making  fares  as  high  as  may  be  neces- 
sary? 

Mr.  GEORGE.  Yes.    The  franchise  you  are  speaking  of  ? 

The  CHAIRMAN.  The  franchise. 

Mr.  GEORGE.  Yes. 

The  CHAIRMAN.  Suppose  a  new  franchise  were  adopted,  or  the  law 
of  Pennsylvania  would  permit  the  State  commission  to  make  reason- 
able rates  for  a  street-car  system ;  would  that  settle  your  problem  ? 

Mr.  GEORGE.  Well,  as  near  as  it  could  be  wrorked  out,  in  view  of 
public  sentiment. 

The  CHAIRMAN.  Would  it  be  as  satisfactory  to  your  city  as  the 
service-at-cost  plan? 

Mr.  GEORGE.  Well,  I  am  only  giving  my  personal  views  in  this 
matter,  but  my  view  is  that  the  service-at-cost  plan  would  be  better 
administered  through  a  public-service  corporation  of  a  State  than  it 
would  if  the  State  commission  was  done  away  with. 

The  CHAIRMAN.  Perhaps,  you  misunderstood  my  question.  It  was 
this :  Would  a  law  permitting  the  State  commission  to  fix  just  and 
reasonable  rates  for  a  street-car  company  be  as  satisfactory  to  the 
city  as  a  contract  establishing  a  service-at-cost  plan? 

Mr.  GEORGE.  Well,  I  do  not  know  how  the  city  would  speak  in 
regard  to  that.  As  far  as  I  am  concerned,  I  think  the  public-service 
commission  should  be  allowed  to  regulate  those  rates. 

Mr.  WARREN.  Mr.  George,  how  many  municipalities  does  your 
company  operate  in? 

Mr.  GEORGE.  Well,  there  are  a  number  of  boroughs  adjacent  to  the 
city  of  Pittsburgh.  They  are  so  closely  built  up  and  contiguous  to 
the  city  that  they  are  really  a  part  of  it.  I  do  not  know,  but  I 
imagine  that  there  are  probably  13  or  14  or  15,  or  something  like 
that.  Do  you  know  how  many  there  are,  Mr.  Robinson  ? 

Mr.  ROBINSON.  About  80  municipalities,  townships,  and  boroughs. 

Mr.  GEORGE.  Well,  you  are  speaking  of  townships. 

Commissioner  MEEKER.  HOWT  many  ? 

Mr.  WARBEN.  Eighty. 

Commissioner  MEEKER.  Eighty? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.    303 

Mr.  WARREX.  Yes,  sir. 

Mr.  GEORGE.  That  is  including  the  interurban.  That  includes  two 
interurban  lines — one  which  runs  to  Washington,  Pa.,  and  the  other 
up  the  Monongahela  River  to  Charleroi. 

Mr.  WARREN.  But  those  are  a  part  of  your  system? 

Mr.  GEORGE.  A  part  of  our  system ;  yes. 

Mr.  WARREX.  They  are  in  a  receivership  ? 

Mr.  GEORGE.  Yes. 

Mr.  WARREX.  Well,  do  you  think  it  would  be  practicable — follow- 
ing out  the  line  of  the  chairman's  question  a  little  further — to  make 
a  contract  with  the  city  of  Pittsburgh  relative  to  the  rates  and  serv- 
ice that  would  be  satisfactory  to  all  these  other  political  units  around 
Pittsburgh? 

Mr.  GEORGE.  The  cities  of  Pennsylvania  are  regulated  by  laws  of 
the  State,  and  they  are  grouped  in  classes;  and  the  laws  which  are 
passed  are  not  passed  with  regard  to  any  particular  community,  but 
are  passed  with  regard  to  a  class  of  cities  and  a  class  of  boroughs 
and  a  class  of  third-class  cities.  Now,  I  do  not  know  whether  legis- 
lation could  l>e  so  devised  that  sufficient  flexibility  could  be  given  to 
all  of  those  cities  to  act  in  a  situation  as  complex  as  this  would  be, 
which  would  enable  them  to  control  the  situation;  whereas  if  you 
have  the  State  body  empowered  to  use  discretion,  then  these  com- 
munities could  all  gather  before  the  State  body  and  reflect  their 
troubles  and  their  views,  and  in  that  way  you  would  have  a  better 
rounded  out  plan  than  it  would  be  possible  to  have  if  all  of  these 
communities  or  all  of  these  subdivisions  were  dealing  direct  with  the 
company. 

Mr.  WARREX.  And  you  think  that  such  an  arrangement  as  that 
would  be  reasonably  satisfactory  to  the  different  communities,  do 
you  ? 

Mr.  GEORGE.  They  have  a  very  high  regard  for  the  public-service 
commission  in  the  State  of  Pennsylvania.  Public  sentiment  sup- 
ports it. 

Commissioner  MEEKER.  I  want  to  ask  you  one  question,  Mr.  George. 

Would  it  be  possible,  or  is  it  advisable,  to  discontinue  some  of 
these  outlying  lines?  You  say  that  you  serve  80  distinct  boroughs, 
townships,  and  so  forth.  Would  it  be  possible  to  economize  in  the 
service  by  cutting  out  some  of  these  places,  for  instance? 

Mr.  GEORGE.  That,  of  course,  is  what  we  will  have  to  do.  We  will 
have  to  reduce  the  service  to  the  point  where  it  will  support  itself, 
and  that  will  no  doubt  result  in  some  communities  being  without  any 
service  at  all,  but  that  would  be  an  extreme  case,  it  would  seem  to  me, 
and  it  would  be  very  unfortunate  if  we  should  have  to  resort  to 
that. 

Commissioner  MEEKER.  Well,  it  is  a  matter  that  we  have  to  face. 
Some  communities  can  not  support  any  street-car  service,  and  if 
service  has  been  extended  to  that  kind  of  communities,  it  would 
seem  essential  to  cut  it  out ;  would  it  not  ? 

Mr.  GEORGE.  Oh,  there  is  no  doubt  about  that.  But  there  is  a 
certain  amount  of  expansion  and  growth  which  is  going  on  in  a 
large  community  all  the  time,  and  what  is  taken  in  one  year  as  a 
unit  as  unprofitable  business  may  be  developed  within  a  short  time 
to  be  the  profitable  business;  and  the  question  is  whether  it  is  not 
the  duty  of  the  company  so  to  conduct  itself  that  it  will  cooperate 


304    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

with  the  growth  and  development  of  the  community.  That  is  only 
possible  if  they  can  secure  the  cooperation  of  the  community  in  sup- 
port of  the  public  utility,  and  I  can  not  conceive  of  the  people  of 
any  community  being  so  blind  that  they  are  going  to  destroy  a 
needed  public  service;  in  the  end  they  will  have  to  respond  in  some 
way  to  the  necessities  of  the  public  service.  These  street-car  com- 
panies are  attempting  to  give  that  service. 

Commissioner  MEEKER.  Do  you  think  if  you  had  an  increased 
fare  it  would  not  be  necessary  to  cut  out  the  service  in  any  com- 
munity? 

Mr.  GEORGE.  I  would  far  rather  increase  the  fare  than  cut  off  that 
service,  which  is  the  lifeblood  of  the  community.  Why  should  we 
as  administrators  of  a  public-service  corporation  move  in  the  direc- 
tion of  destruction  of  property — in  the  direction  of  destruction  of 
property  values — and  handicap  community  life?  Can  we  not  bring 
the  lesson  home  to  them  rather  by  increasing  the  fare  and  telling  the 
people  what  the  situation  is  and  trying  to  get  them  to  respond  to  it? 
That  is  my  thought,  and  it  is  the  thought  that  the  receivers  of  the 
railway  company  are  acting  on.  If  the  rate  is  7^  and  10  cents,  and 
we  can  justify  ourselves  by  the  necessities  of  the  situation,  we  need 
to  offer  no  apology  for  making  the  attempt ;  and  I  believe  the  people 
will  respond.  I  think  this  idea  that  you  are  going  to  destroy  the 
revenues  of  the  company  by  increasing  the  rate  of  fare  is  to  a 
degree  fallacious,  and  I  think  we  ought  to  move  in  that  direction — 
that  we  ought  to  move  toward  an  increase  in  the  rates  of  fare  and 
toward  the  education  of  the  public  that  they  have  to  pay  a  fair 
return  for  the  service  which  they  are  getting  from  the  transporta- 
tion companies. 

Commissioner  GADSDEN.  And  you  believe  that  in  the  long  run  the 
people  will  pay  the  increased  fare ;  do  you  not  ? 

Mr.  GEORGE.  I  do. 

Commissioner  GADSDEX.  And  it  is  simply  a  question  of  waiting? 
Can  you  keep  going  a  long  time? 

Mr.  GEORGE.  You  have  to  ask  them  to  do  it  before  they  will  do  it. 
They  won't  say  voluntarily,  "We  would  like  to  pay  10  cents  rather 
than  5  cents  " ;  but  if  they  can  be  shown  that  the  necessity  of  the 
situation  is  so  great  that  there  is  no  alternative — that  they  are  face 
to  face  with  a  crisis,  either  of  the  interruption  of  service  which  is 
necessary  to  the  communal  life,  or  pay  the  fare,  I  think  they  will 
pay  the  fare. 

Commissioner  WEHLE.  Mr.  George,  you  have  been  discussing  this 
now  from  a  public-policy  point  of  view  ? 

Mr.  GEORGE.  Yes,  sir. 

Commissioner  WEHLE.  And  we  will  assume  now  for  the  sake  of  the 
discussion  that  this  increased  fare  ought  to  be  had;  and  you  speak 
of  educating  the  public  and  convincing  them  that  it  is  both  neces- 
sary and  just  that  they  should  have  it.  Now,  we  have  been  hearing 
to-day — and  you  have  been  here,  I  think,  for  the  last  few  days — from 
officials  of  the  railway  companies  and  investment  companies,  to  the 
effect  that  there  are  certain  deplorable  practices  that  have  prejudiced 
the  people  against  the  companies,  so  that  they  do  not  do  them 
justice. 

Several  of  these  gentlemen  have  stated  that  these  practices  should 
not  continue.  For  instance,  one  of  the  practices  that  were  discussed 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    305 

was  the  practice  of  issuing  bonus  stock,  and  it  has  been  stated  that 
were  it  not  for  the  fact  that  there  is  no  way  of  controlling  the  com- 
panies, the  better  element  in  the  public-service  business  would  be  able 
to  avoid  the  continuance  of  the  practice.  Now,  if  that  fare  were 
raised,  as  you  say  it  should  be,  and  if  nothing  were  done  by  us  or  by 
the  American  Electric  Railway  Association  or  any  of  the  other  in- 
fluential interests  that  have  this  matter  in  their  hands  at  the  present 
time,  to  eradicate  those  things  which  have  prejudiced  the  public 
mind  and  which  have  also  led  indirectly  to,  or  contributed  at  least  to 
the  present  condition  which  the  railroad  companies  find  themselves 
in,  are  we  not  going  to  end  up,  in  another  5  or  10  years,  with  this 
issue  all  over  again?  I  want  to  ask  you  this  with  the  thought  in 
mind,  in  the  first  place,  whether  you  agree  with  me.  Do  you  agree 
with  me? 

Mr.  GEORGE.  I  think  I  do;  and  I  have  confidence  that  this  com- 
mission is  going  to  make  a  statement  which  will  be  clear  to  the 
public — that  such  practices  as  did  prevail  in  the  past  are  no  longer 
to  be  tolerated. 

Commissioner  WEHLE.  But,  mark  you,  Mr.  George,  such  practices 
as  that  have  got  to  be  handled  not  only  by  a  small  group,  such  as  we 
are,  with  advisory  and  purely  persuasive  powers,  but  those  changes 
have  to  be  effected  by  the  men  who  are  in  the  business  themselves. 

Mr.  WARREX.  There  was  not  any  evidence,  as  I  understood  the 
witnesses,  that  those  practices  are  continuing  at  present,  but  that 
they  were  all  well  in  the  past. 

Commissioner  WEHLE.  Well,  Mr.  Warren,  I  understood  this  from 
some  testimony  given  yesterday,  and  that  at  present  it  is  impossible 
to  sell  stock  anyway,  so  that  the  subject  of  issuing  bonus  stock  is  a 
dead  subject  for  present  purposes,  but  that  up  to  about  the  time — 
say  1914,  or  a  little  bit  earlier,  perhaps — when  the  street-railway 
business  was  still  a  fairly  prosperous  going  concern,  this  practice 
still  did  prevail. 

Xow,  I  am  going  to  ask  Mr.  George,  because  he  has  taken  a  some- 
what statesmanlike  view  of  the  public-service  problems  here  and 
has  given  us  a  very  interesting  discussion  of  them,  whether  he  could 
give  us  any  suggestion  as  to  any  combined  effort  that  might  be  made 
by  the  American  Electric  Railway  Association  or  any  other  general 
public  movement  which  might  be  instituted  by  them,  or  by  any 
public  body,  looking  toward  the  eradication  of  those  practices,  look- 
ing toward  a  clarification  of  the  methods  of  the  business  and 
finances  that  the  public-service  companies  pin-sue,  so  that  a  program 
may  be  formulated  looking  toward  the  financial  relief  of  the  com- 
panies which  would  be  more  favorable  to  them  than  those  that  are 
now  prevailing,  and  that  the  people  would  have  some  sort  of  a  guar- 
anty that  this  great  big  public-service  business  will  be  conducted 
on  a  fair  basis  from  now  on.  We  are  aJl  here  equally  interested  in 
the  solution  of  this  big  public  problem,  and  I  do  not  think  it  would 
be  a  waste  of  time  for  us  to  address  ourselves  to  that  question. 

I  would  like  to  have  Mr.  George,  if  he  would,  give  to  us,  either 
this  afternoon  or  to-morrow,  some  statement  as  to  what  constructive, 
preventive  measures  could  be  put  forward  by  the  American  Electric 
Railway  Association,  itself,  looking  toward  an  eradication  of  those 


306    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

abuses  of  which  we  have  been  speaking  and  on  which  we  are  all 
agreed  that  they  exist. 

Mr.  GEORGE.  Well,  I  will  not  be  here  to-morrow,  and  if  you  will 
give  me  just  about  two  minutes — I  think  public  sentiment  has  taken 
care  of  that  situation  to  a  large  extent,  that  those  things  which  were 
possible,  and  which  have  been  done  in  the  past,  have  had  their 
natural  outcome,  and  I  do  not  think  it  is  possible  in  the  future.  In 
addition  to  that,  the  public-service  laws  of  the  different  States  have, 
to  a  very  great  extent,  taken  care  of  that  situation,  and  it  would  be 
.impossible,  in  most  States,  to  do  any  of  those  things  which  were 
done  in  the  past  and  which  have  to  an  extent  contributed — to  a 
large  extent  contributed — to  the  present  unfortunate  state  of  the 
public  mind,  as  it  is  reflected  in  these  questions. 

Commissioner  WEHLE.  Now,  Mr.  George,  of  course  the  incident 
that  I  happened  to  refer  to— the  issuance  of  fictitious  stock,  or, 
rather,  stock  based  on  a  fictitious  value  or  hope — I  suppose  has  been 
largely  prevented  for  the  future  by  laws,  in  a  number  of  the  States, 
at  least;  but  does  it  occur  to  you  that  there  are  any  other  kinds  01 
control  that  could  be  exerted,  not  necessarily  against  actual  unscru- 
pulous dealing  but,  perhaps,  against  the  injudicious  development 
or  overextension  by  companies  of  their  property? 

Mr.  GEORGE.  I  think  the  public-service  laws  of  the  different  States 
have  very  well  covered  that.  In  the  State  of  Pennsylvania,  it  is  very 
effective.  We  can  not  move  in  the  management  of  the  company  in 
Pittsburgh  without  complaint  being  registered  by  the  city  of  Pitts- 
burgh before  the  public-service  body  of  the  State.  They  tell  us  to 
put  on  more  cars.  If  some  citizen  in  some  community  complains 
of  the  service  that  is  afforded  that  particular  community,  he  has  a 
right  to  be  heard  before  the  public-service  commission,  and  they  say 
whether  we  shall  put  that  service  on,  or  whether  we  shall  not  put  that 
service  on. 

Commissioner  WEHLE.  Let  us  take  a  hypothetical  case.  Suppose 
we  take  a  company  in  some  hypothetical  State,  in  some  hypothetical 
city  unnamed,  and  the  men  in  that  company  were  men  who  were  in- 
terested in  the  development  of  land  in  a  certain  outlying  district, 
and  at  the  risk  of  the  company's  financial  condition,  in  order  to  bet- 
ter the  values  of  the  land,  they  were  to  go  into  the  construction  of  an 
extension.  That  is  a  situation  which  is  not  absolutely  unknown  in 
American  life.  Now,  if  that  extension  happens  to  have  been  im- 
providently  constructed  from  the  point  of  view  of  the  stockholders 
of  the  company,  and  from  the  point  of  view  of  the  public,  which 
ought  to  have  a  proper  kind  of  improvement  in  service  in  the  really 
thickly  populated  part  of  the  city,  what  check  is  there  in  most  of  our 
cities,  or  in  most  of  our  States,  against  that  kind  of  improvidence? 

Mr.  GEORGE.  Well,  if  you  gentlemen  will  agree  to  recommend  what 
I  would  suggest  in  that  instance,  I  would  make  land  speculation  un- 
profitable. That  is  my  remedy  on  that  situation  but,  of  course,  that 
is  somewhat  in  advance  of  public  sentiment  at  the  present  time. 

Commissioner  WEHLE.  You  do  not  think  there  is  any  way  of  get- 
ting at  the  characters  of  the  street-railway  men  in  such  cases  ? 

Mr.  GEORGE.  Well,  that  is  police  power,  and  it  is  not  very  effective 
in  controlling  the  action  of  people  where  the  public  sentiment  is  not 
against  their  action. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".    307 

Commissioner  WEHLE.  You  think  that,  perhaps,  placing  in  the 
control  of  the  public-service  commission  the  creation  of  any  new  ex- 
tensions would  guard  somewhat  against  that  kind  of  an  abuse  ? 

Mr.  GEOKGE.  The  extension  of  a  street-railway  line  they  attempt  to 
guard  with  the  greatest  secrecy;  but  somebody  always  tells  some- 
body, and  somebody  always  buys  something  out  in  the  neighborhood 
where  the  extension  is  about  to  be  made,  and  somebody  generally 
makes  a  handsome  profit  on  his  purchase.  Now,  if  you  can  devise 
some  method  of  controlling  that,  you  will  make  a  great  contribution 
to  a  very  serious  problem. 

Commissioner  WEHLE.  Xow,  Mr.  George,  we  are  not  talking  about 
somebody  making  money  out  of  a  land  speculation  at  all. 

Mr.  GEORGE.  I  understand. 

Commissioner  WEHLE.  We  are  talking  about  public  service.  We 
are  talking  about  the  effect  on  the  finances  of  a  public-service  com- 
pany when  it  has  made  improvident  extensions.  Xow,  what  I 
would  really  like  to  have  from  you  is  a  statement  as  to  whether  or 
not  you  think  it  would  be  well  for  the  public-service  commissions  to 
have  control  of  the  construction  of  extensions  and  control  of  the  de- 
cision as  to  whether  or  not  finally  a  construction  of  an  extension  of 
the  line  should  be  entered  into. 

Mr.  GEORGE.  Undoubtedly. 

Commissioner  BEALL.  They  have  that  in  very  many  States  now. 

Commissioner  WEHLE.  I  know  they  do  in  a  number  of  the  leading 
communities. 

Mr.  WARREN.  They  have  it  in  Pennsylvania,  I  understand. 

Commissioner  WEHLE.  They  have  it  in  a  few  of  the  leading  com- 
munitie«,  Mr.  Warren,  but  my  suggestion  goes  to  the  idea  that  per- 
haps you  gentlemen  who  are  interested  in  clarifying  this  situation 
should  even  go  to  the  extent  of  supporting  legislation  of  that  kind, 
instead  of — as  has  often  been  done  by  constituent  members  of  your 
organization — actually  resisting  it. 

Mr.  WARREN.  Let  me  say  for  the  association — because  I  can  not 
say  it  for  each  of  the  1,500  members — that  I  am  authorized  by  the 
president  of  the  association  to  say  that  the  association  is  definitely  in 
favor  of  regulation  and  control  by  public-service  commissions  not 
only  in  the  States  where  that  already  exists,  but  the  association  is  in 
favor  of  its  extension  to  all  of  the  States  of  the  Union ;  and  that  that 
includes  the  regulation  of  securities  in  every  respect.  Of  course, 
having  lived  in  Massachusetts  so  long,  I  can  not  imagine  some  of 
these  things  not  being  in  effect.  We  can  neither  build  an  extension 
in  Massachusetts,  nor  issue  a  share  of  stock,  or  a  dollar's  worth  of 
bonds,  or  a  dollar  of  any  debt  running  over  12  months,  without  the 
approval  of  the  commission.  We  have  to  have  a  certificate  of  public 
exigency  from  the  commission  before  we  can  build  any  extensions, 
even  though  it  be  a  turnout  on  a  single-track  line;  and  it  has  done 
no  harm.  If  anything,  there  has  been  too  much  building  in 
Massachusetts,  notwithstanding  that  restriction,  because,  with  all  of 
that  regulation,  the  statement  of  the  trolley  lines  of  Massachusetts 
for  the  last  year — 1918 — I  think  is  probably  the  most  discouraging 
of  any  State,  as  to  the  operating  expenses  alone;  and  I  am  going  to 
put  an  official  statement  in  later,  but  I  think  the  operating  expenses 
alone  were  87  per  cent  of  the  gross  receipts  of  our  companies, 
although  they  are  so  closely  regulated. 


308    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

So  that  whatever  this  crisis  is  due  to,  I  do  not  think  it  can  be  due 
to  failure  of  regulation,  or  abuses,  which  I  condemn  as  fully  as  any- 
one can  in  the  way  of  issuing  securities,  but  because,  as  in  this  very 
Pittsburgh  Co.  case,  whatever  its  history  may  be,  it  is  not  earning  its 
operating  expenses,  and  that  is  true  of  a  good  many  companies  all 
over  the  country. 

Commissioner  WEHLE.  I  think  seriously — following  the  thought 
suggested  by  Commissioner  Sweet  yesterday,  and  which  seems  to  be 
so  generally  accepted,  too — that  one  of  the  serious  elements  in  this 
situation  is  the  state  of  public  regulation. 

Mr.  WARREX.  I  agree  with  you  entirely. 

Commissioner  WEHLE.  And  these  questions  were  addressed  to  some 
constructive  way  of  removing  certain  antagonism  that  lies  in  the  pub- 
lic opinion. 

Mr.  WARREN.  I  did  not  want  you  to  think  that  our  association  here 
did  not  believe  in  progressive  and  proper  legislation.  I  think  prac- 
tically every  forward-looking  man  in  the  public-utility  business  to- 
day, however  much  he  may  be  irritated  occasionally  by  the  particular 
exercise  of  public  control,  believes  that  it  is  an  advantageous  thing 
and  in  the  long  run  is  going  to  benefit  the  public-utility  industry, 
not  only  trolleys,  but  all  others. 

Commissioner  SWEET.  You  will  not  be  here  to-morrow,  Mr. 
George  ? 

Mr.  GEORGE.  Xo. 

Commissioner  SWEET.  What  court  appointed  you? 

Mr.  GEORGE.  United  States  court — United  States  district  court. 

Commissioner  SWEET.  What  was  your  business  before? 

Mr.  GEORGE.  Real  estate. 

Commissioner  SWEET.  Have  you  any  personal  interest  in  street- 
railway  properties? 

Mr.  GEORGE.  Xone  whatever. 

Commissioner  SWEET.  Who  are  the  other  two  receivers? 

Mr.  GEORGE.  Mr.  Charles  A.  Fagan,  wrho  is  an  attorney,  and  Mr. 
S.  L.  Tome,  who  was  the  former  president  of  the  Pittsburgh  Street 
Railways  Co. 

Commissioner  SWEET.  Are  they  interested  in  street  railways? 

Mr.  GEORGE.  Mr.  Tome  was  formerly  the  president  of  the  company. 

Commissioner  SWEET.  He  has  stock  in  it  ? 

Mr.  GEORGE.  I  don't  know. 

Commissioner  SWEET.  You  don't  know? 

Mr.  GEORGE.  I  don't  know  what  stock  he  has.  Mr.  Fagan  was  an 
attorney  at  law  and,  as  far  as  I  know,  had  no  interest  in  the  com- 
pany. 

Commissioner  SWEET.  You  expressed  a  distinct  preference  for  the 
service-at-cost  plan? 

Mr.  GEORGE.  Yes. 

Commissioner  SWEET.  Do  the  other  two  receivers  share  your  views 
on  that  question  ? 

Mr.  GEORGE.  Yes. 

Commissioner  SWEET.  They  do? 

Mr.  GEORGE.  They  do. 

Commissioner  SWEET.  When  you  entered  upon  your  duties,  you 
probably  thought  there  was  something  wrong  about  the  company, 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    309 

because  it  had  defaulted  in  some  of  its  payments  and  was  not  running 
successfully ;  did  you  not  ?  You  thought  there  might  be 

Mr.  GEORGE.  I  knew  there  was  something  wrong.  It  was  perfectly 
apparent. 

Commissioner  SWEET.  Well,  I  mean  something  wrong  in  the  man- 
agement of  the  company. 

Mr.  GEORGE.  Oh ! 

Commissioner  SWEET.  Did  you  not  think  there  might  be  something 
wrong  there  ? 

Mr.  GEORGE.  I  felt  that  there  might  be  something  crucially  wrong 
in  the  management ;  yes. 

Commissioner  SWEET.  And  you  entered  upon  your  duties  in  a  some- 
what  

Mr.  GEORGE.  Critical  mood. 

Commissioner  SWEET.  In  a  somewhat  critical  mood? 

Mr.  GEORGE.  I  did. 

Commissioner  SWEET.  And  your  investigations  satisfied  you  that 
everything  was  honest  and  that  the  management  wras  capable;  did  it? 

Mr.  GEORGE.  It  did. 

Commissioner  SWEET.  Honest  as  well  as  capable? 

Mr.  GEORGE.  It  did. 

Commissioner  SWEET.  So  that  you  are  now  convinced  that  the 
troubles  were  inherent — something  that  was  beyond  the  control  of 
the  management? 

Mr.  GEORGE.  Well,  it  was  historical,  due  to  old  competing  days. 
Of  course,  Pittsburgh  has  a  very  difficult  operating  problem — more 
difficult  than  almost  any  other  city  in  the  country.  Perhaps  Bos- 
ton  

Commissioner  SWEET.  But  the  trouble  was  in  the  problem  rather 
than  in  the  personnel? 

Mr.  GEORGE.  Yes;  and  the  manner  in  which  it  had  developed  by 
the  evolutionary  process.  Of  course,  you  would  not  build  the  same 
street-railway  property  to-day.  It  does  not  fit  the  situation  exactly ; 
but  nobody  could  foresee  just  what  the  situation  as  it  is  to-day  would 
be.  In  other  words,  they  built  as  well  as  they  could,  with  the  light 
which  they  had  in  those  days,  taking  into  consideration,  of  course, 
that  there  were  a  number  of  people  who  were  bidding  one  against 
the  other  for  a  foothold  in  the  business:  and  they  built  competing 
lines.  Very  often  they  made  a  duplication,  but  as  far  as  the  manage- 
ment of  the  company  was  concerned,  I  have  lost  my  critical  aspect 
toward  it  and  feel  that  the  management  is  good. 

Commissioner  SWEET.  In  the  extensions  made  by  the  company 
into  outlying  districts,  do  you  think  mistakes  have  been  made  in  the 
past  ? 

Mr.  GI'.ORGE.  I  think  that  they  overbuilt,  but  that,  of  course,  was 
to  an  extent  not  their  fault.  In  the  growth  and  development  of 
Pittsburgh — you  know  the  territory  is  very  peculiar  there,  and  the 
great  amount  of  broken  territory  right  in  the  city,  where  it  is  not 
suitable  for  building,  and  long  stretches  where  you  go  out  along  the 
lines,  there  is  practically  no  traffic;  maybe  there  is  a  house  on  each 
side  of  the  street,  and  behind  that  there  is  always  a  hill  that  goes  up. 

Commissioner  SWEET.  Yes. 

Mr.  GEORGE.  There  is  a  great  deal  of  territory  of  that  kind  and,  in 
addition  to  that — as  develops  in  a  great  many  communities — there 


310    PROCEEDINGS  OF  FEDKRAL  ELECTRIC  RAILWAYS  COMMISSION". 

would  be  the  development  in  the  downtown,  then  perhaps  a  Mttle 
sparsely  settled  district,  a  little  community  farther  out,  and  then 
more  undeveloped  territory,  and  another  community  farther  out,  and 
then  working  all  the  time  for  the  purpose  of  connecting  up  these 
little  communities  which  had  developed,  and  working  in  such  a 
manner  as  would  contribute  to  a  proper  growth  and  development  of 
the  city. 

Commissioner  SWEET.  And  afford  reasonable  facilities  to  those 
people  who  had  located  there? 

Mr.  GEORGE.  Yes. 

Commissioner  SWEET.  And  enable  them  taget  back  into  the  main 
community — the  center  ? 

Mr.  GEORGE.  To  allow  a  man  to  live  at  one  place  and  work  at  an- 
other place. 

Commissioner  SWEET.  Yes. 

Mr.  GEORGE.  That  is  the  great  need,  it  seems  to  me,  that  is  sup- 
plied by  the  transportation  companies.  A  man  should  not  live  right 
around  the  mill  where  he  is  working;  and  if  he  has  a  job  and  wants 
to  get  to  another  section  of  the  city  to  seek  employment,  he  ought  to 
be  able  to  go  there  without  moving  his  family  and  everybody  else. 
There  should  be  a  chance  for  them  to  circulate  and  live  where  they 
want  to  live  and  work  where  they  want  to  work. 

Commissioner  SWEET.  Is  it  the  rule  with  the  company  of  which 
you  are  receiver  that  the  rates  are  different  from  one  community  to 
another?  As  you  go  on  these  intemrbans,  you  have  different  rates, 
have  you  not  ? 

Mr.  GEORGE.  Yes ;  only  on  the  interurbans.  The  new  rate  of  fare 
which  we  have  in  effect  is  more  of  a  flat  fare  than  any  fare  that  they 
have  ever  had  there,  in  that  we  are  giving  now  what  they  never  had 
before — a  cross-town  transfer  privilege.  Ten  cents  will  entitle  a  man 
to  cross  the  downtown  section,  with  a  transfer — something  which 
they  never  had  before. 

Commissioner  SWEET.  That  was  put  in  operation  by  the  receivers? 

Mr.  GEORGE,  We  put  that  in  operation  in  the  attempt  to  afford  that 
freedom  o-f  travel  from  one  section  of  the  town  to  the  other,  and  we 
are  getting  away  from  this  zone  system  of  fares  which,  to  my  mind, 
works  toward  the  congestion  of  population,  and  it  has  a  tremendous 
effect. 

I  want  you  gentlemen  to  consider  what  any  discrimination  of  2 
cents  in  railroad  fares  will  mean  to  a  family  of,  say  four  riders  a 
day.  To  see  what  it  would  mean,  I  figured  it  out  one  day,  as  a  real- 
estate  man,  and  I  figured  that  a  lot  that  was  just  inside  of  a  zone 
that  had  a  o-cent  fare  was  worth  about  $30  a  front  foot  more  than 
the  lot  that  was  just  outside  of  a  5-cent  zone,  in  a  7-cent  zone,  to  a 
man  Who  had  four  daily  riders  on  the  street  cars.  He  could  afford 
actually,  if  he  was  buying  a  30- foot  lot,  to  pay  $30  a  front  foot  more 
to  get  inside  that  zone.  And  don't  you  think  they  will  get  in  ? 

Why,  they  will  get  in;  and  the  apartment  houses  will  get  in; 
and  there  will  be  a  tendency  toward  congestion  in  these  American 
cities  which  will  approach  the  situation  in  Glasgow  to-day,  and  if 
you  have  been  familiar  with  the  studies  which  have  been  made  of 
housing  conditions  in  Glasgow,  they  will  cure  you  of  any  notion  that 
street-car  companies  should  be  built  up  for  the  purpose  of  raising 
revenue  and,  at  the  same  time,  working  against  the  proper  distribu- 


PROCEEDINGS  OF  FEDERAL.  ELECTRIC  RAILWAYS  COMMISSION.    311 

tion  of  the  population  of  a  city.  If  you  will  allow  me  to  regulate 
rates  in  the  city  of  Pittsburgh,  I  can  move  the  population  aiid  create 
land  values  and  destroy  land  values. 

Commissioner  GADSDEN.  Now,  Mr.  George,  admitting  that,  is  not 
that  casting  the  burden  of  the  solving  of  the  social  problem  on  the 
street  railways,  and  not  on  the  community? 

Mr.  GEORGE.  Well,  we  have  got  to  cooperate  one  with  the  other. 

Commissioner  GADSDEN.  Have  not  the  street  railways  in  the  past 
solved  that  social  problem  at  their  cost,  and  is  not  that  one  of  the 
troubles  that  we  are  up  against? 

Commissioner  SWEET.  That  is,  the  flat  rate,  you  mean? 

Mr.  GEORGE.  Yes;  I  think  the  street-car  companies  made  a  valuable 
contribution,  but  the}7  felt  that  they  were  going  to  be  rewarded  for 
doing  it. 

Commissioner  GADSDEN.  Yes,  and  they  have  not  been? 

Mr.  GEORGE.  And  they  have  not  been. 

Commissioner  GADSDEN.  And  the  community  has  gotten  its  con- 
sideration. 

Mr.  GEORGE.  Oh,  it  has  gotten  its  consideration. 

Commissioner  SWEET.  But  the  general  practice  has  prevailed  in 
the  past  in  the  direction  that  you  think  is  right,  of  spreading  com- 
munities, instead  of  bringing  them  into  congested  centers? 

Mr.  GEORGE.  I  do  not  believe  anv  city  can  afford  to  see  a  system  of 
zone  fares  built  up  in  it.  I  think  it  would  be  tremendously  destruc- 
tive to  the  right  sort  of  development  of  the  city. 

Commissioner  SWEET.  And  I  think  most  people  would  agree  with 
you  on  that  point,  with  regard  to  sanitation,  and  perhaps  with  re- 
gard to  morals. 

Mr.  GEORGE.  Not  only  that,  but  it  would  be  destructive  of  business 
locations  which  have  been  created  on  a  flat  system  of  fares. 

Commissioner  SWEET.  Yes. 

Mr.  GEORGE.  Take  a  man's  business  house  that  is  located  in  a  com- 
munity and  that  has  a  large  investment  made  there,  and  the  business 
is  established  and  you  make  him  work  against  a  handicap  of  an 
increased  rate  of  fare  to  get  to  and  from  him,  as  against  his  com- 
petitor. In  what  shape  does  that  put  his  business  ? 

Commissioner  GADSDEN.  Does  not  that  seem  to  indicate — and  I 
am  not  questioning  the  wisdom  of  what  you  say — that  the  only  so- 
lution of  this  problem  is  that  the  community  shall  own  the  street 
railways  and  absolutely  run  them? 

Mr.  GEORGE.  I  am  not  ready  to  admit  that.  I  may  later  on,  but 
not  yet. 

Commissioner  SWEET.  Do  you  think  t^pt  the  service-at-cost  plan 
would  solve  that  problem? 

Mr.  GEORGE.  I  think  so.  Of  course  the  cost  is  going  to  be  higher 
than  it  is  at  the  present  time,  and  I  think  the  people  have  an  an- 
tagonism toward  an  increase  in  rates,  which,  to  an  extent,  is  due  lo 
the  bad  relationship  which  has  existed  between  the  public  and  the 
public-service  corporations  in  the  past.  I  think  that  is  one  of  the  big 
hills  they  have  to  climb,  to  get  over  these  increased  rates  of  fares. 
Whether  they  can  successfully  get  over,  and  in  time  to  save  them- 
selves, I  do  not  know,  but  I  think  we  ought  to  mal  the  attempt  in 
that  direction. 


312    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  If  I  understood  you  right,  you  have  a 
zone  in  which  the  fare  is  7  cents  within  that  zore? 

Mr.  GEORGE.  At  the  present  time,  yes. 

Commissioner  SWEET.  Suppose  a  person  •..•anted  to  ride  three 
blocks  within  your  outside  zone,  the  fare  would  be  7  cents? 

Mr.  GEORGE.  Yes. 

Commissioner  SWEET.  And  he  might  ride  a  great  many  more 
blocks  in  the  5-cent  zone  for  a  nickel  ? 

Mr.  GEORGE.  Those  inconsistencies — 

Commissioner  SWEET.  Do  I  understand  that  to  be  the  real  or- 
dinary idea  of  a  zone  system? 

Mr.  GEORGE.  No.  But  no  matter  what  sort  of  a  zone  system  you 
build  up,  there  has  got  to  be  a  line  some  place. 

Commissioner  SWEET.  Sure. 

Mr.  GEORGE.  A  man  just  on  one  side  of  that  line  and  a  man  just 
on  the  other  side  of  the  line  will  be  very  differently  treated. 

Commissioner  SWEET.  Sure. 

Commissioner  GADSDEN.  You  have  given  us  your  estimate  with 
respect  to  real  estate  value  on  each  side  of  the  zone.  I  am  inter- 
ested in  that.  How  did  vou  arrive  at  that  ? 

Mr.  GEORGE.  Well,  I  took  four  people  riding  each  day.  That  was 
8  cents,  and  twice  a  day  was  16  cents,  and  30  times  16  would  be  $4.80, 
and  12  times — 

Commissioner  SWEET.  That  would  be  per  month? 

Mr.  GEORGE.  Yes;  and  12  times  $4.80  would  be 

Commissioner  GADSDEN.  $56. 

Mr.  GEORGE.  Well,  almost  $60. 

Commissioner  GADSDEN.  $54. 

Mr.  GEORGE.  Something  less  than  $60;  and  this  return  at  6  per 
cent  is  on  an  investment  of  a  thousand  dollars,  is  it  not  ?  And  if  so 
much  a  day  is  worth  a  thousand  dollars  of  cash  investment,  a  man 
could  afford  to  pay  a  thousand  dollars  more  for  a  lot  inside  than  out- 
side the  zone ;  and  if  it  is  a  30- foot  lot,  it  would  be  $30  a  front  foot. 

Commissioner  GADSDEN.  That  is  what  I  wanted  to  get. 

Mr.  GEORGE.  That  is  my  method  of  reasoning;  and  if  you  do  not 
believe  it,  you  just  establish  a  zone  once  and  see  the  people  rush  to  the 
apartments  just  inside  the  zone  and  the  increase  in  rents  which  would 
result. 

Commissioner  SWEET.  You  could  not  entirely  get  rid  of  that  condi- 
tion, could  you,  Mr.  George,  when  you  come  to  suburban  railways  ? 

Mr.  GEORGE.  That  is  a  different  proposition.  That  is  natural.  It 
is  sort  of  natural  out  in  the  country  there ;  and  that  is  reflected,  really, 
in  the  value  which  the  man  puts  on  his  ground  when  he  goes  out 
there,  because  the  landowner  has  discounted  that.  If  you  go  close 
to  the  city,  where  the  rate  of  fare  is  lower,  you  will  pay  more  for 
your  land. 

Commissioner  SWEET.  Then  they  are  not  subject  to  municipal 
taxes? 

Mr.  GEORGE.  No. 

Commissioner  SWEET.  So  that  they  offset  each  other  to  a  certain 
extent  ? 

Mr.  GEORGE.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    313 

Commissioner  SWEET.  But  this  zone  plan  that  you  have  been  tell- 
ing us  about — is  that  within  the  same  municipal  limits? 

Mr.  GEORGE.  They  had  rather  a  thin  justification  for  it,  but  the 
justification  was  this:  That  where  a  number  of  people  are  riding  in  a 
car,  they  distribute  the  cost  of  running  that  car  for  people  who  are 
riding  in  it.  Out  in  the  sparsely  settled  districts,  where  there  are  not 
so  many  riders,  and  each  pays  a  proportionate  cost  of  operating  that 
car,  they  ought  to  pay  more  money  individually  to  make  good  the 
deficit. 

Commissioner  SAVEET.  Did  you  hear  what  was  said  by  one  of  the 
witnesses  here  in  regard  to  the  need  of  elasticity  in  the  adaptation  to 
the  income  of  street-railway  companies  to  varying  conditions,  the 
same  as  in  other  industries  ? 

Mr.  GEORGE.  Yes. 

Commissioner  SWEET.  Do  you  think  that  that  is  as  it  was  pre- 
sented by  that  witness,  or  do  you  think  that  a  straight  raise  of  fare 
would  permanently  solve  the  question? 

Mr.  GEORGE.  Well,  I  do  not  believe  in  creating  values  by  the  earn- 
ing power  of  public  utilities.  That  is,  I  think  the  public  has  an 
interest  in  the  public  utilities,  and  that  capital,  even  if  it  gets  a  fair 
return,  should  not  expect  to  make  any  speculative  profit  on  it;  but  I 
think  that  capital  should  get  a  fair  return.  Now,  in  order  to  pre- 
vent them,  as  they  have  in  Cleveland,  and  as  they  attempted  to  do  in 
Boston,  if  they  establish  a  reservoir  into  which  this  surplus  goes,  and 
then  that  can  be  withdrawn  either  for  the  purpose  of  rendering  a 
similar  service  at  a  lower  rate  of  fare  or  a  better  service  at  the  same 
rate  of  fare,  why,  I  think  that  is  the  proper  method  of  doing  it.  I 
think  that  is  what  should  be  done,  and  I  do  not  believe  that,  if  that 
is  worked  honestly  and  the  people  become  accustomed  to  it,  there  will 
be  any  difficulty  in  replenishing  that  fund  for  needed  enlargement, 
maybe,  by  the  public,  if  it  becomes  necessary. 

Commissioner  SWEET.  Did  you  hear  the  statement  made  by  a  wit- 
ness who  said  that  street-railway  companies  could  not  remain  in 
statu  quo:  they  either  went  forward  or  backward,  and  that  they 
could  not  be  in  a  healthy  condition  unless  they  were  getting  in  new 
capital  ?  And  do  you  think  that  statement  is  true  ? 

Mr.  GEORGE.  Undoubtedly,  because  the  street-car  company  must 
reflect  the  growth  of  a  community,  and  it  must  grow  as  the  com- 
munity grows.  In  fact,  it  must  grow  a  little  in  advance  and  help 
the  growth  of  the  community,  it  seems  to  me,  and  that  necessitates, 
of  course,  extensions,  and  extensions  should  be  made  from  the  new 
capital  which  is  secured. 

Commissioner  SWEET.  Is  there  anything  you  would  like  to  say 
further,  Mr.  George,  before  we  adjourn? 

Mr.  GEORGE.  I  think  I  have  exhausted  more  time  than  I  should 
have  used. 

Mr.  WARREN.  Mr.  George,  there  is  one  further  question:  Do  you 
have  jitneys  in  Pittsburgh? 

Mr.  GEORGE.  Yes,  sir;  we  have  jitneys.  They  come  and  go.  I 
think  that  they  solve  their  own  problem.  I  do  not  think  we  ever  will 
be  rid  of  them,  but  I  do  not  think  we  need  fear  them. 

Mr.  WARREN.  Even  with  a  10-cent  fare,  Mr.  George? 

1GOC430— 20 21 


314    PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  GEORGE.  Xo. 

Mr.  WARREN.  For  short  distances? 

Mr.  GEORGE.  No.  They  will  do  a  certain  amount  of  business.  I 
may  be  very  sanguine.  You  must  remember  that  I  am  a  novice  in 
this  business.  I  have  only  been  in  it  six  months. 

Mr.  WARREN.  It  is  a  question  of  public  interest  in  a  community, 
possibly,  as  against  the  business  principle  of  operating  a  utility. 

Mr.  GEORGE.  Well  ought  not  the  public,  then,  to  protect  the  com- 
pany against  licensing  these  jitneys,  who  perform  no  constant  serv- 
ive  and  who,  perhaps,  are  just  using  the  streets  temporarily  ?  Ought 
they  not  to  regard  that  and  its  effect  on  the  company,  which  is  en- 
couraged to  buy  a  constant  service,  and  under  the  jurisdiction  of  the 
city  and  the  State  ? 

Mr.  WARREN.  They  ought  to  do  that.  I  am  not  sure  that  the 
community  would  not  have  to  go  a  step  further  and  absorb  itself  the 
difference  between  such  a  rate  as  the  people  in  the  inner  part  of  the 
territory  were  willing  to  pay  to  ride,  and  the  amount  that  would  be 
lost  by  the  people  in  the  outer  part  of  the  territory.  That  is  a  fea- 
ture that  has  been  considered  in  Massachusetts  this  very  winter.  In 
Boston  now,  where  they  have  gone  to  10  cents,  I  have  heard — since 
I* came  down  here,  so  I  do  not  know  what  the  fact  is — in  certain  parts 
of  Boston,  very  near  the  heart  of  the  city,  the)7  are  walking  at  present 
rather  than  pay  the  10-cent  fare,  because  they  are  so  near  that  they 
feel  that  it  is  a  discrimination  against  them,  as  against  the  discrimi- 
nation you  speak  of  against  the  people  on  the  other  side  of  the  zone 
line. 

Mr.  GEORGE.  Well,  they  will  walk  for  a  while,  but  the  question  is 
whether  the  natural  laziness  or  desire  to  avoid  exertion  will  not 
cure  them  of  that  habit. 

Commissioner  SWEET.  We  will  stand  adjourned  until  10  o'clock  to- 
morrow morning. 

(Whereupon  at  5.40  o'clock  p.  m.,  the  further  hearing  of  this  case 
was  adjourned  until  to-morrow,  Friday,  July  18,  1919,  at  10  o'clock 
a.  m.) 


.     WASHINGTON,  D.  C.,  July  18,  1919. 
Met  pursuant  to  adjournment,  at  10  o'clock  a.  m. 
Present:  Parties  as  before. 

Commissioner  SWEET.  The  hearing  will  come  to  order.  Mr.  War- 
ren, are  you  ready  to  proceed? 

Mr.  WARREN.  Yes,  I  am,  sir.  I  will  ask  Mr.  Sisson  to  take  the 
stand. 

STATEMENT  OF  MR.  FRANCIS  H.  SISSON. 

Mr.  WARREN.  Give  your  full  name,  please. 

Mr.  SISSON.  Francis  H.  Sisson. 

Mr.  WARREN.  And  you  are  one  of  the  vice  presidents  of  the  Guar- 
anty Trust  Co.? 

Mr.  SISSON.  I  am  one  of  the  vice  presidents  of  the  Guaranty 
Trust  Co. 

Mr.  WARREN.  Have  you  had  occasion  to  give  a  great  deal  of  atten- 
tion to  the  economic  features  and  the  financial  figures  of  public 
utilities  2 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.    315 

Mr.  SISSON.  I  have. 

Mr.  WARREN.  Including  street  railways? 

Mr.  Sissox.  Yes. 

Mr.  WARREN.  Without  questioning  you  in  detail — will  you  state 
to  the  commission  your  view  of  the  situation  as  regards  street  rail- 
ways, particularly  their  credit  and  their  economic  situation,  as  well 
as  their  needs? 

Mr.  SISSON.  Mr.  Warren,  with  your  permission,  and  with  the  per- 
mission of  the  commission,  I  have  prepared  a  brief  memorandum, 
which  sets  forth  some  of  my  formal  conclusions,  which  I  will  be 
glad  to  lay  aside  for  questions  later,  but  I  would  like  to  run  over 
some  of  these  points,  with  your  consent. 

I  have  addressed  my  memorandum  chiefly  to  the  street-railway 
credit  and  the  cost  of  capital  for  street  railways. 

The  cost  of  money  is  affected  by  conditions  which  affect  all  other 
costs.  The  law  of  supply  and  demand  affects  it  primarily.  The 
degree  of  safety  and  future  promise  are  also  instrumental  in  de- 
termining it.  There  is  every  reason  to  believe  that,  with  the  tre- 
mendous destruction  of  wealth  which  has  taken  place  in  the  world, 
both  through  its  physical  loss  and  the  diversion  of  vast  numbers  of 
men  from  productive  industry,  there  will  be  a  long  period  of  tight 
money  in  which  the  demand  for  capital  will  exceed  its  supply.  The 
rehabilitation  of  Europe,  the  conversion  of  industry,  labor  unrest, 
the  reestablishment  of  trade  and  the  instruments  of  commerce  will 
all  make  large  drafts  upon  the  available  capital  of  the  world,  which 
must  inevitably  be  reflected  in  higher  charges. 

As  long  as  wealth  remains  in  private  hands,  subject  to  private  dis- 
position, it  will  seek  the  most  profitable  fields  of  investment.  It 
can  not  be  coerced  into  situations  that  do  not  promise  reasonable 
protection  and  return,  and  the  present  public  attitude  toward  public 
utilities,  whether  inspired  by  political  considerations  or  selfish  ig- 
norance, has  inevitably  diverted  capital  from  such  channels  into 
others  not  subject  to  these  limitations. 

This  is  not  a  question  of  the  bankers'  attitude  toward  the  sub- 
ject, as  the  bankers  are  for  the  most  part  but  middlemen  in  the 
handling  of  securities  of  this  character.  The  ultimate  investor 
fixes  the  conditions  upon  which  he  will  purchase  securities,  and  the 
question  of  rate  is  simply  that  at  which  the  security  will  pass  to 
the  buyer.  It  is  certain  that,  unless  there  is  a  widespread  change 
in  the  public  attitude  toward  public  utilities,  the  security  buyer  will 
not  hazard  his  money  in  such  ventures,  and  the  bankers  have  no 
choice  but  to  follow  his  decision.  Furthermore,  it  is  certain  that 
no  satisfactory  alternative  is  left  in  public  ownership,  as  there  is 
nothing  in  the  record  of  public  ownership  on  the  whole  to  warrant 
the  hope  that  this  may  offer  a  solution  of  the  problem. 

Stripped  of  all  complications,  the  question  seems  to  be  whether 
or  not  the  American  public  are  willing  to  pay  for  service  rendered. 
The  alternatives  are  simple — either  the  service  will  not  be  renderd 
and  the  growth  of  our  communities  and  the  comfort  of  our  people 
will  be  denied,  or  the  cost  must  be  met,  either  directly  through  fares, 
or  indirectly  through  taxes.  As  to  which  of  these  alternatives  is 
economically  sound,  I  assume  there  can  be  no  doubt. 


316    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  open  question  is  whether  the  traveling  public  will  continue 
to  deny  to  its  utilities  the  basis  of  charges  which  it  accepts  in  every 
other  line  of  business. 

With  the  average  purchasing  power  of  the  dollar  decreased  gen- 
erally about  50  per  cent  since  1914,  it  is  impossible  for  2£  cents  to 
buy  5  cents  worth  of  transportation.  That  is  the  sum  and  sub- 
stance of  the  whole  situation. 

The  impairment  of  the  street-railway-credit  structure  has  been 
brought  about  through  increased  operating  costs  coupled  with  a 
fixed  unit  of  fare.  Prices  of  some  of  the  most  important  material 
used  in  the  maintenance  of  street-railway  property  have  increased 
38  per  cent  to  126  per  cent  over  those  in  1914.  Increases  in  wages 
and  fuel,  the  largest  items  in  the  cost  of  operation,  in  some  localities 
are  as  high  as  100  per  cent  over  prices  prevailing  in  1914.  In  recent 
testimony  before  the  congressional  Committee  on  Appropriations, 
it  has  been  estimated  that  the  cost  of  labor  and  materials  over  pre- 
war prices  was  85  per  cent. 

In  times  of  lower  costs  the  profit  from  the  short-haul  carried  the 
long-haul  passengers  for  the  same  fare.  AVhen  the  margin  of  profit 
from  short-haul  business  was  wiped  out  by  increased  cost  of  opera- 
tion, the  economic  unsoundness  of  the  traction  business  became 
critical. 

In  many  cases  this  condition  was  aggravated  by  local  difficulties, 
such  as  cheap  motor-car  competition,  franchises  litigation  and  ex- 
cessive burdens  imposed  by  regulating  bodies. 

As  a  result,  net  earnings  of  the  traction  companies  fell  off.  Where 
relief  was  granted  it  usually  did  not  come  until  the  companies  were 
already  in  a  weakened  financial  condition  and  credit  seriously  im- 
paired. 

Under  such  circumstances  the  .companies  found  it  increasingly 
difficult  to  attract  new  capital  by  means  of  stock  issue.  A  few  in- 
stances may  be  given  to  illustrate  how  the  market  for  street  railway 
stocks  was  affected :  In  1908  the  stockholders  of  the  Boston  Elevated 
Railway  were  permitted  to  subscribe  to  new  stock  at  $110  per  share, 
the  par  value  of  such  shares  being  $100.  Some  1,500  shares  were  not 
subscribed  for,  and  these  were  bid  in  at  public  auction  at  $130|  per 
share  in  May.  1909.  By  December,  1917,  Boston  Elevated  Railway 
capital  stock  had  declined  to  as  low  as  $27  per  share.  Twin  City 
Rapid  Transit  stcck,  which  sold  at  107  in  February,  1909,  fell  to  32 
in  1918.  Union  Traction  Co.  of  Philadelphia  sold  at  $58£  per  $50 
share  in  May,  1909;  in  1918  it  sold  as  low  as  $37  per  share. 

Finding  it  difficult,  if  not  impossible,  to  obtain  new  capital  through 
the  issue  of  stock,  the  street  railways  have  had  to  resort  to  financing 
by  means  of  fixed  charge  obligations.  As  the  margin  of  safety  over 
interest  requirements  diminished  and  the  risks  attending  investments 
in  street-railway  securities  increased,  the  companies  have  had  to  offer 

Si-eater  and  greater  inducements  to  attract  the  necessary  new  capital, 
apital  had  to  be  secured  to  take  care  of  maturing  obligations  at  in- 
terest rates,  in  many  instances  higher  than  the  fixed  rate  of  return 
allowed  on  the  investment  by  franchises  and  other  regulations,  and 
with  the  temporary  sacrifice  in  many  cases  of  a  large  part  of  the 
equity  value.  Such  costly  financing  increased  the  companies'  burdens 
still  further,  resulting  in  still  further  impairment  of  credit. 


PROCEEDINGS  OF  FEDEKAL  ELECTKIC  RAILWAYS  COMMISSION.    317 


In  the  following  table  a  comparison  is  made  of  the  yields  on  vari- 
ous standard  street-railway  bonds  in  July,  1909,  and  July,  1919. 
This  indicates  roughly  how  much  more  the  street  railways  must  pay 
for  capital  to-day  than  they  did  10  years  ago. 

I  will  not  undertake  to  read  this  table,  but  will  just  leave  it  with 
your  secretary. 

Mr.  WARREN.  Won't  you  read  just  two  or  three  of  them? 

Mr.  SISSON.  For  instance,  here  is  a  range  in  1909  from  3.84  to  5.90 
in  the  yield  of  such  bonds  as  the  Detroit  United  First  Consolidated 
and  West  End  Railways  and  bonds  of  a  similar  character,  standard 
public-utility  bonds  which  to-day  are  ranging  from  5.74  to  13.25 — 
5.74  being  the  lowest  and  13.25  being  the  highest — an  increase  of  100 
per  cent  and  more  in  the  range  of  yield. 

Mr.  WARREN.  And  those  are  companies  which  are  considered  par- 
ticularly strong  and  gilt-edge  securities? 

Mr.  SISSON.  The  best  securities  in  the  public-utility  market,  as  the 
table  shows. 

The  table  contained  in  Mr.  Sisson's  statement,  and  referred  to  by 
him,  is  as  follows : 


Year. 

Price 
July,  1909, 
to  yield. 

Price 
July,  1919, 
to  yield. 

Detroit  United  1st  Con.  4$s  

1932 

5.90 

7  55 

New  Orleans  Railway  &  Lt.  Gen.  4Js  

1935 

5.48 

>9  64 

T'niti'd  Railways  of  St.  Louis  1st  4s  ~  

1934 

5  01 

9  98 

Chicago  Citv  Railways  5s  

1927 

4.68 

9  75 

Metropolitan  West  Side  El.  1st  4s  

1938 

4  68 

9  40 

South  Side  Elevated  4Js                                 

1924 

4  95 

9  71 

West  End  Railway  Co.  Deb.  4s  

1932 

3.84 

"6  00 

Philadelphia  Rapid  Transit  Col.  Tr.  5s  

1957 

4.85 

5  85 

Aurora,  Elpin  &  Chicago  1st  5s  

1941 

4.94 

9  30 

Chicago  Railway  1st  5s  

1927 

4.90 

9  80 

Duluth  Street  Railway  1st  5s  

1930 

5.00 

7  82 

Los  Aneeles  1st  5s  .  ..'  

1938 

4.68 

6.42 

Louisville  Ry.  Con.  Mort.  5s  

1930 

4  45 

5  74 

Denver  C.  Tram.  1st  &  Ref.  5s  

1933 

5.22 

13  25 

B.  R.  T.  Gen.  5s  

1945 

4.60 

8  40 

B.  R.  T.  1st  Ref.  Conv.  4s  

2002 

4.63 

»8  70 

Conn.  Rv.  &  Lt.  1st  &  R°f.  4  is             

1951 

4.40 

5  9,* 

Interborough  Rapid  Transit  1st  &  Ref.  5s  

1966 

5.05 

6.9! 

i  Interest  delayed. 


*  Stock  yield. 


Mr.  SISSON.  A  striking  contrast  is  afforded  by  a  comparison  of 
yield  on  a  few  standard  industrial  bonds  for  the  same  period. 


. 

Year. 

Price 
July,  1909, 
to'yield. 

Price 
July,  1919, 
to  yield. 

American  Tobacco  4s  ..                      .                                

1951 

5.15 

5  30 

American  Tobacco  6s  

1944 

5.25 

5.15 

Bethlehem  Steel  1st  Ext.  Sk.  Rd.  5s                                

1926 

6.05 

5  60 

U.B.8teelSk   Fd  5s                                 

1963 

4  70 

4  95 

Va.-Car.  Chom.  5s  

1923 

5.15 

5.65 

I  have  quoted  here  such  bonds  as  the  American  Tobacco  4s, 
which  have  a  range  only  of  from  5.15  to  5.30,  and  such  bonds  as  tho 
United  States  Steel,  which  have  a  range  of  from  4.70  to  4.95  and, 
in  some  instances,  a  positive  decrease.  American  Tobacco  Gs  show 


318    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION, 

a  yield  of  5.25  in  1909,  and  a  yield  of  5.15  at  current  prices,  and  that   . 
is  true  broadly  in  the  whole  industrial  field.  \ 

Under  these  deplorable  conditions,  electric-railway-security  own- 
ers have  seen  their  holdings  precipitately  and  alarmingly  depreciate 
in  value.  With  the  opportunities  offered  to  the  investing  public 
during  the  last  few  years  to  purchase  the  securities  of  industrial  com- 
panies which  have  shown  extraordinary  earnings,  electric-railway 
securities  have  found  few  buyers.  With  the  war-time  demands  upon 
capital,  these  securities  have  sold  at  prices  which  have  been  so  low 
that  the  electric-railway  companies  have  had  the  utmost  difficulty  in 
obtaining  and,  in  some  cases,  have  been  absolutely  unable  to  arrange 
long-term  financing.  Under  the  ordinary  operation  of  economic  law, 
the  electric-railway  companies  have  been  compelled  to  pay  high  rates 
for  the  capital  they  did  get,  which  has  further  reduced  the  return  on 
their  securities. 

Another  factor,  however,  which  has  contributed  largely  to  the  diffi- 
culties of  the  situation,  has  been  the  wage  awards  of  the  National 
War  Labor  Board. 

In  this  connection,  it  may  be  illuminating  to  quote  the  following 
sentence  from  a  letter  written  by  the  receiver  of  a  New  England 
electric-railway  company : 

The  receivership  is  a  direct  result  of  the  National  War  Labor  Board's  award, 
which  placed  an  additional  pay-roll  burden  of  $125,000  per  annum  upon  the 
company,  notwithstanding  our  having  submitted  to  the  board  a  full  statement  of 
our  funds  and  demonstrating  to  them  that  any  other  increase  in  wages  would 
create  the  situation  which  we  now  face. 

In  a  hearing  between  the  street-car  companies  of  Cleveland  and 
Detroit  and  their  men,  the  companies  pleaded  that  they  should  not 
be  Tequired  to  raise  wages  because  they  had  no  income  out  of  which 
to  pay  the  increase.  They  said :  "  We  are  working  under  a  franchise 
on  which  we  receive  only  3  or  4  cents  a  passenger  carried  many  miles 
and,  if  a  substantial  increase  in  wages  be  granted,  bankruptcy  and  a 
receivership  must  follow." 

Yet,  the  general  chairman  of  the  board  of  arbitrators  in  these  cases 
held  that  the  financial  condition  of  the  companies  could  not  affect 
the  issue  at  stake — the  issue  of  wages. 

Such  rulings,  however,  are  only  in  keeping  with  the  general  public's 
attitude  toward  the  electric  railways,  which  has  compelled  these  com- 
panies to  operate  under  two  distinct  and,  in  some  respects,  diametri- 
cally opposed  kinds  of  law — legal  and  economic.  The  seriousness  of 
this  handicap  is  apparent  when  it  is  realized  that  probably  one-half 
of  the  gross  operating  expenses  of  a  railroad  consists  of  direct  labor 
costs,  which  are  constantly  increasing  while  the  abnormally  low  rates 
for  the  service  rendered  by  electric  railways  were,  in  many  cases,  fixed 
years  ago  by  special  laws  or  by  provisions  contained  in  ordinances  or 
franchises.  The  rate  of  fare,  in  effect,  was  a  part  of  the  considera- 
tion for  granting  franchises. 

But  the  franchise  method  of  fixing  rates  is  too  rigid  to  meet 
present-day  conditions.  The  franchise,  while  holding  down  the 
charges  for  the  service,  does  not  hold  down  costs ;  consequently,  costs 
have  rapidly  been  overtaking  gross  revenues  and  have  reduced  to  the 
danger  point  the  margin  between  the  two. 

The  commission  form  of  regulation  was  developed  largely  with  a 
view  of  remedying  the.  evils  o?  the  rigid  franchise  method,  but  even 


PROCEEDINGS  OF  FEDERAL  ELECTlilG  RAILWAYS  COMMISSION.    319 

the  commission  form  of  regulation  is  losing  esteem  among  the  think- 
ing people  because  of  the  attitude  many  commissions  have  assumed 
toward  the  public-utility  corporations. 

Transportation  can  not  be  rendered  at  less  than  cost  without  the 
money  to  make  up  the  deficit  coming  either  from  the  security  hold- 
ers or  the  taxpayers,  or  both.  It  should  be  obvious  to  all  that  the 
cost  of  transportation  ought  to  be  borne  by  the  users  of  transporta- 
tion and  that  some  plan  should  be  worked  out  by  which  such  pro- 
vision is  made. 

If  public  authorities  maintain  the  position  they  have  held  and 
unwarranted  additions  are  continuously  made  to  the  tax  burdens  of 
communities,  the  bonds  of  municipalities  will  not  be  attractive  to 
bankers  or  investors,  and  the  growth  and  prosperity  of  many  cities 
will  be  seriously  threatened.  Indeed,  as  has  been  pointed  out,  there 
is  involved  in  the  situation  the  validity  of  a  huge  structure  of  invest- 
ment and  credit,  the  undermining  of  which  can  not  fail  to  have  far- 
reaching  effects  upon  general  credit  and  business  prosperity,  for  the 
credit  of  our  transportation  lines  can  not  be  placed  in  jeopardy  and 
the  effects  localized  or  even  restricted  to  these  utility  companies. 
Cities  can  not  be  prosperous  without  efficient  utilities;  and  utilities 
can  not  be  efficient  without  prosperit}7.  Public  regulation  involves 
public  protection  of  credit. 

There  can  be  no  possible  justification  for  imposing  such  burdens 
as  are  being  inflicted  upon  security  holders  and  taxpayers  to-day  in 
an  attempt  to  give  something  for  nothing,  by  allowing  the  users  of 
transportation  lines  to  enjoy  the  conveniences  provided  them  at  less 
than  cost.  The  crux  of  the  whole  problem  is  that  fares  should  be 
fixed  on  an  equitable  basis  that  will  assure  earnings  sufficient  to  meet 
operating  expenses  and  pay  a  fair  return  on  invested  capital.  And 
by  "  invested  capital,"  I  mean  actually  invested  capital,  in  its  broad 
sense. 

The  electric-railway  security  holders  do  not  seek  exorbitant  in- 
creases in  fares ;  quite  the  contrary.  They  are  fully  cognizant  of  the 
fact  that  it  is  to  their  interest,  as  well  as  to  that  of  the  public,  to 
keep  rates  for  service  as  low  as  possible,  for  low  fares  benefit  the 
companies  through  stimulating  business. 

In  facing  this  situation  public  authorities  should  not  forget  that 
they  are  holding  in  their  hands  the  credit  of  their  cities — savings 
banks,  life  insurance  companies,  and  other  investment  institutions, 
and  a  large  portion  of  the  invested  wealth  of  the  country. 

The  problem  is  not  merely  local  or  political  but  of  nation-wide 
business  importance :  and  if  it  is  not  fairly  met,  is  capable  of  having 
a  widespread  and  disastrous  effect  on  business — an  effect  which  every 
business  interest,  directly  or  indirectly,  but  inevitably,  must  share. 

Mr.  WARREN.  Mr.  Sisson,  referring  to  that  last  statement  about 
the  effect  on  business  generally,  are  the  securities  of  street  railways, 
in  your  opinion,  pretty  widely  distributed? 

Mr.  SISSON.  Yes;  they  are. 

Mr.  WARREN.  And  if  this  whole  structure  collapses,  representing 
an  investment  of  about  five  or  six  billion  dollars,  you  think  that  the 
effect  would  be  very  widespread  and  very  serious? 

Mr.  SISSON.  I  do.  I  think  public-utility  securities  are  more  widely 
distributed  than  any  class  of  securities,  broadly  speaking. 


320    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  And  that  is  more  true  of  street  railways  than  of  any 
other  class  of  securities  ? 

Mr.  SISSON.  Yes. 

Mr.  WARREN.  It  is  more  true  of  street  railways  than  of  any  of  the 
others,  except  the  railroads  ? 

Mr.  SISSON.  Yes. 

Mr.  WARREN.  You  spoke  in  the  course  of  your  statement  of  the  need 
of  increased  fares.  Have  you,  from  your  study  of  the  street-railway 
situation,  any  doubt  that,  generally  speaking,  an  increase  in  the  fare 
will  produce  a  substantial  increase  in  revenue? 

Mr.  SISSON.  I  have  no  doubt  about  that;  no,  sir. 

Mr.  WARREN.  You  have  no  doubt  about  it  ? 

Mr.  SISSON.  No. 

Mr.  WARREN.  You  spoke  also  of  the  diminishing  margin  of  profit 
on  the  short-ride  haul. 

Mr.  SISSON.  Yes. 

Mr.  WARREN.  As  making  it  impossible  longer  to  continue  the  low 
flat  rate  for  all  riders.  What  would  be  your  remedy  for  that  ? 

Mr.  SISSON.  Well,  the  most  obvious  suggestion  is  that  of  the  zone 
system,  of  charging  on  some  mileage  basis. 

Mr.  WARREN.  Under  which  a  rider  would  pay  for  what  he  got  ? 

Mr.  SISSON.  Yes,  sir. 

Mr.  WARREN.  You  spoke  of  the  propriety  of  the  car  riders  in  bulk 
paying  for  the  service.  When  you  say  that,  would  you  revise  in  any 
respect  some  of  the  elements  of  cost  for  which  car  .riders  now  pay, 
such  as  paving  streets,  paying  bridge  tolls,  paying  for  bridge  repairs, 
cleaning  streets,  and  so  forth? 

Mr.  SISSON.  I  think  a  very  effectual  remedy  could  be  applied  im- 
mediately in  many  instances  by  relieving  the  companies  of  local  pub- 
lic-improvement costs. 

Mr.  WARREN.  As  far  as  you  can  see,  is  there  any  reason  why  the 
car  rider  should  contribute  anything  to  the  general  highway  ex- 
penses, more  than  an  automobile  rider  or  a  truck  rider  ? 

Mr.  SISSON.  No ;  I  certainly  do  not  think  so. 

Mr.  WARREN.  The  witness  is  at  the  disposal  of  the  members  of  the 
commission,  Mr.  Chairman.  I'  will  be  glad  to  have  you  ask  any 
questions  that  may  interest  any  members  of  the  commission. 

Commissioner  SWEET.  Have  you  any  figures,  Mr.  Sisson,  or  a  table 
prepared — or  could  you  prepare  one — that  will  show  definitely  the 
distribution  of  the  holdings  throughout  the  community  ? 

Mr.  SISSON.  Yes.  I  have  not  such  a  table  writh  me,  but  we  could 
prepare  a  table  that  would  give  you  a  very  good  impression,  although 
not  entirely  accurate,  of  where  these  security  holdings  are,  how  much 
of  them  are  in  the  institutions — 

Commissioner  SWEET.  Indirectly,  we  have  been  informed  by  other 
witnesses  that  a  great  many  street-railway  bonds,  and  I  think  also 
some  stock,  are  owned  by  widows  and  orphans,  or  more  than  by 
trustees. 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  And  that  the  impression,  which  is  rather 
broadcast  in  the  community,  that  the  holders  of  these  bonds  are 
wealthy  people,  is  entirely  a  mistake.  Is  that  true  or  not? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    321 

Mr.  SISSON.  I  think  that  is  true  without  question.  There  are  a 
great  many  of  these  securities  in  the  hands  of  institutions.  Life 
insurance  companies  and  savings  banks  are  holders  of  the  bonds,  in 
very  large  figures.  Aside  from  that,  these  securities  are  very  largely 
in  the  hands  of  the  small  investors.  It  was  a  class  of  security  at  the 
time  it  was  offered,  which  attracted  the  least  conservative  of  in- 
vestors because  of  the  somewhat  higher  yield  they  gave  over  the 
prevailing  security  offerings  at  that  time  and,  as  a  rule,  they  were 
very  widely  distributed  to  many  comparatively  small  buyers. 

Commissioner  SWEET.  At  the  time  when  the  5-cent  fare  was 
originally  agreed  upon,  apparently,  between  the  cities  and  the  pub- 
lic-service corporations,  in  the  granting  of  the  franchises,  that  was 
sufficient  pay  for  all  necessary  expenses  and  a  fair  return  upon  the 
investment,  was  it  not? 

Mr.  Sissox.  It  was. 

Commissioner  SWEET.  And,  in  some  cases,  I  suppose,  rather  a  large 
return  ? 

Mr.  Sissox.  Yes. 

Commissioner  SWEET.  And  that  naturally  offered  an  inducement 
to  investors? 

Mr.  Sissox.  Yes. 

Commission  SWEET.  So  that  institutions  like  insurance  companies 
and  people  in  a  fiduciary  relation  representing  an  aggregation  of 
comparatively  poor  peopie,  invested  in  them  because  they  paid  well 
and  were  looked  upon  as  exceedingly  safe  ? 

Mr.  Sissox.  Yes. 

Commissioner  SWEET.  Is  that  a  fact? 

Mr.  Sissox.  It  is  so.  The  popular  selling  argument,  and  one  very 
generally  used  in  those  days,  was  that  you  could  count  upon  the 
revenue-producing  power  of  utilities  of  our  great  cities  more  def- 
initely than  you  could  upon  any  other  class  of  securities. 

Commissioner  SWEET.  Up  to  about  what  time  did  that  condition 
continue  ? 

Mr.  Sissox.  It  existed  until  about  the  outbreak  of  the  war.  I 
should  say  when  the  recent  rise  in  the  cost  of  labor  and  materials 
overtook  the  revenues — perhaps  beginning  with  1915. 

Commissioner  SWEET.  Has  the  change  been  gradual? 

Mr.  Sissox.  It  was  rather  abrupt.  I  think  it  has  been  staccato, 
rather  than  gradual,  in  many  instances,  but  it  has  been  constant  for 
four  years. 

Commissioner  SWEET.  Is  it  as  great  to-day  as  it  was  three  or  four 
months  ago? 

Mr.  WARREN.  Xo,  it  is  not;  although  there  are  still  rising  costs  in 
labor  and  there  are  rising  costs  in  material  that  must  be  met  in  many 
instances,  but  the  ratio  of  increase  is  smaller  to-day  that  it  was 
before. 

Commissioner  SWEET.  How  do  you  account  for  that? 

Mr.  Sissox.  Weil,  largely  because  the  costs  of  labor  and  material 
both  have  almost  reached  the  breaking  point,  and  it  was  not  possible 
for  them  to  increase  ratably  as  much  as  they  had  for  the  last  three 
years  and  still  find  a  market. 

Commissioner  SWEET.  Do  you  mean  to  say  then  that  there  is  an 
increase  up  to  the  present  time? 


322    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  But  that  the  rate  of  increase  has  been  some- 
what less  in  the  last  few  months? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  But  that  the  point  reached  at  the  present 
time  is  the  high-water  mark  ? 

Mr.  SISSON.  Yes.     Up  to  this  point ;  yes. 

Commissioner  SWEET.  In  your  judgment,  what  is  the  prospect  for 
the  future? 

Mr.  SISSON.  I  think  you  will  find  still  higher  costs  of  material  and 
higher  cost  of  labor.  I  think  we  will  have  to  reckon  with  them  for 
an  indefinite  period  of  time. 

Commissioner  SWEET.  The  remedy  you  have  suggested  is  higher 
fares  ? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  Are  you  not  aware  that  in  some  cases  where 
it  has  been  tried  it  has  resulted  in  a  loss  of  patronage  ? 

Mr.  SISSON.  Yes;  I  am. 

Commissioner  SWEET.  Do  you  think  that  a  temporary  condition  ? 

Mr.  SISSON.  I  should  say  that  that  was  exceptional  and  temporary, 
because  it  is  not  sound  economic  law,  as  I  understand  economic  law. 

Commissioner  SWEET.  Do  you  think  that  may  be  the  result  of  a 
sort  of  temporary  resentment  on  the  part  of  the  public  ? 

Mr.  SISSON.  Yes,  I  do;  but,  in  smy  event,  an  adjustment  would 
sooner  or  later  be  made  on  the  equipment  and  extensions,  and  so  forth, 
to  meet  the  public  demand,  whatever  it  was. 

Commissioner  SWEET.  If  the  public  were  better  informed  as  to  the 
causes,  and  realize  that  the  present  situation  is  not  in  any  sense  the 
result  of  mismanagement  or  dishonesty,  the  public  would  be  more 
willing  to  accept  the  situation  and  pay  higher  fares;  would  it  not? 

Mr.  SISSON.  Unquestionably. 

Commissioner  SWEET.  What,  in  your  judgment,  ought  to  be  the 
method  of  raising  fares?  Who  should  have  the  right  to  determine 
what  the  fares  should  be? 

Mr.  SISSON.  Of  course,  the  laws  affecting  that  matter  are  so  dif- 
ferent in  the  different  States  that  it  is  rather  hard  to  generalize. 
Where  there  are  efficient  public-utility  commissions  in  the  States,  it 
seems  to  me  that  that  power  should  rest  with  them  as  the  agencies  of 
the  legislature  from  whom  the  power  springs,  and  that  they  should 
regulate  fares  to  meet  the  current  situation,  whatever  it  is. 

Commissioner  SWEET.  Have  you  not  already  said  that  some  of 
these  commissions  were  of  rather  narrow  gauge? 

Mr.  SISSON.  I  have;  and  for  that  reason  it  is  all  the  more  neces- 
sary that  the  public  be  informed,  and  that  such  a  commission  as  your 
own  aid  in  that  operation — if  I  may  be  pardoned  for  suggesting  it — 
which  I  believe  is  the  basis  for  proper  action  to  follow.  I  have 
enough  faith  in  the  American  people  to  believe  that  when  they  under- 
stand a  thing  and  that  understanding  is  based  upon  an  impartial  in- 
vestigation, or  through  their  political  agencies,  they  will  have  the 
wisdom  to  put  it  on  the  right  basis. 

Commissioner  SWEET.  Do  you  think  it  is  in  the  power  of  this  com- 
mission to  perform  a  valuable  public  service  in  the  way  of  recom- 
mending what  ought  to  be  the  general  policy  of  the  municipalities  of 
the  country  on  this  subject? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    323 

Mr.  SISSON.  I  certainly  do,  sir.  I  think  there  is  a  great  oppor- 
tunity— a  great  duty,  I  might  add. 

Commissioner  SWEET.  And  is  that  duty,  in  your  mind,  restricted  to 
the  corporations  themselves  ? 

Mr.  SISSON.  Do  you  mean 

Commissioner  SWEET.  I  mean  the  private  corporations  engaged  in 
the  street-railway  business. 

Mr.  SISSON.  No ;  I  should  say  that  your  chief  duty  lay  in  advising 
and  informing  public  bodies  in  relation  to  it. 

Commissioner  SWEET.  For  whose  benefit  ? 

Mr.  SISSON.  The  benefit  of  the  public.  I  am  willing  to  put  this 
whole  matter  on  the  flat  basis  of  public  interest,  because  it  has  funda- 
mental public  interests. 

Commissioner  SWEET.  Then  from  3'our  viewpoint  the  chief  benefit 
that  might  be  derived  from  a  proper  understanding  of  this  subject  and 
a  proper  recommendation  on  the  part  of  this  commission  would  be  to 
the  public,  rather  than  to  those  who  are  conducting  the  business? 

Mr.  SISSON.  I  certainly  do,  sir. 

Commissioner  SWEET.  Or  the  investors? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  In  order  that  the  street-railway  business 
may  be  prosperous,  is  it  essential  that  new  capital  should  be  added 
continuously? 

Mr.  SISSON.  Yes,  sir;  without  question — constantly.  As  the  coun- 
try grows  its  demands  grow.  New  capital  must  constantly  be  sought 
to  meet  the  local  demands  of  some  growing  communities. 

Commissioner  SWEET,  You  are  rather  inclined  to  favor  the  zone 
.system,  are  you? 

Mr.  SISSON.  It  seems  to  me  to  offer  a  fair  solution ;  yes,  sir. 

Commissioner  SWEET.  Have  you  worked  out  in  detail  a  plan  for 
operating  the  zone  system  ? 

Mi\  SISSON.  I  have  not,  but  I  have  seen  such  plans  in  New  York, 
but  nowhere  else. 

Commissioner  SWEET.  Is  it  in  operation? 

Mr.  SISSON.  No.     It  is  purely  theoretical,  on  paper. 

Commissioner  SWEET.  It  has  been  tried  in  some  places,  has  it  not? 

Mr.  SISSON.  It  has  been  tried  with  great  success,  I  understand,  in 
London  and  in  many  other  great  European  capitals.  It  has  been 
tried  successfully  there. 

Commissioner  SWEET.  Some  witnesses  that  appeared  before  us 
have  told  us  that  where  the  zone  system  had  been  employed  in  Europe 
and  in  some  parts  of  this  country,  I  think,  the  tendency  has  been  to 
build  up  the  centers  and  to  add  to  the  congestion  of  cities  rather  than 
to  properly  distribute  the  population.  Do  you  know  anything  about 
that? 

Mr.  SISSON.  I  have  heard  that  argument  made,  and  I  recognize  its 
soundness.  I  think  perhaps  that  may  be  true,  offset  by  decreased 
rentals  and  decreased  cost  of  land.  I  think  it  would  not  be  so 
valuable  for  vacant-land  speculators,  but  I  do  not  think  the  con- 
suming public  should  have  to  bear  that  charge.  In  other  words, 
the  lower  cost  of  living  in  the  outlying  sections  ought  to  more  than 
offset  the  increased  fare  to  their  business  or  industrial  engagements, 
whatever  they  are. 


324       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  The  city  burdens  would  be  substantially  the 
same,  however,  in  the  outlying  districts  as  in  the  centers? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  So  far  as  taxation  and  matters  of  that  kind 
are  concerned? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  It  is  only  after  you  get  beyond  the  limits  of 
the  city  that  you  would  find  relief  from  those  burdens,  is  it  not? 

Mr.  SISSON.  Yes. 

Mr.  WARREN.  The  assessments  would  be  smaller,  though;  would 
they  not,  Mr.  Chairman  ? 

Commissioner  SWEET.  The  assessments  would  be  smaller,  but  the 
rate  of  taxation  would  be  the  same,  I  take  it. 

Mr.  Sissox.  Yes;  of  course  that  spreads  over  the  city. 

Commissioner  SWEET.  The  zone  system  that  you  have  in  mi: id — 
will  you  kindly  describe  that  so  that  we  may  have  a  little  moro 
definite  idea  of  it  ? 

Mr.  SISSON.  Well,  I  will  not  undertake  to  go  into  any  great  detail, 
any  more  than  to  say  that  it  should  be,  in  my  judgment,  based  upon 
mileage.  For  instance,  in  the  great  city  of  New  York  a  man  can 
ride  from  Yonkers'  city  line  almost  and  from  Mt.  Vernon's  city  line 
clean  to  Coney  Island,  nearly  30  miles,  for  5  cents.  Well,  that  is 
obviously  a  luxury  that  the  public  enjoys  at  the  investors'  expense 
to-day.  It  is  not  equitable ;  it  is  not  good  business.  Now,  if  a  system 
could  be  arranged  whereby  a  man  pays  a  5-cent  fare  from  the  Yonkers 
city  line  to  a  given  point  and  then  is  required  to  deposit  another  ticket 
for  another  haul,  as  is  true  in  many  surface  systems,  it  would  be  only 
equitable  and  it  would  be  a  source  of  immense  revenue  to  local  trac- 
tion lines. 

Commissioner  SWEET.  It  would  not  be  practicable  to  bring  the 
relation  between  service  and  compensation  to  an  absolutely  fine  point 
in  the  way  of  equity,  would  it?  For  instance,  a  man  who  travels 
a  single  block,  or  two  blocks,  on  a  street  railway  would  pay,  under 
the  conditions  that  exist,  a  nickel  ? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  And  the  same  for  a  dozen  or  more  blocks 
or  more? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  Now,  there  a  greater  service  would  be  ren- 
dered for  the  same  compensation? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  That  can  not  very  well  be  avoided? 

Mr.  SISSON.  No;  I  do  not  see  that  that  can  be  made  accurate. 

Commissioner  SWEET.  But  your  idea,  if  I  understand  it,  is  that 
zones  might  be  established  which  might  be  equitable  and  just,  and 
bring  about  a  better  relation  between  service  rendered  and 

Mr.  SISSON.  Cost. 

Commissioner  SWEET  (continuing).  And  compensation  for  it? 

Mr.  SISSON.  Exactly. 

Commissioner  SWEET.  And  that  system  would  be  desirable  on  the 
whole  ? 

Mr.  SISSON^  Unquestionably,  in  our  great  cities — between  cities. 

Commissioner  SWEET.  And  it  would  be  more  businesslike? 

Mr.  SISSON.  Yes;  there  is  not  any  question  about  that. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    325 

•Commissioner  SWEET.  Do  you  see  any  other  argument,  except  that 
of  the  distribution  of  population,  against  this  plan  ? 

Mr.  Sissox.  The  argument  of  difficulty  in  collection,  which  is 
sometimes  advanced,  but  I  think  that  would  be  very  easily  overcome 
by  mechanical  methods. 

Commissioner  SWEET.  The  sale  of  a  number  of  tickets  would 
obviate  the  necessity  of  making  change,  would  it  not? 

Mr.  Sissox.  Yes. 

Commissioner  SWEET.  It  has  been  said  that  if  we  had  a  different 
coinage,  a  7  or  a  74 -cent  piece,  or  something  of  that  kind,  it  would 
be  of  very  great  benefit  in  this  matter.  What  is  your  opinion  there? 

Mr.  Sissox.  Well,  I  think  if  the  dollar  continues  to  depreciate  in 
value,  it  will  be  necessary  for  us  to  have  some  intermediate  coins, 
because,  after  all,  these  are  simply  tokens  of  exchange.  They  do 
not  represent  real  value  in  themselves,  to  any  extent. 

Commissioner  SWEET.  No. 

Mr.  Sissox.  And  our  old  coinage  system,  based  upon  the  dollar 
value  of  five  years  ago,  does  not  meet  the  situation  of  to-day,  in 
many  instances. 

Commissioner  SWEET.  It  would  avoid  a  certain  amount  of  annoy- 
ance and  inconvenience? 

Mr.  Sissox.  Exactly. 

Commissioner  SWEET.  Is  it  your  opinion  that  the  American  people 
pay  more  attention  to  that  annoyance  than  do  Europeans  ? 

Mr.  Sissox.  I  think  they  do,  yes.    I  think  they  do. 

Commissioner  SWEET.  Do  you  think  we  are  inclined  to  do  things 
on  a  somewhat  larger  and  more  liberal  scale,  and  we  do  not  like 
what  seems  to  be  hair-splitting? 

Mr.  Sissox.  Yes;  I  think  that  is  true;  and  you  need  only  see  tho 
situation  in  various  parts  of  our  own  country.  In  California,  for 
instance,  for  a  good  manj7  years,  the  nickel  was  the  smallest  unit 
used. 

Commissioner  SWEET.  Yes. 

Mr.  Sissox.  You  had  to  pay  5  cents  for  a  newspaper,  and  5  cents 
for  anything — they  never  saw  pennies  out  there — and  everything 
from  that  point  up.  It  was  simply  the  custom  of  the  community. 

Commissioner  SWEET.  Do  you  think  that  is  something  that  is  in- 
herent in  the  newer  communities? 

Mr.  Sissox.  I  do.    There  is  no  question  about  that. 

Commissioner  SWEET.  In  regard  to  taxation,  you  said  you  thought 
certain  forms  of  indirect  taxation — like  paving  between  flie  tracks, 
bridge  tolls,  bridge  repairs,  and  that  sort  of  thing — all  of  which  are 
now  borne  by  the  street-railway  companies,  in  many  instances  should 
be  avoided — that  that  is  a  bad  practice. 

Mr.  Sissox.  Well,  I  think  it  imposes  undue  hardships  upon  the 
transit  lines  in  many  cases,  and  it  might  mean  the  difference  between 
solvency  and  insolvency  in  many  cases.  It  seems  to  me  that  when 
these  lines  are  operating  so  near  the  danger  line  as  thejT  are,  the 
community  might  very  well  afford  to  undertake  those  improvements 
at  its  own  expense,  rather  than  force  the  issue  against  the  lines.  Of 
course,  that  situation  would  vary  in  different  communities.  It  is 
very  hard  to  generalize  about  that. 

Commissioner  SWEET.  In  the  period  prior  to  1015.  when  the  busi- 
ness was  reasonably  prosperous,  is  it  your  opinion  that  the  arrange- 


326       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

ment  that  was  made  between  the  cities  and  the  street-railway  corpora- 
tions for  doing  this  paving  and  repairing,  and  so  forth,  was  based 
upon  the  idea  that  they  were  getting  it  out  of  the  companies  them- 
selves rather  than  out  of  the  users  of  the  railways? 

Mr.  SISSON.  Unquestionably. 

Commissioner  SWEET.  Was  that  at  that  time  a  correct  theory  ? 

Mr.  SISSON.  No ;  I  think  not,  entirely. 

Commissioner  SWEET.  Is  its  incorrectness,  in  your  opinion,  empha- 
sized and  increased  very  largely  by  present  conditions? 

Mr.  SISSON.  I  certainly  think  so.    It  is  fallacious. 

Commissioner  SWEET.  Is  there  any  doubt  in  your  mind  as  to  the 
fact  that,  under  the  conditions  as  they  now^xist,  the  continuance  of 
this  policy  means  placing  an  undue  burden  upon  the  users  of  the 
street  railways? 

Mr.  SISSON.  That  is  the  exact  effect  of  it  to-day;  yes,  sir. 

Commissioner  SWEET.  And  if  the  fares  are  increased,  and  this 
system  with  regard  to  paving,  bridge  tolls,  bridge  repairs,  and  that 
sort  of  thing,  should  be  continued,  would  it  not  be,  in  your  judgment, 
exacting  from  the  users  of  railways  an  unjust  form  of  indirect  taxa- 
tion, which  would  be  requiring  that  part  of  the  community  to  pay 
for  something  that  is  used  more  by  automobile  owners  in  other  parts 
of  the  community,  which  would  be  exempt  from  that  form  of  tax- 
ation ? 

Mr.  SISSON.  That  seems  to  be  a  very  clear  and  obvious  statement, 
sir.  I  do  not  see  how  anybody  could  escape  that  conclusion.  It  is 
certainly  true  in  our  large  cities. 

Commissioner  SWEET.  Is  not  that  a  very  strong  argument  in  favor 
of  abandoning  this  sort  of  obsolete  practice? 

Mr.  SISSON.  It  certainly  is. 

Commissioner  SWEET.  In  your  judgment,  are  the  street-railway 
companies  at  the  present  time  being  managed  efficiently? 

Mr.  SISSON.  On  the  whole,  I  think  they  are.  We  as  bankers,  have 
just  finished  a  very  searching  and  thorough  examination  of  the  New 
York  transit  lines,  entirely  impartial  and  quite  critical ;  and  the  re- 
ports that  we  get  are  most  reassuring  that,  so  far  as  the  management 
is  concerned,  it  is  just  as  nearly  efficient  as  it  can  humanly  be  made, 
and  that  I  think  is  true  of  most  of  the  high-grade  lines  throughout 
the  country. 

Commissioner  SWEET.  We  had  evidence  yesterday  from  Mr. 
George,  one  of  the  receivers  of  the  Pittsburgh  Railways  Co. 

Mr.  SISSON.  Yes. 

Commissioner  SWEET  (continuing).  That,  after  taking  charge  of 
the  property,  they  reached  the  conclusion  that  the  management  had 
been  both  honest  and  capable. 

Mr.  SISSON.  Yes ;  I  think  that  is  broadly  true  throughout  the  coun- 
try of  the  lines  with  which  I  am  familiar. 

Commissioner  SWEET.  Have  you  any  direct  information  on  that 
point  from  the  receivers  of  other  companies,  or  in  any  other  manner? 

Mr.  SISSON.  Yes;  particularly  in  New  York  City  and  Brooklyn, 
where  that  is  the  opinion  of  the  receivers  of  all  the  companies  there, 
I  think  I  am  safe  in  saying,  and  better  than  that,  it  is  the  direct 
finding  of  capable  engineers  who  have  made  this  analysis  for  the 
benefit  of  the  security  holders. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      327 

Commissioner  SWEET.  I  assume  that  there  may  be  instances  of  in- 
competency  and  possibly  of  dishonesty  in  some  particular  localities. 

Mr.  SISSON.  Undoubtedly. 

Commissioner  SWEET.  What  is  your  judgment  in  regard  to  the 
business  as  a  whole,  whether  it  is  managed  with  honesty  and  ability, 
and  with  an  earnest  desire  to  promote  the  interests  of  the  general 
public,  as  well  as  of  the  investors  ? 

Mr.  SISSON.  I  think,  from  a  very  careful  study  of  the  situation, 
that  it  ranks  above  the  average  business  in  all  those  particulars. 

Commissioner  SWEET.  You  do? 

Mr.  Sissox.  I  do.  I  might  say  in  that  connection,  because  of  the 
necessities  of  their  situation. 

Commissioner  SWEET.  Yes. 

Mr.  SISSON.  In  many  cases,  undoubtedly. 

Commissioner  SWEET.  Have  you  any  suggestion  to  make  to  this 
commission  as  to  the  practical  method  of  getting  into  the  minds  of 
the  general  public  the  situation  as  it  exists,  and  as  you  see  it  ? 

Mr.  SISSON.  Well,  I  could  not  go  into  great  detail,  but  I  should 
think  that  an  authoritative  report  from  you,  based  upon  your  analy- 
sis of  the  situation,  recommending  a  certain  attitude  and  course  of 
action  on  the  part  of  the  public  and  their  political  agencies,  would 
have  a  very  farspread  effect  in  remedying  the  situation  throughout 
the  country. 

I  do  not  know  the  scope  and  limit  of  your  authority  in  the  matter. 
I  did  not  see  what  the  nature  of  the  appointment  was,  but  I  assume 
your  findings  will  be  only  recommendations.  However,  I  am  very 
sure  that  they  will  have  a  very  immediate  effect  in  the  making  of 
public  sentiment,  which  is  the  underlying  necessity  in  the  whole 
situation,  because,  sooner  or  later,  public  sentiment  is  reflected  in 
legislative  and  regulative  action.  , 

Commissioner  SWEET.  The  present  attitude  of  the  public  upon  this 
subject  is  a  sort  of  inheritance,  is  it  not  ? 

Mr.  SISSON.  Yes;  it  is  in  part  justified  and  in  part  the  blind,  un- 
reasoning ignorance  of  self-interest.  It  is  justified  in  a  measure  by 
some  bad  practices — bad  financial  practices  and  operating  practices 
in  the  past  that  have  aroused  resentment,  and  proper  resentment,  but 
from  which  the  public  has  reacted  to  a  point  of  antagonism  that  is 
just  as  unfair  and  unwarranted  and  unjustified  as  the  actions  which 
they  themselves  have  criticized. 

Commissioner  SWEET.  Who  are  the  chief  sufferers  because  of  that 
mistaken  view? 

Mr.  SISSON.  Of  course,  the  security  holder,  primarily,  and  the 
traveling  public  in  the  next  place. 

Commissioner  SWECT.  Does  it  not  have  an  effect  upon  the  general 
prosperity  of  the  country — are  not  all  the  people  of  the  country  more 
or  less  atfected  by  it? 

Mr.  SISSON.  Unquestionably,  because  so  large  a  portion  of  the  pub- 
lic is  interested,  directly  or  indirectly,  in  the  problem. 

Commissioner  SWEET.  As  an  investment  banker,  would  you  know 
if  the  custom  of  issuing  bonus  stock  or  putting  water,  as  the  people 
say,  into  stock  is  now  in  vogue? 

Mr.  SISSON.  It  is  not. 

Commissioner  SWEET.  Do  you  know  that  it  is  not  ? 

Mr.  SISSON.  I  know  that  it  is  not,  in  companies  of  that  character. 


328       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Yes. 

Mr.  SISSON.  It  is  still  frequently  used  in  industrial  flotations  of 
various  sorts.  Public  sentiment  has  not  reached  that  point  ap- 
parently, yet;  but  the  public  utilities — the  railways  and  matters 
where  the  public  interest  is  alive,  that  practice  has  not  been  in  vogue 
in  regard  to  them  for  a  long  time. 

I  might  say  in  further  explanation  of  that,  that  in  the  development 
of  any  new  industry,  like  a  railway  or  public  utility,  the  investment 
banker  very  often  finds  it  necessary,  in  order  to  secure  direct  invest- 
ment in  the  obligations  of  the  company,  to  give  a  profit-sharing  in- 
terest in  the  future  of  that  company,  in  the  form  of  a  stock  bonus, 
in  order  to  induce  investment.  Where  these  things  are  hazard,  their 
profit  earning  is  all  estimated  as  a  matter  of  guess  work ;  the  specula- 
tive possibility  in  the  situation  is  the  only  thing  that  attracts  the 
investor,  and  stock  bonuses  have  been  given  simply  to  make  the  direct 
offering  attractive. 

Commissioner  SWEET.  The  way  in  which  that  has  been  done  has 
been  by  giving  a  certain  amount  of  stock  ? 

Mr.  SISSON.  Of  common  stock. 

Commissioner  SWEET.  Of  common  stock? 

Mr.  SISSON.  With  the  bonds. 

Commissioner  SWEET.  To  the  purchaser  of  the  bonds  or  preferred 
stock  ? 

Mr.  SISSON.  Exactly.  I  might  go  further  and  say  that  it  is  my 
judgment  that  this  country  would  not  have  been  built  up  and  we 
never  would  have  had  our  railways  and  public  utilities  if  that  finan- 
cial practice  had  not  been  pretty  general  throughout  the  days  of  pro- 
motion and  creation. 

Commissioner  SWEET.  In  order  to  get  new  capital  to  invest  in 
street-railway  enterprises 

Mr.  SISSON.  Exactly. 

Commissioner  SWEET  (continuing).  There  must  be  some  reason- 
able assurance  of  a  fair  rate  of  interest  upon  the  investment? 

Mr.  SISSON.  Yes. 

Mr.  SWEET.  And  a  reasonable  certainty  of  return  on  the  capital 
investment  ? 

Mr.  SISSON.  Exactly;  absolutely. 

Commissioner  SWEET.  No  one  could  possibly  deny  that  proposi- 
tion? 

Mr.  SISSON.  No. 

Commissioner  SWEET.  Now,  can  you  suggest  any  definite  and  dis- 
tinct and  practical  method  by  which  that  may  be  accomplished? 

Mr.  SISSON.  Well,  of  course,  very  obviously  by  an  expression  of 
public  sentiment  through  regulating  bodies — that  would  assure  a 
reasonable  earning  power. 

Commissioner  SWEET.  Have  you  considered  the  service-at-cost 
plan,  as  it  is  called? 

Mr.  SISSON.  It  would  seem  to  me  that  that  margin  would  be  too 
narrow  to  attract  investors,  as  a  rule.  They  would  like  to  have  a  sur- 
plus, a  sinking  fund,  and  a  margin  of  earnings  above  that,  if  they 
had  their  say  in  the  matter. 

Commissioner  SWEET.  Does  the  service-at-cost  plan  necessarily 
limit  the  return  that  should  be  allowed  on  the  capital  invested  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       3'29 

Mr.  SISSION.  It  does  not  necessarily,  but.  of  course,  it  might  do  so. 

Commissioner  SWEET.  Or,  if  it  does  it,  would  it  be  limited  at  a 
point  to  attract  investors? 

Mr.  SISSON.  That  would  .be  the  danger. 

Commissioner  SWEET.  Suppose  it  were  not.  Suppose  a  6  or  6|  or 
7  per  cent  rate  were  understood  to  be  a  reasonable  amount? 

Mr.  SISSON.  I  think  that  would  be  very  attractive  to  the  average 
investor. 

Commissioner  SWEET.  What  percentage  do  you  think  would  be 
necessary  ? 

Mr.  SISSON.  Well,  I  should  say  on  bonds  that  the  investor  would 
not  be  satisfied  with  less  than  5  per  cent  earnings  on  street  railwa}7s, 
and  not  less  than  6  per  cent  upon  stock.  I  mean  actual  stock. 

Commissioner  SWEET.  Common  stock? 

Mr.  SISSON.  Common  stock;  but  he  would  like  8  or  9,  and  in  the 
ordinary  attitude  of  the  investor  and  banker  toward  the  question, 
in  my  judgment,  it  should  not  be  less  than  7,  and  ought  to  be  8;  but 
I  assume  the  whole  situation  would  be  stabilized  if  he  knew  he  got 
anything  above  the  6  per  cent  return. 

Commissioner  SWEET.  Do  you  think  a  guaranty  of  5  per  cent  on 
bonds  would  be  sufficiently  attractive  to  investors  to  meet  the  needs 
of  the  companies  at  the  present  time? 

Mr.  SISSON.  Well,  the  guaranty — do  you  mean  by  that  to  limit  it  to 
5  per  cent  ? 

Commissioner  SWEET.  Yes. 

Mr.  SISSON.  To  assure  them  of  5  per  cent? 

Commissioner  SWEET.  To  assure  them  of  5  per  cent,  and  not  more. 

Mr.  SISSON.  Yes;  I  think 

Commissioner  SWEET.  On  bonds. 

Mr.  SISSON.  I  think  the  public-guaranteed  bond  on  a  5  per  cent 
offering  would  be  attractive  to-day. 

Commissioner  SWEET.  Do  you  think  such  bonds  could  be  floated 
at  the  present  time? 

Mr.  SISSON.  It  would  depend  a  good  deal  upon  the  nature  of  the 
guaranty,  upon  the  size  of  the  community,  and  the  political  character 
of  the  Government.  Money  rates  are  higher  than  that  to-day.  Five 
and  a  half  per  cent  is  the  existing  rate  on  money  to-day,  and  my  own 
judgment  is  that  money  is  going  higher.  The  demand  for  capital  is 
so  great  that  it  seems  to  me  inevitable  that  it  will  be  forced  up, 
and  that  while  a  guaranteed  governmental  obligation,  like  our  own 
United  States  obligation,  can  be  sold  at  better  than  5,  it  would  have 
to  be  of  a  very  sound  character  to  be  attractive  at  5 ;  but  it  would  be 
attractive  on  a  sound  guaranty.  If  the  city  of  New  York  or  the 
State  of  New  York  guaranteed  its  corporations  5  per  cent,  the  se- 
curities could  be  sold,  and  they  would  be  attractive  to  investors. 

Commissioner  SWEET.  Do  you  see  anything  inconsistent  with  a 
guaranty,  or  what  would  amount  to  a  guaranty  of  that  kind,  in  the 
cost-of -service  plan? 

Mr.  SISSON.  No. 

Commissioner  SWEET.  Service  at  cost,  I  think  it  is  called. 

Mr.  SISSON.  No;  I  do  not.     My  own  theory  is  that  if  we  got  into 

the  guaranty  field,  we  are  encroaching  so  closely  upon  the  field  of 

public  ownership  that  sooner  or  later  we  will  step  over  the  line  into 

it,  and  with  an  assurance  of  a  reasonable  earning  power  to  be  dis- 

100043°— 20- 22 


330       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

tributed  by  the  owners  of  the  roads  through  fixed  charges  and  labor 
charges  and  material  charges,  in  accordance  with  their  owTn  necessi- 
ties and  judgment,  is  a  much  more  businesslike  way  to  leave  the  situa- 
tion than  to  provide  for  fixed  guarantees.  But  perhaps  that  is  not 
possible.  If  it  is  not,  I  would  approve  the  guaranty. 

Commissioner  SWEET.  Would  it  not  be  feasible  for  a  State  com- 
mission, for  instance,  to  fix  a  tentative  rate  and  then,  later  on,  have 
an  adjusting  scale?  If  the  rate  fixed  in  the  start  did  not  produce  the 
fixed  income  to  meet  the  needs  of  the  companies  and  the  investors, 
would  it  not  be  feasible  that  automatically  or  by  further  action  of  the 
State  commission,  a  slight  increase  should  be  made,  and  so  on,  until 
a  point  Avere  reached  where  the  property  would  be  preserved  in  at 
least  avS  good  condition  as  it  was  when  taken,  necessary  extensions 
made,  investors  properly  compensated,  and  business  go  on  profitably  ? 

Mr.  SISSON.  I  think  that  is  entirely  feasible. 

Commissioner  SWEET.  That  would  be  feasible,  would  it  not  ? 

Mr.  SISSON.  It  would  be  feasible,  and  most  desirable. 

Commissioner  SWEET.  Would  not  a  somewhat  elastic  arrangement 
of  that  kind  really  meet  the  situation  better  than  merely  a  range  of 
7^  or  8  or  9  cents? 

Mr.  SISSON.  It  would  be  much  more  scientific. 

Commissioner  SWEET.  Yes. 

Mr.  SISSON.  It  would  depend  only,  I  might  add,  upon  the  intelli- 
gence and  broadmindedness  of  the  regulating  commission  which,  in 
many  instances,  undoubtedly,  would  be  equal  to  the  situation. 

Commissioner  SWEET.  You  can  not  entirely  exclude  the  human  ele- 
ment, could  you,  from  any  arrangement  of  that  kind? 

Mr.  SISSON.  Nor  the  political  element. 

Commissioner  SWEET.  No.  The  success  of  any  plan  that  may  be 
adopted  would  depend  very  largety,  would  it  not,  upon  eradicating 
from  the  public  mind  the  prejudices  that  have  existed? 

Mr.  SISSON.  Exactly. 

Commissioner  SWEET.  And  bringing  about  a  better  cooperation 
between  the  companies  and  the  public.  And  the  common  councils 
and  representatives  of  the  public. 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  By  making  the  people  realize  what  is  the 
fact — that  their  own  prosperity  depends  largely  upon  the  mainte- 
nance of  this  service. 

Mr.  SISSON.  Exactly.  It  may  be  necessary,  in  order  to  secure  that, 
to  establish  some  sort  of  community  of  interest  between  the  corpora- 
tion and  the  public,  whereby  earnings  above  a  certain  figure  revert 
to  public  uses.  That  might  put  an  automatic  check  upon  too  high  a 
fare.  I  am  really  skeptical  of  that  profit-sharing  arrangement,  as 
it  has  not  worked  successfully  in  all  places  where  it  has  been  applied ; 
but,  theoretically,  I  think  anything  that  establishes  a  community 
of  interest  and  a  community  of  understanding  between  the  owners 
and  users  is  to  be  desired. 

Commissioner  SWEET.  Will  you  explain  that  a  little  more 
definitely  ? 

Mr.  SISSON.  Well,  you  are  familiar,  undoubtedly,  with  the  systems 
that  are  in  vogue  in  several  cities  in  this  country,  where  there  is  .1 
provision  for  a  division  of  profits  between  the  city  and  the  corpora- 
tions beyond  a  fixed  return  to  the  corporation. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      331 

Commissioner  SWEET.  We  ask  some  questions  of  this  kind  in  order 
to  make  the  record  more  complete. 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  And  if  you  will  just  explain  it  so  that  a 
person — the  average  man  in  the  community  on  reading  it — will  get 
a  clear  apprehension  of  what  you  have  in  mind,  it  would  be  better 
than  it  would  be  to  appeal  to  the  members  of  the  commission  upon 
their  own  information. 

Mr.  SISSON.  Yes.  Well,  that  plan  is  theoretically  perfect,  but  it 
has  not  always  been  practically  successful. 

Commissioner  SWEET.  Well,  just  give  us  what  that  plan  is. 

Mr.  SISSON.  To  provide  that  the  fare  shall  be  such  as  is  mutually 
agreed  upon,  and  that  any  return  to  the  corporation  above  a  certain 
fixed  return  to  be  agreed  upon  shall  be  divided  on  some  basis  between 
the  city  and  the  corporation.  That  ought  to  prejudice  public  senti- 
ment in  favor  of  the  corporation,  as  it  is  an  institution  in  which  they 
have  an  interest. 

Commissioner  SWEET.  It  ought  to  remove  prejudices  against  the 
corporation  ? 

Mr.  SISSON.  Now,  I  am  sorry  to  say  that  that  has  not  been  true 
in  all  instances  where  it  has  been  tried,  but  I  believe  that  it  is  still 
worth  a  trial,  and  that  the  sound  theory  that  is  presented  by  it  has 
hot  yet  been  disproven  by  its  failure  in  instances  to  secure  that 
result.  Personally,  I  believe  very  thoroughly  in  the  profit-sharing 
plan. 

Commissioner  SWEET.  But,  Mr.  Sisson,  don't  you  think  that  this 
objection  might  be  raised  to  that  plan — that  whatever  is  the  share  of 
the  general  public  in  those  properties,  would  simply  reduce  general 
taxation? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  And  during  the  following  year  would  be 
somewhat  lessened  by  reason  of  receiving  their  share;  is  not  that 
true  ? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  Would  not  that,  then,  be  removing  from  the 
general  public  a  part  of  the  burden  of  taxation  and  placing  it 
entirely  upon  the  users  of  the  railways? 

Mr.  SISSON.  Unquestionably. 

Commissioner  SAVEET.  Would  that  be  a  just  arrangement? 

Mr.  SISSON.  No;  not  entirely,  except  on  the  theory  that  a  large 
proportion  of  the  general  public  are  users  of  the  utilities;  but  the 
point  is  well  taken. 

Commissioner  SWEET.  What  portion  of  the  public  is  it  that  does 
not  use  the  street  railways,  or  that  use  them  the  least  ?  Can  you  tell 
us  what  that  is? 

Mr.  SISSON.  Well,  it  is  being  relieved,  of  course,  from  a  portion 
of  taxation. 

Commissioner  SWEET.  Well,  what  portion  of  it  is  it?  Is  it  the 
richest  or  poorest,  or  what  part  of  the  community  is  it  that  uses  the 
street  railways  the  least? 

Mr.  SISSON.  I  think  it  woud  be  a  portion  of  both  extremes. 

Commissioner  SWEET.  A  portion  of  both  extremes? 

Mr.  SISSON.  Yes,  sir;  the  poorest  and  the  richest. 


332        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  The  people  who  have  no  property  to  tax, 
and  the  people  who  have  the  most  property  to  tax. 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  Is  that  right? 

Mr.  SISSON.  Yes,  sir;  absolutely. 

Commissioner  SWEET.  The  one  not  having  the  nickel,  and  the  other 
having  an  automobile? 

Mr.  SISSON.  Exactly. 

Commissioner  SWEET.  Very  well.  Now,  the  people  that  do  use  the 
street  railways  most  would  be  paying  a  fare  that  was  higher  than 
actually  necessary. 

Mr.  SISSON.  Yes. 

Commissioner  Sweet.  A  part  of  the  general  burden  that  ought  to 
be  borne  by  the  whole  community. 

Mr.  SISSON.  Yes;  undoubtedly. 

Commissioner  SWEET.  And  the  users  of  automobiles,  at  least,  get 
the  benefit  of  this  saving  and  street  improvements  and  all  that  sort 
of  thing  that. would  be  thrown  largely  upon  the  users  of  the  rail- 
ways ;  would  they  not  ? 

Mr.  SISSON.  Yes;  that  is  a  perfectly  sound  argument.  The  only 
defense  for  the  other  theory  is  that  it  might  help  establish  a  better 
feeling  towards  the  property,  which  would  be  reflected  in  the  general 
community  good,  but  it  should  not  be  necessary.  In  other  words,  I 
think  the  more  we  can  avoid  paternalism  in  the  treatment  of  this 
business,  the  better  it  will  be,  not  only  for  them  but  for  the  com- 
munity as  a  whole. 

Commissioner  SWEET.  Would  not  the  remedy  in  all  cases  of  that 
kind,  where  a  surplus  was  produced,  better  be  handled  by  reducing 
the  rates? 

Mr.  SISSON.  Yes;  that  could  be  done. 

Commissioner  SW'EET.  To  the  lowest  point  consistent  to  its  pro- 
ducing the  necessary  amount  of  income  ? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  That  would  be  the  nearest  to  absolute  justice 
to  the  whole  community ;  would  it  not  ? 

Mr.    SISSON.  It  certainly  would. 

Commissioner  SWEET.  And  the  profit-sharing  device — don't  you 
think  it  has  in  it  a  sort  of  element  seeking  to  get  the  favor  of  people 
by  deceiving  them? 

Mr.  SISSON.  It  is  begging  the  question,  I  frankly  agree;  yes,  sir — 
perhaps  not  deceiving  them  as  much  as  throwing  a  sop  to  them,  I 
should  say. 

Commissioner  SWEET.  Well,  making  them  feel  that  they  are  get- 
ting something  for  favoring  the  system. 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  Without  really  a  basis  of  justice  in  it. 

Mr.  SISSON.  You  are  quite  right.     I  definitely  agree  with  you. 

Mr.  WARREN.  It  is  another  form  of  paving  taxes,  really,  is  it  not? 

Mr.  SISSON.  Yes.    It  has  some  color — 

Commissioner  SWEET.  And  the  bridge  tolls  and  the  fares  and  the 
cleaning  of  the  streets,  where  it  is  required  of  the  companies  ? 

Mr.  SISSON.  Yes. 

Commissioner  SWEET.  All  those  things  would  come  under  that  same 
objection? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      333 

Mr.  Sissox.  Absolutely. 

Commissioner  SWEET.  I  think  that  is  all.     Mr.  Meeker,  have  you 
any  questions? 

Commissioner  MEEKER.  You  spoke  of  the  practice  in  financing 
street  railwaj's  in  times  past  whereby  stock  was  issued,  not  for  a 
money  payment,  but  as  an  inducement,  as  a  bonus,  to  bond  buyers. 
Do  you  think  the  street  railways  now  represent  in  their  physical 
properties  value  equivalent  to  the  outstanding  bonded  debt  and  stock? 
Mr.  Sissox.  Well,  I  can  not  speak  accurately  about  that.  I  should 
be  surprised  if  they,  under  their  present  earning  power,  represented 
value  equivalent  to  their  entire  capitalization. 

Commissioner  MEEKER.  I  did  not  catch  your  answer. 
Mr.  Sissox.  I  say  I  should  be  surprised,  if  under  their  present 
earning  power — because  earning  power  determines  value — I  should 
be  surprised  if  their  value  equaled  their  capitalization.    I  do  not  be- 
lieve it  does,  including  stocks  and  bonds. 

Commissioner  MEEKER.  When  you  speak  of  value,  do  you  mean 
the  value  of  the  physical  property? 

Mr.  Sissox.  No ;  I  was  speaking  broadly  of  their  whole  value,  be- 
cause it  is  the  entire  value  that  is  capitalized.  For  instance,  fran- 
chise values  are  capitalized  and  are  taxed  in  New  York  State  defi- 
nitely as  property,  and  in  other  places,  I  have  no  doubt,  and  are  dis- 
tinct value,  provided  there  is  earning  power  to  warrant  it.  The  taxa- 
tion of  franchises  in  New  York  State  was  based  upon  the  theory 
that  earning  power  derived  from  franchises  was  a  legitimate  source 
of  public  taxation.  Now,  if  that  earning  power  does  not  exist,  the 
value  does  not  exist.  In  other  words,  common-stock  values  in  most 
street  railways  were  based  upon  franchise  values  and  earning  power, 
and  not  upon  physical  values.  I  do  not  believe  the  physical  values 
of  the  railways,  while  I  am  sure  it  is  greater  than  the  bond  obliga- 
tions, has  yet  reached  the  point  where  it  absorbs  stock  obligations. 
Perhaps  I  can  give  you  a  better  analogy  of  it  in  the  railroad  field. 
One  of  the  great  public  fetiches  to-day  is  that  railroad  stocks  are 
watered,  but  the  sober  fact  is,  as  any  student  of  the  situation  can 
determine,  that  the  probabilities  are  that  the  physical  value  of  the 
railroads  to-day  is  something  like  $1,500,000,000  in  excess  of  the 
capitalization.  That  was  not  true  25  or  30  years  ago,  but  out  of 
earning  power  the  railroads  have  put  back  into  the  property,  year 
after  year  and  year  after  year.  For  instance,  the  Pennsylvania  has 
put  back  something  over  $300,000.000  out  of  earnings  into  prop- 
erty values.  The  New  York  Central  lines  built  their  Chicago  termi- 
nals out  of  the  surplus  earnings  on  the  Lake  Shore,  and  that  has 
been  true  of  many  of  the  big  railroad  lines.  To  a  lesser  degree  that  is 
true  of  the  street-car  lines,  but  they  have  not  yet  reached  the  point 
where  they  have  absorbed  their  overcapitalization,  if  you  may  call 
it  such. 

Commissioner  MEEKER.  What,  in  your  opinion,  should  be  done 
with  investments  out  of  earnings  in  that  fashion  ?  Are  they  the 
property  of  the  street-railway  companies  upon  which  they  are  en- 
titled to  a  reasonable  return? 

Mr.  Sissox.  In  my  judgment,  yes,  because  that  is  the  practice  in 
every  business  in  the  world,  and  I  do  not  know  any  reason  why  in- 
vestors in  street-railway  securities  should  be  discriminated  against. 


334       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

It  is  true  of  every  industrial  activity.  Henry  Ford  starts  a  factory 
with  a  few  thousand  dollars,  and  to-day  he  is  worth  hundreds  of 
millions  out  of  earnings,  and  we  all  pat  him  on  the  back  and  say, 
"A  wonderful  job." 

Mr.  WARREN.  And  buy  Ford  cars  without  any  protest. 

Mr.  SISSON.  Yes,  sir ;  and  pay  the  price  that  enables  him  to  make 
those  profits ;  and  I  do  not  know  of  any  reason  why  we  should  dis- 
criminate against  our  public-service  corporations  for  having,  in 
their  limited  way,  done  what  the  industrial  corporations  and  financial 
institutions  and  every  other  class  of  business  do  without  protest.  In 
other  words,  it  is  the  legitimate  reward  tha-t  comes  to  business  ven- 
ture. That  has  been  true  according  to  all  of  the  old  theories  of 
doing  business.  We  may  change  that  in  the  future. 

Commissioner  MEEKER.  You  think  that  public  opinion  has  not 
changed  in  reference  to  public  utilities? 

Mr.  SISSON.  I  think  it  has  to  a  certain  extent.  I  think  it  has 
been  becoming  definitely  socialized  in  a  great  many  places. 

Commissioner  MEEKER.  It  was  not  quite  clear  to  me  whether  you 
believed  in  a  guaranty  of  a  fair  return  upon  a  fair  valuation  of  the 
whole  property  of  the  street-railway  company  or  not  ? 

Mr.  SISSON.  I  believe  in  a  guaranty  if  they  can  not  get  an  assurance 
of  earning  power  in  any  other  way.  I  think  the  less  paternalism, 
the  less  operating  guaranties  that  we  have  in  any  of  our  public  util- 
ities, the  better;  but  if  it  is  not  possible  to  adopt  such  plan  as  your 
chairman  indicated  there,  by  ."which  an  assurance  of  earning  power  is 
given,  and  arranged  scientifically  up  and  clown  to  meet  the  costs 
and  the  needs  of  the  situation,^  then  I  am  frank  to  say  that  I  think 
a  guaranty  is  the  only  think  that  will  attract  the  investor. 

Commissioner  MEEKER.  Do  you  think  a  guaranty  of  a  minimum 
earning  might  be  made,  with  freedom  to  make  more  than  a  mini- 
mum earning? 

Mr.  SISSON.  That  would  be  somewhat  more  attractive. 

Commissioner  MEEKER.  More  attractive  to  the  investor ;  but  would 
you  advocate  that  as  justice  to  the  public? 

Mr.  SISSON.  Well,  I  should  say  that  if  that  was  kept  within  reason- 
able limits  yes. 

Commissioner  MEEKER.  That  is  a  minimum  and  a  maximum  fixed  ? 

Mr.  SISSON.  A  minimum  and  a  maximum ;  yes. 

Commissioner  MEEKER.  What  would  do  in  the  case  the  earn- 
ings exceed  the  maximum? 

Mr.  SISSON.  Well,  you  would  have  two  alternatives:  An  elastic 
system  of  regulation,  which  would  reduce  the  rates  to  take  up  that 
slack,  or  a  profit-sharing  plan,  which  would  turn  it  over  to  the  pub- 
lic treasury. 

Commissioner  MEEKER.  It  was  not  entirely  clear  to  my  mind 
which  of  those  alternatives  you  would  prefer. 

Mr.  SISSON.  I  would  prefer  the  business  alternative  of  regulating 
the  rates  to  meet  the  situation,  if  it  were  possible  to  do  so  scien- 
tifically. That  assumes  an  intelligent  and  sympathetic  regulating 
board  which,  I  am  sorry  to  say,  is  not  always  possible  in  American 
politics. 

Commissioner  MEEKER.  A  true  service-at-cost  plan  would  take 
cognizance  of  all  costs  of  service,  would  it  not  ? 

Mr.  SISSON.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      335 

Commissioner  MEEKER.  It  would  necessarily  provide  for  a  solvent 
concern  instead  of  an  insolvent  concern;  all  of  the  legitimate  ex- 
penses of  conducting-  the  business  must  be  taken  care  of. 

Mr.  SISSON.  Yes. 

Commissioner  MEEKER.  Under  any  cosl -of-servicc  or  service-at- 
cost  plan? 

Mr.  SISSON.  Yes. 

Commissioner  MEEKER.  That  deserves  that  name? 

Mr.  SISSON.  That  is  right. 

Commissioner  MEEKER.  And  with  that  reasonable  interpretation 
of  the  service  at  cost  you  would  be  in  favor  of  such  a  plan? 

Mr.  SISSON.  I  would. 

Commissioner  MEEKER.  That  is,  with  no  fixed  fare  of  5  cents  or 
7  cents  or  10  cents? 

Mr.  SISSON.  Exactly. 

Commissioner  MEEKER.  But  the  fare  to  be  fixed  according  to  the 
earnings  ? 

Mr.  SISSON.  Exactly.    I  think  that  would  be  very  desirable. 

Commissioner  MEEKER.  I  came  in  late,  unfortunately.  Are  you  in 
favor  of  local  regulation  by  municipalities?  You  are  in  favor  of 
regulation  ? 

Mr.  SISSON.  Yes.  Xo;  I  think  that  State  regulation  is  on  the 
whole  much  fairer. 

Commissioner  MEEKER.  Should  there  be  a  combination,  perhaps, 
of  local  and  State  ? 

Mr.  SISSON.  Well,  suffering  as  they  are  jn  New  York  City  right 
now,  I  would  prefer  that  there  be  no  combination ;  but  perhaps  it  is 
only  fair  to  the  community  that  they  should  have  something  to  say. 

Commissioner  MEEKER.  I  am  not  entirely  familiar  with  the  Xew 
York  situation.  Will  you  elucidate  the  situation  there? 

Mr.  SISSON.  In  Xew  York  to-day,  we  have  a  conflict  of  authority 
between  our  board  of  estimate,  which  includes  the  mayor  and  his 
immediate  associates  in  power,  and  our  State  authorities.  They  have 
been  at  loggerheads  there  for  a  year,  with  the  result  that  nothing  has 
ever  been  done ;  no  relief  given  and  bankruptcy  after  bankruptcy  has 
followed.  Xow,  if  there  was  power  in  either  body  to  act  independ- 
ently of  the  other,  I  am  sure  that  some  change  in  the  situation 
would  have  taken  place  long  ago;  but  for  a  long  time  there  we  had 
a  political  conflict  between  the  Republican  public-service  commission 
and  the  Democratic  State  administration  and  neither  side  was  willing 
to  yield  to  the  other,  which  was  most  unfortunate  to  the  interest  of 
the  public  and  security  holders.  That  conflict  still  exists,  although 
there  are  signs  of  relief  there  through  the  courts  and  through  the 
more  sympathetic  attitude  on  the  part  of  our  governor.  But  whether 
or  not  they  will  reach  the  point  of  action  only  the  future  can  develop ; 
but  it  lias  been  most  unfortunate  for  Xew  York  City  that  that  con- 
flict has  existed,  in  which  rights  of  action  have  not  been  clearly 
defined. 

Commissioner  MEEKER.  Your  opinion  then  is  that  an  undivided, 
single  authority  is  to  be  preferred  to  any  cooperative  plau  ? 

Mr.  SISSON.  Unless  the  right  of  ultimate  decision  is  clearly  fixed, 
I  certainly  think  so. 

Mr.  WARREN.  And  made  apparent. 


336       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  SISSONT.  I  think  they  might  work  out  some  advisory  relation- 
ship or  something  of  that  sort,  but  I  think  there  should  be  but  one 
authority  in  a  situation  of  that  kind  and  that  definitely  fixed. 

Commissioner  MEEKER.  I  take  it  from  the  testimony  that  I  have 
listened  to  that  there  have  been  unwise  extensions  and  building  of 
new  lines  on  the  part  of  street-railway  companies.  What  should  be 
done  with  those  lines  that  have  been  unwisely  built  and  those  exten- 
sions that  have  been  unwisely  built  ? 

Mr.  SISSON.  Well,  broadly  speaking,  bad  business  ventures  pay  the 
penalty  for  bad  guessing,  in  losses,  and  where  there  is  no  power  of 
recovery  from  a  clearly  established  public  interest,  I  should  say  the 
men  who  put  money  in  those  properties  would  have  to  face  the  losses 
unless  the  public  interest  was  such  as  made  that  inadvisable  from  the 
public  viewpoint. 

Commissioner  MEEKER.  Do  you  think  it  would  be  justifiable  to 
abandon  those  lines  to  cut  down  the  operating  expenses? 

Mr.  SISSON.  Yes. 

Commissioner  MEEKER.  Well,  do  you  think  that  the  regulating 
body  should  have  decision  as  to  when  extensions  should  be  made — 
when  and  where — and  when  and  where  new  lines  should  be  built  ? 

Mr.  SISSON.  I  do,  providing  the  arrangement  is  such  as  to  furnish 
the  credit  by  which  those  extensions  can  be  made.  In  other  words,  I 
feel  that  if  the  regulating  bodies  are  going  to  get  on  top  of  these  utili- 
ties they  must  get  underneath  them,  too.  If  they  are  going  to  fix 
their  earnings,  they  must  also  establish  credit. 

Commissioner  MEEKER.  You  spoke  a  momei.t  ago  about  the  de- 
sirability of  having  a  definite  single  authority.  Does  that  squint 
toward  public  ownership  ?  Is  it  possible  to  have  this  public  interest 
on  top  and  underneath  private  companies  in  the  street-railway  busi- 
ness? Is  it  possible  to  work  out  any  scheme  of  cooperation  there, 
or  is  it  best  to  give  up  the  attempt  and  go  back  into  public  ownv.r- 
ship? 

Mr.  JSissoN.  Well,  that  is  a  very  v  .al  question.    My  hope  and  be 
lief  is  it  is,  but  I  am  not  entirely  sure  in  my  onw  mind. 

Commissioner  MEEKER.  Your  answer  is  "Rut  entirely  clear  to  mo. 

Mr.  SISSON.  It  is  my  hope  and  belief  that  it  would  be  possible 
to  work  out  a  plan  of  regulation,  which  does  no;  necessarily  imply 
public  ownership,  but  I  am  not  entirely  sure  that  it  is.  I  frankly 
say  that. 

Commissioner  SWEET.  You  think  it  ougL  to  be  tried  first,  any- 
way? 

Mr.  SISSON.  I  think  it  should  be  the  first  attempt — that  we  ought  to 
do  everything  possible  before  we  reach  any  conclusion  that  public 
ownership  is  inevitable,  because  in  my  mind  7  believe  that  political 
and  economic  tragedies  would  follow  public  ownership  in  this 
country  that  would  be  very  disastrous. 

Commissioner  MEEKER.  With  minimum  and  maximum  earnings 
practically  guaranteed,  what  better  Avould  be  private  ownership  un- 
der such  a  scheme  than  public  oAvnership  and  operation? 

Mr.  SISSON.  Well,  you  would  avoid  the  chief  objection  to  public 
ownership  and  operation,  which  is  political  ownership  and  opera- 
tion, which  inevitably  piles  up  cost  and  reduces  efficiency;  and  I 
can  show  you  a  long  record  of  inefficient  operation  and  multiplying 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       337 

eosts,  which  would  have  to  be  borne  by  the  public  and  would  be 
disastrous  to  the  public  interests  as  well  as  to  the  private  interest 
involved. 

Commissioner  MEEKER.  You  are  speaking  of  publicly  owned  and 
operated  lines  now? 

Mr.  SISSON.  Yes. 

Commissioner  MEEKER.  In  what  communities? 

Mr.  SISSON.  Well,  broadly  speaking,  in  85  or  90  per  cent  of  the 
communities  that  have  tried  it.  There  are  some  exceptions,  sir,  but 
the  whole  record  of  public  ownership  and  operation  of  public  utili- 
ties has  been  that  of  multiplying  costs. 

Commissioner  MEEKER.  You  are  speaking  of  public  utilities  in 
general  now? 

Mr.  SISSON.  I  am  speaking  of  public  utilities  in  general  now,  but 
it  would  apply  in  equal  degree  to  the  street  railwa}*s.  And  perhaps 
in  a  greater  degree  to  them  than  to  some  others. 

Commissioner  MEEKER.  Why  should  it  apply  to  the  street  railways 
in  a  greater  degree? 

Mr.  SISSON.  Because  of  their  close  contact  with  the  public.  Water 
power  does  not  come  in  such  close  contact  in  the  same  way. 

Commissioner  MEEKER.  It  is  easier  to  move  water  than  it  is  to 
move  an  electric  car? 

Mr.  SISSON.  Yes,  and  there  are  not  all  the  causes  of  daily  irritation 
and  delay. 

Commissioner  MEEKER.  It  is  nowhere  nearly  as  complicated. 

Mr.  SISSON.  No. 

Commissioner  MEEKER.  You  were  not  speaking  of  the  experiments 
abroad,  were  you? 

Mr.  SISSON.  Well,  I  was,  throughout  the  world. 

Commissioner  MEEKER.  Throughput  the  world? 

Mr.  SISSON.  Yes.  There  are  some  exceptions  abroad,  but  those  ex- 
ceptions are,  for  the  most  part,  marked  by  reasons  that  make  them 
exceptions,  that  are  very  obvious. 

Commissioner  MEEKER.  You  expressed  some  doubt  about  the  win- 
ning out  of  this  cooperating  scale  between  the  public  and  private 
corporations. 

Mr.  SISSON.  No;  I  should  not  say  a  doubt — a  mental  reservation. 
I  said  I  hoped  and  believed  it  was  possible,  but  I  was  not  entirely 
sure. 

Commissioner  SWEET.  I^et  me  ask  one  question  or  two  there,  Mr. 
Meeker. 

Have  you  found  objection  to  municipal  ownership  of  the  water- 
supply  ? 

Mr.  SISSON.  Not  extensively;  no.  There  have  been  instances  of 
objection  and  instances  of  marked  failure  on  the  part  of  the  munici- 
pality but,  on  the  whole,  I  think  the  ownership — the  municipal  own- 
ership— of  water  stations  has  been  efficient  and  desirable. 

Commissioner  SWEET.  In  addition  to  the  points  referred  to,  is  it 
not  true  that  the  relationship  between  public  health  and  the  water 
supply  is  so  direct  that  the  city  ought  to  have  control  of  the  water 
supply? 

Air.  SISSON.  I  am  inclined  to  think  that  that  is  true;  yes. 


338        PROCEEDINGS  OF  FEDERAL. ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Is  it  not  also  true  that  the  need  of  water  in 
public  parks  and  cemeteries  and  for  fire  protection  is  a  further  rea- 
son for  municipal  ownership  of  the  water  supply? 

Mr.  Sissox.  Yes. 

Commissioner  SWTEET.  And  those  are  arguments  that  would  not 
apply  to  street  railways? 

Mr.  Sissox.  Not  at  all.    It  is  a  different  form  of  service  entirely. 

Commissioner  SWEET.  The  first  step  toward  a  sort  of  qualified 
guaranty  such  as  you  have  mentioned  of  a  reasonable  interest  or 
dividend  upon  the  investment  is  to  find  out  what  the  investment  is, 
is  it  not? 

Mr.  Sissox.  Exactly. 

Mr.  SWEET.  This  guaranty  ought  to  apply,  ought  it  not,  to  present 
investors  as  well  as  future  investors? 

Mr.  Sissox.  Exactly. 

Commissioner  SWEET.  Have  you  any  suggestion  to  make  to  the 
commission  as  to  a  practical  way  of  determining  the  amount  upon 
which  such  a  qualified  guaranty  should  be  based  ? 

Mr.  Sissox.  Well,  that  is  a  rather  difficult  question.  Of  course  it 
ought  to  be  based  upon  the  physical  values  of  the  properties,  consid- 
ering the  cost  reproduction.  It  ought  to  be  based  upon  the  franchise 
values  and  the  estimated  earning  power  upon  which  money  was 
invested,  as  far  as  possible ;  and  perhaps  there  ought  also  to  be  taken 
into  consideration  the  average  price  of  the  securities  which  were  sold 
to  the  public.  I  think  perhaps  all  three  of  those  elements  ought  to 
enter  into  any  fair  valuation. 

Commissioner  SWEET.  Do  you  think  the  public  ought  to  be  asked 
to  provide  for  a  dividend  upon  the  stock  that  was  given  away  as  an 
inducement  to  buy  bonds? 

Mr.  Sissox.  Within  reason,  yes;  because  those  bonds  would  not 
have  been  sold  unless  that  stock  had  been  offered  as  an  inducement. 

Commissioner  MEEKEK.  But  in  case  the  earnings  have  been  put 
back  into  the  plant  until  now  the  plant  is  valued  either  physically  or 
taking  the  whole  value  as  a  going  concern  equal  to  bonds  and  stocks 
outstanding,  you  would  hold  that  the  public  is  obligated  to  pay  a 
reasonable  return  upon  the  value  of  the  bonds  and  stocks  out- 
standing ? 

Mr.  Sissox.  I  should  say  that  is  only  fair  and  that  it  is  good  busi- 
ness. The  alternative  would  have  been  very  simple;  assuming  the 
board  of  directors,  instead  of  putting  that  money  back  into  the  prop- 
erty had  declared  it  out  in  dividends  and  the  stockholders  had  it.  the 
public  would  be  powerless.  But  a  board  of  "directors  who  in  their 
wisdom  and  foresight  for  the  future  put  that  back  into  the  property 
ought  not  to  be  penalized  in  favor  of  a  board  of  directors  who  paid 
it  out  to  their  stockholders  in  dividends. 

Commissioner  SWEET.  Have  you  considered  this  phase  of  the  ques- 
tion ?  In  the  early  days  you  said  the  5-cent  fare  more  than  compen- 
sated, so  that  we  will  assume  in  most  cases  their  dividends  were  paid 
to  the  holders  of  common  stock.  And  then  the  interest  as  agreed 
upon  was  paid  upon  the  bonds  or  preferred  stock.  Now,  if  the  5-cent 
fare  named  in  the  original  franchises  produced  more  than  enough 
to  meet  those  requirements,  so  that  a  certain  part  of  the  nickel  could 
be  devoted  to  extensions,  is  not  that  evidence  to  your  mind  that  the 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      339 

nickel  as  it  was  originally  agreed  upon  between  the  companies  and 
the  municipalities  was  more  than  it  ought  to  have  been  ? 

Mr.  Sissox.  In  some  instances  that  is  undoubtedly  true;  yes,  sir. 

Commissioner  SWEET.  Now,  if  in  the  future  or  under  the  present 
situation  the  public  is  to  be  asked  to  provide  a  direct  or  indirect  form 
of  guaranty  upon  profits  from  this  time  on,  is  it  fair  that  the  public 
should  be  asked  to  pay  more  or  to  allow  more  by  reason  of  the  com- 
panies having  had  the  advantage  in  the  earlier  stages  of  this  pro- 
ceeding ? 

Mr.  Sissox.  I  should  say  that  is  a  matter  of  equity  in  which  you 
could  hardly  make  a  flat  ruling.  I  think  there  are  instances  when 
the  public  should  alloAv  those  values  to  accrue  to  the  stockholders. 
There  may  be  instances  where  those  values  are  greater  than  they 
ought  to  be  in  the  public  interest.  I  do  not  believe  you  could  gen- 
eralize on  that  subject,  sir. 

Commissioner  MEEKER.  That  could  be  taken  care  of  in  the  process 
of  valuing  the  properties  ? 

Mr.  Sissox.  Absolutely;  and  that  is  what  I  have  had  in  mind. 

Commissioner  MEEKER.  You  think  that  is  the  way  it  should  ba 
taken  care  of? 

Mr.  Sissox.  I  do. 

Commissioner  MEEKER.  And  an  equitable  arrangement  be  made 
whereby  this  business,  which  is  in  a  bad  way  now,  can  go  on  without 
obligating  the  public  to  pay  more  than  it  ought  to  pay? 

Mr.  SISSON.  Exactly.  I  think  that  is  a  pure  matter  of  equitable 
arrangement  between  the  public  and  the  owners  in  the  fixing  of 
values. 

Commissioner  MEEKER.  I  am  a  little  afraid  that  heretofore  in  my 
questioning  I  have  elicited  answers  that  seemed  to  indicate  that  the 
street-railway  companies  now  want  the  public  to  come  to  their  assist- 
ance— that  they  are  in  such  dire  straits;  but  they  do  not  wish  any 
examination  into  what  was  done  in  the  past,  when  the}'  were  possibly 
earning  dividends  upon  watered  stock,  if  you  please,  earning  in  ex- 
cess of  a  reasonable  return  upon  investment.  Xow,  I  take  it  that 
the  street-railway  companies  do  not  wish  any  such  impression  as 
that— 

Mr.  Sissox.  Certainly  not. 

Commissioner  MEEKER.  To  be  given  in  the  hearings  before  this 
commission. 

Mr.  Sissox.  Certainly  not.  I  think  the  general  disposition  of  the 
street-railway  companies  and  their  owners  is  to  lay  all  the  cards  be- 
fore the  public  and  to  put  it  up  to  the  public  as  their  business  pri- 
marily and  as  a  public  property. 

Commissioner  MEEKER.  It  seems  to  me  you  have  indicated  the 
way  in  which  an  equitable  agreement  can  be  reached  as  between  the 
public  and  the  street-railway  corporations.  The  all-important  thing 
sis  I  see  it  is  in  the  arriving  at  a  proper  estimate  of  the  value  of  the. 
properties  upon  which  the  street  railways  are  entitled  to  earn  a  rea- 
sonable return. 

Mr.  Sissox.  Exactly. 

Commissioner  MKKKKR.  That  is  the  all-important  thing,  is  it  not? 

Mr.  Sissox.  Exactly  so;  yes,  sir. 

Commissioner  MEEKER.  There  are  two  other  questions  I  would 
like  to  ask.  You  spoke  of  the  principal  objection  to  public  owner- 


340       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

ship  being  the  political  control.  Under  private  ownership  there  has 
not  been  absolute  freedom  f'i~>m  political  maneuvering — 

Mr.  SISSON.  That  is  unfortunately  true. 

Commissioner  MEEKER.  But  in  your  experience  you  think  that 
the  evil  would  be  greater  under  public  ownership  than  under  pri- 
vate ownership? 

Mr.  SISSON.  That  has  been  the  experience  of  a  majority  of  the 
communities  throughout  the  world  who  have  tried  it,  as  the  record 
very  clearly  shows. 

Commissioner  MEEKER.  The  only  way  that  could  be  brought 
about — 

Mr.  SISSON.  I  might  cite  a  very  extreme  instance  in  Australia  or 
New  South  Wales,  where  they  took  over  the  railroads.  In  the  course 
of  a  few  years'  time  the  railroad  employees  became  so  powerful  po- 
litically that  they  were  controlling  the  affairs  of  the  Dominion,  until 
finally  the  shippers  and  farmers  arose  in  righteous  wrath  and  dis- 
franchised all  railroad  employees  in  order  to  get  political  control 
back  into  the  hands  of  the  people. 

Commissioner  MEEKER.  I  do  not  want  to  go  to  Australia 

Mr.  SISSON.  That  was  an  illustration  of  the  extreme  operation  of 
that  sort  of  thing. 

Commissioner  MEEKER.  Let  us  take  nearer  at  home 

Mr.  SISSON.  Well,  I  did  not  want  to  make  it  offensive,  so  I  went  to 
Australia. 

Commissioner  MEEKER.  Are  you  personally  acquainted  with  any 
street-railway  enterprise  that  is  owned  and  operated  by  the  public 
in  this  country  ? 

Mr.  SISSON.  In  a  general  way  I  have  studied  the  situation,  yes. 

Commissioner  MEEKER.  And  it  is  your  experience  that  in  this 
countr}7,  no  matter  what  they  may  do  abroad,  public  ownership 
results  in  greater  evils? 

Mr.  SISSON.  It  certainly  does. 

Commmissioner  MEEKER.  And  greater  inefficiency  than  private 
ownership  ? 

Mr.  SISSON.  Yes.  I  would  be  glad  to  submit  to  the  commission,  if 
they  desire,  a  pamphlet  we  prepared  in  New  York  last  winter  on  this 
same  subject  for  the  merchants'  association,  in  which  many  instances 
are  cited  and  a  complete  background  of  facts  and  statistics  is  given 
for  that  conclusion. 

Commissioner  SWEET.  We  would  be  glad  to  have  it. 

Mr.  SISSON.  I  will  be  glad  to  send  it  in. 

Commissioner  MEEKER.  As  I  see  it,  the  only  way  by  \vhich  we  can 
have  private  ownership  without  the  evils  that  have  existed  in  times 
past  and  which  are  admitted,  I  think,  by  the  street-railway  men 
themselves — the  only  way  by  which  we  can  have  private  ownership 
of  street  railways  without  those  evils  is  for  the  street  railways  to 
open  their  books,  to  make  known  all  their  operations  and  submit  to 
public  control. 

Mr.  SISSON.  Yes. 

Commissioner  MEEKER.  And  you  think  that  publicly  controlled 
private  corporations  can  conduct  the  street-railway  business  better 
than  publicly  owned  and  operated  concerns  can? 

Mr.  SISSON.  I  certainly  do. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      341 

Commissioner  MEEKER.  Just  another  question  in  regard  to  public 
health.  The  street  railways  themselves  are  very  intimately  con- 
nected with  the  public  health,  are  they  not  ? 

Mr.  SISSON.  Yes ;  to  some  extent,  and  with  the  public  comfort  to  a 
very  large  extent. 

Commissioner  MEEKER.  Public  comfort  is  just  another  name  for 
public  health,  as  I  take  it. 

Mr.  SISSON.  Yes. 

Commissioner  MEEKER.  And  I  have  not  merely  in  mind  the  health 
of  individuals  riding  in  the  street-cars  themselves,  but  the  street-cars 
enable  the  population  to  be  distributed  more  widely. 

Mr.  SISSON.  Yes. 

Commissioner  MEEKER.  So  that  the  people  may  live  in  better 
houses. 

Mr.  SISSON.  Yes. 

Commissioner  MEEKER.  So  that  there  is  distinctly  a  public  interest 
in  properly  conducted  rapid-transit  street  railways. 

Mr.  SISSON.  Unquestionably. 

Commissioner  MEEKER.  Which  is  only  less  important  than  their 
interest  in  a  pure-water  supply. 

Mr.  SISSON.  Exactly. 

Commissioner  MEEKER.  I  just  wanted  to  bring  that  point  out. 

Mr.  SISSON.  Yes;  an  interest  which  warrants  public  regulation, 
without  any  question. 

Commissioner  GADSDEX.  Mr.  Sisson,  do  you  know  how  many  mu- 
nicipal street  railways  there  are  in  the  United  States? 

Mr.  SISSON.  I  can  not  tell  you  right  offhand. 

Commissioner  GADSDEX.  As  a  matter  of  fact,  are  they  not  limited 
to  two,  one  in  San  Francisco  and  one  recently  organized  in  Seattle? 

Mr.  SISSON.  Of  course  there  is  municipal  collusion  in  a  number  of 
other  instances. 

Commissioner  GADSDEN.  But,  municipally  owned,  there  are  only 
two? 

Mr.  SISSON.  Yes. 

Commissioner  GADSDEN.  And  Seattle  is  a  matter  of  only  three  or 
four  months? 

Mr.  SISSON.  Yes.    Those  are  the  only  large  ones  I  know  of. 

Commissioner  GADSDEX.  $o  that  we  have  not  any  real  municipally 
operated  experience  to  rely  on  in  this  country? 

Mr.  Sissox.  Not  that  I  know  of. 

Commissioner  GADSDEX.  Dp  you  consider  that  the  present  condi- 
tion of  the  electric  railways  in  this  country  has  been  brought  about 
by  watered  stock? 

Mr.  Sissox.  No ;  I  do  not  think  it  has  had  anything  to  do  with  it. 

Commissioner  GADSDEX.  Can  you  conceive  how  the  present  eco- 
nomic situation  which  faces  electric  railways  could  have  been  pro- 
duced by  their  issuing  watered  stock  in  times  past? 

Mr.  SISSON.  I  do  not  think  it  has  had  the  slightest  effect  on  the 
present  situation.  If  they  had  no  stock  issues  at  all  the  situation 
would  be  the  same. 

Commissioner  GADSDEX.  Exactly.  As  a  matter  of  fact  is  not  tlio 
situation  which  faces  electric  railways  a  question  of  getting  enough 
revenue  to  operate? 


342        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  SISSON.  Absolutely;  to  pay  their  costs  and  pay  the  money 
charges,  unquestionably. 

Commissioner  GADSDEX.  Are  not  they  faced  Avith  a  situation  which 
lias  practically  for  the  moment  wiped  out  all  the  value? 

Mr.  Sissox.  Absolutely. 

Commissioner  GADSDEX.  Bonds  and  stocks? 

Mr.  Sissox.  In  many  instances. 

Commissioner  GADSDEX.  Many  instances  of  it? 

Mr.  Sissox.  Yes. 

Commissioner  GADSDEX.  So  that  the  bad  financial  practices — if  we 
choose  to  so  characterize  them — in  the  past  can  not  be'held  respon- 
sible for  the  present  situation,  in  your  judgment? 

Mr.  Sissox.  Only  in  so  far  as  fliey  have  been  used  as  a  text  for  the 
opponents  of  street  railways  to  create  agitation  and  public  prejudice. 

Commissioner  GADSDEX.  To  prejudice  the  public  mind? 

Mr.  Sissox.  Yes4  which  has  been  done  very  extensively  in  certain 
communities. 

Commissioner  GADSDEX.  But  economically  they  have  not  had  any 
effect  ? 

Mr.  Sissox.  As  a  matter  of  economics,  not  at  all. 

Commissioner  GADSDEX.  On  this  question  of  the  right  of  a  cor- 
poration to  put  back  into  the  property  its  earnings,  whether  excess 
or  not,  and  the  question  of  whether  that  belongs  to  the  stockholder 
or  the  public;  supposing  for  a  moment  that  we  adopt  the  economic 
theory  that  those  excess  earnings  reinvested  in  the  property  belong 
to  the  public;  would  it  not  be  equitable  and  just,  if  that  is  a  sound 
economic  theory,  that  the  public  should  make  good  to  the  corporation 
any  deficits  of  earnings  in  bad  times? 

Mr.  Sissox.  It  certainly  would.  If  they  are  to  take  all  the  profits 
they  ought  certainly  to  bear  the  burden. 

Commissioner  GADSDEX.  In  other  words,  ought  not  the  rule  to 
work  both  ways? 

Mr.  Sissox.  Certainly. 

Commissioner  GADSDEXT.  And  therefore  if  the  public  is  now  going 
to  claim  the  excess  profits  reinvested  in  these  properties  in  times  past, 
should  not  the  public  within  the  last  two  or  three  years  have  held 
the  bag? 

Mr.  Sissox.  They  certainly  should.  As  I  said  a  little  while  ago. 
if  they  are  going  to  get  on  top  of  these  properties,  they  ought  in  jus- 
tice to  get  underneath  them. 

Commissioner  GADSDEX.  Would  it  be  fair  for  the  public  to  claim 
these  excess  earning  values  in  property  and  at  the  same  time  allow 
these  properties  to  go  into  bankruptcy? 

Mr.  Sissox.  It  certainly  would  not. 

Commissioner  GADSDEX.  That  is  not  only  good  economics  but  it  is 
£cod  morals ;  is  it  not  ? 

Mr.  Sissox.  It  certainly  is.  I  might  add  that  I  had  a  letter  only  a 
i'ew  days  ago  from  a  Member  of  Congress,  in  which  he  asked  the 
question  as  to  why  it  was  proper  for  the  public  authorities  to  offer 
any  sort  of  a  guaranty  to  public  utilities  any  more  than  to  any  other 
sort  of  business.  Well,  the  answer  is  perfectly  obvious,  because  pub- 
lic authorities  regulate  their  earning  power.  If  public  utilities  were 
allowed  to  charge  as  they  pleased  for  the  service  rendered,  they 
would  ask  no  greater  odds  than  any  other  business.  But  when  they 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       343 

are  limited  as  to  earning  power,  it  is  right  and  proper  that  they 
should  have  some  assurance  as  a  guaranty. 

Commissioner  GADSDEX.  In  a  practical  way  is  not  that  just  what 
the  United  States  Government  has  done  to  the  steam  railroads  dur- 
ing the  war? 

Mr.  Sissox.  Yes. 

Commissioner  GADSDEX.  And  failed  to  do  for  the  electric  rail- 
ways ? 

Mr.  Sissox.  Exactly. 

Commissioner  GADSDEX.  Do  you  know  of  any  other  public-service 
industry  except  the  street  railroads  which  has  been  left  to  take  care 
of  itself  under  war  conditions? 

Mr.  Sissox.  I  assume  that  is  true  of  electric  lighting. 

Commissioner  GADSDEX.  But  aside  from  the  street-railway,  gas, 
and  electric  companies? 

Mi\  Sissox.  No,  I  do  not.     There  has  not  been  any  other. 

Commissioner  GADSDEX.  Telephone,  telegraph,  and  steam  rail- 
roads— 

Mr.  Sissox.  All  of  them,  and  shipping. 

Commissioner  GADSDEX.  The  Government  has  got  both  on  the  top 
and  bottom,  as  you  say  ? 

Mr.  Sissox.  Absolutely. 

Commissioner  GADSDEX.  Is  there  any  reason  in  the  nature  of  the 
business  why  railway  companies  and  electric  properties  should  not 
have  the  same  consideration  from  the  public  as  telephones,  tele- 
graphs, and  steam  railroads? 

Mr.  Sissox.  Well,  the  only  distinction  that  should  be  made,  I  as- 
sume, is  the  one  that  the  Government  has  made,  that  these  Federal 
utilities  serve  a  war  purpose  directly  which  the  others  do  not;  they 
serve  a  local  purposes  rather  than  national  purposes. 

Commissioner  GADSDEX.  Was  not  the  distinction,  on  the  contrary, 
that  these  other  utilities  were  engaged  in  interstate  commerce  and 
therefore  come  directly  under  the  province  of  the  Federal  Govern- 
ment and  the  Federal  Government  could. act? 

Mr.  Sissox.  Yes. 

Commissioner  GADSDEX.  Whereas  these  gas  and  electric-railway 
companies,  not  coming  within  the  purview  of  the  Federal  adminis- 
tration, it  could  not  assist  them? 

Mr.  Sissox.  Yes,  I  think  that  was  undoubtedly  the  view  taken,  and 
that  was  their  limitation.  I  think  it  is  proper  to  say  that  the  Fed- 
eral Government  gave  indication  many  times  of  the  desirability  of 
local  authorities  doing  that. 

Commissioner  GADSDEX.  As  a  matter  of  history  in  connection  with 
electric  railways,  do  you  know  of  many  electric  railways  which  have 
been  sufficiently  prosperous  in  the  past  to'  reinvest  surplus  earnings 
in  property? 

Mr.  Sissox.  Not  extensively,  no;  to  a  limited  extent. 

Commissioner  GADSDEX.  Which  road- 
Mr.  Sissox.  Not  nearly  so  prosperous,  for  instance,  as  steam  rail- 
roads. 

Commissioner  GADNDEX.  Yes.  Is  it  not  approximately  true  and 
correct  to  say  that  if  electric  railways  had  set  up  a  proper  deprecia- 
tion from  the  beginning  that  it  is  questionable  whether  the  5-ccnt 


344       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

fare  was  ever  a  full  and  adequate  compensation  for  the  service 
rendered  ? 

Mr.  SISSON.  I  think  it  is. 

Commissioner  GADSDEN.  Tell  the  commission  Avhat  you  think  about 
that. 

Mr.  SISSON.  I  think  in  the  majority  of  cases  that  is  an  open  ques- 
tion. There  are  instances  when  it  was  adequate,  but  I  should  say  in 
the  considerable  majority  of  the  cases  it  is  an  open  question. 

Commissioner  GADSD'EN.  If  they  had  set  up,  as  they  should  have, 
a  proper  provision  for  depreciation  and  extraordinary  obsolescence, 
is  it  not  questionable  whether  the  5-cent  fare  ever  was  an  adequate 
compensation  ? 

Mr.  SISSON.  Yes;  and  as  a  banker  I  very  frankly  think  they  should 
have  gone  further  than  that  and  set  up  sinking  funds  which  would 
have  provided  for  the  liquidation  of  their  indebtedness — which  al- 
most none  of  them  have  done,  and  they  could  not  do  it,  as  a  matter  of 
fact,  out  of  the  5-cent  fare. 

Commissioner  GADSDEN.  That  is  all,  Mr.  Chairman. 

Commissioner  MEEKER.  Are  you  acquainted  with  the  railway  sys- 
tems about  Boston  and  Cincinnati? 

Mr.  SISSON.  Well,  in  a  general  way  only. 

Conrunissioner  MEEKER.  Have  they  in  those  communities  a  system 
that  is  practically  private  ownership  and  public  operation  ? 

Mr.  SISSON.  I  understand  so. 

Commissioner  MEEKER.  How  does  that  sort  of  cooperation  between 
the  public  and  the  private  corporation  work  out  ? 

Mr.  SISSON.  Well,  my  rough  judgment  is  that  it  is  working  out 
fairly  well  and  that  it  is  very  just  and  ought  to  be  workable.  In  the 
Boston  situation,  writing  off  a  good  deal  for  depreciation  and  spend- 
ing a  good  deal  of  money  for  maintenance  that  was  needed,  as  I 
understand  it,  kept  them  from  making  the  showing  they  expected  to 
make;  but  the  situation  is  improving  and  gives  every  promise  of 
working  satisfactorily  and  with  fairness  to  the  public  and  to  the 
owners  both. 

Mr.  WARREN.  Those  two  cities  are  not  on  the  same  basis,  however  ? 

Mr.  SISSON.  No;  the  arrangement  is  different. 

Mr.  WARREN.  Boston  is  public  control  practically ;  there  is  a  board 
of  public  trustees  running  it.  I  understand  that  Cincinnati  is 
service  at  cost  with  local  supervision  and  regulation  but  with  cer- 
tain elements  tending  to  stimulate  the  initiative  of  the  private  man- 
agement. We  expect  to  put  on  some  witnesses  as  to  Cincinnati. 

Commissioner  MEEKER.  Very  well ;  I  will  not  follow  that  up. 

Mr.  WARREN.  Yes,  we  will  call  witnesses  on  that,  but  I  just  wanted 
to  call  attention  that  the  two  situations  were  not  identical. 

Commissioner  MEEKER.'!  was  aware  they  are  not  identical,  but  if 
there  are  other  communities  where  experimentation  is  being  tried,  I 
hope  you  will  have  witnesses  to  explain  that. 

Mr.  WARREN.  We  hope  to  put  on  witnesses  covering  nearly  all  the 
more  important  service-at-cost  experiments. 

Commissioner  MEEKER.  Very  good ;  I  will  not  trouble  you  further. 

Mr.  WARREN.  I  want  to  ask  one  or  two  questions  suggested  by  some 
of  the  commissioners'  questions.  When  you  speak  of  5  per  cent  under 
a  service  at  cost,  that  was  predicated  on  an  absolute  guaranty  of  5 
per  cent? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      345 

Mr.  Sissox.  Exactly. 

Mr.  WARREX.  Now  suppose  that  the  allowable  return  under  the 
service-at-cost  arrangement,  which  included  all  the  proper  elements, 
included  finally  a  return  on  the  investment  value,  whatever  that  was 
determined  to  be,  dependent  upon  the  ability  of  the  road  at  the  vari- 
ous rates  under  the  sliding  scale  to  earn  the  return,  what  then  should 
you  say  the  return  under  present  money  conditions  ought  probably  to 
be  in  order  to  induce  new  capital  to  come  in  ?  That  is  rather  a  long 
question,  but  perhaps  you  see  the  point. 

Mr.  Sissox.  Yes.  When  you  speak  of  return,  it  depends  whether 
you  treat  the  capitalization  as  a  whole  or  distinguish  between  bonds 
and  stock. 

Mr.  WARREX.  I  treat  it  both  as  a  whole  and  in  part,  and  I  would 
like  to  know  your  opinion  as  to  the  wisdom  of  those  two  methods, 
too. 

Mr.  Sissox.  I  think  that  on  that  basis 

Mr.  WARREX.  This  is  without  any  guaranty  other  than  what  the 
business  would  insure. 

Mr.  Sissox.  Viewed  from  the  standpoint  of  the  paying  public,  I 
should  say  that  a  bond  would  have  to  bear  an  interest  rate  of  at  least 
o^  per  cent  to  be  salable  and  that  a  stock  would  have  to  have  a 
reasonably  assured  return  of  not  less  than  8  per  cent  to  be  salable. 

Mr.  WARREX.  And  I  suppose  it  follows  from  that  that  if  the  return 
were  going  to  be  a  flat  return  on  the  entire  investment  value,  it  would 
be  a  combination  of  those  two? 

Mr.  Sissox.  Yes. 

Mr.  WARREX.  An  average  of  those  two? 

Mr.  Sissox.  Yes.  Might  I  add  that  I  think  one  of  the  fallacies 
of  our  public-utility  financing,  which  has  been  particularly  true  of 
the  railroads  and  in  a  measure  true  of  street-railway  lines,  has  been 
.the  building  up  of  this  burden  of  debt  all  the  time  instead  of  mak- 
ing the  stock  attractive  so  people  will  buy  it.  We  have  been  piling 
up  fixed  charges  instead  of  giving  these  roads  a  credit  based  upon 
earnings  which  would  permit  a  sale  of  stock  to  the  public  at  a  fair 
price.  The  railroad  burden  of  debt  has  been  increasing  ratably  year 
after  year,  because  you  can  not  sell  railroad  stock,  the  public  will 
not  bii}'  it.  because  it  is  not  assured  of  a  fixed  return. 

Mr.  WARREX.  We  have  had  a  law  in  Massachusetts  designed  to 
provide  for  that,  by  which  funded  debt  can  be  issued  only  to  the 
par  value  of  the  stock,  and  as  the  stock  can  only  be  issued  at  par  the 
result  has  been  the  piling  up  of  a  floating  debt  which  is  far  more 
inimical,  because  it  invites  a  receivership  over  night. 

Mr.  Sissox.  A  proper  financial  construction  ought  to  provide  for 
a  bonded  obligation  of  not  more  than  60  per  cent  of  the  real  value 
and  the  balance  in  stock. 

Mr.  WARKEX.  And  the  situation  ought  to  be  made  sufficiently 
attractive  to  readily  market  that  stock? 

Mr.  Sissox.  Absolutely. 

Mr.  WARREX.  Mr.  Stuart  yesterdav — whom  you  know  prob- 
ably- 

Mr.  Sissox.  Yes. 

Mr.  WARREN.  Testified  that,  in  his  opinion  and  from  his  experi- 
ence in  distributing  street-railway  securities,  street-railway  bonds 

100043°— 20 23 


346       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

particularly,  the  average  holding  of  such  bonds  outside  of  the  few 
large  corporations  like  life  insurance  companies,  and  so  forth,  was 
not  over  $5,000;  that  including  all  the  large  corporate  holdings  the 
average  holding  was  not  over  $7,000.  Would  you  think  you  could 
agree  to  that? 

Mr.  SISSON.  I  should  think  that  is  a  very  fair  estimate.  I  should 
say  it  is  no  more  than  that  and  possibly  less. 

Mr.  WARREN.  You  were  asked  something  about  abandoned  lines, 
and  I  think  you  intimated  that  if  a  line  was  unsuccessful  the  people 
who  invested  the  money  ought  to  take  the  ^consequence,  which  T 
think  as  a  business  proposition  is  no  doubt  true.  Is  it  not,  however, 
a  fact  that  there  are  a  great  many  lines  which  are  not  earning  even 
their  operating  expenses  but  the  abandonment  of  which  would  work 
a  very  real  hardship  upon  a  considerable  portion  of  the  public? 

Mr.  SISSON.  Yes.  In  answering  that  question  I  made  that  reser- 
vation, that  unless  the  public  interest  was  involved  clearly. 

Mr.  WARREN.  Yes,  I  think  you  did,  but  I  did  not  think — 

Mr.  SISSON.  And  I  think  that  is  a  very  important  reservation 
which  must  be  made  there. 

Mr.  WARREN.  And  in  such  cases  probably  some  method  of  public- 
ownership  or  public  support  such  as  has  been  worked  out  in  Massa- 
chusetts to  a  certain  extent  ought  to  be  resorted  to  ? 

Mr.  SISSON.  Yes;  it  is  entirely  possible  that  the  operation  of  that 
line  creates  tax  values  which  are  a  distinct  source  of  profit  to  the 
municipality  which  it  could  well  afford  to  provide  for  through  the 
maintenance  of  the  line. 

Commissioner  GADSDEX.  In  that  connection,  is  it  not  true  that 
most  of  these  lines  that  are  unproductive  lines  that  we  refer  to,  are 
tied  in  with  existing  systems? 

Mr.  SISSON.  Yes.. 

Commissioner  GADSDEN.  And  if  the  system  could  lop  off  the  unpro- 
ductive suburban  lines,  in  many  cases  the  road  could  probably  take 
care  of  itself  ? 

Mr.  SISSON.  Yes,  that  is  true  in  a  good  many  instances. 

Commissioner  GADSDEN.  And  under  the  law  they  are  not  permitted 
to  cut  off  those  unproductive  and  unremunerative  lines? 

Mr.  SISSON.  Yes,  that  is  true  in  NewT  York  City  to-day. 

Commissioner  GADSDEN.  If  they  could  get  rid  of  their  extensions 
they  probably  could  get  along  in  many  cases? 

Mr.  SISSON.  Yes,  but  it  would  be  opposed  to  the  public  interest- 
Commissioner  SWEET.  Those  extensions  are  maintained  for  the 
benefit  of  the  public  residing  in  those  outlying  districts. 

Mr.  SISSON.  Yes. 

Mr.  WARREN.  That  situation  exists  in  a  great  many  places  and  it 
is  a  very  important  public  question,  and  not  one  that  affects  the 
street  railways  alone.  In  some  jurisdictions — in  Massachusetts,  for 
instance — the  companies  can  abandon  lines,  but  that  does  not  change 
the  public  question  of  whether  those  lines  ought  to  be  abandoned  and 
the  public  dependent  on  them  left  high  and  dr}^,  and  the  industrial 
centers  dependent  on  them  be  deprived  of  the  support  coming  from 
those  lines. 

Commissioner  SWEET.  Is  it  not  true,  Mr.  Sisson — the  fact  that 
street-railway  companies  that  have  reached  out  into  districts  that 
are  not  directly  profitable  are  performing  now,  and  have  been  for 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      347 

years,  a  sort  of  public  service  for  which  the  companies  have  received 
no  compensation  or  not  adequate  compensation  ? 

Mr.  SISSON.  That  is  entirely  true^  yes,  sir. 

Commissioner  SWEET.  And  is  not  that  an  additional  reason  for  the 
public  and  the  companies  getting1  together  now  upon  some  general 
basis  which  will  be  fair  and  just? 

Mr.  SISSON.  It  certainly  is.  The  public  interest  is  greater  than 
that  of  the  corporation  in  many  of  those  instances. 

Mr.  WARREN.  Do  you  happen  to  be  familiar  with  the  Springfield 
fare  situation,  where  the  territory  was  divided  into  two  5-cent  zones? 

Mr.  SISSON.  I  know  of  it  in  a  general  way. 

Mr.  WARREN.  With  a  somewhat  reduced  rate  passing  from  one  zone 
into  the  other? 

Mr.  SISSON.  Yes. 

Mr.  WARREN.  With  the  American  habit  of  either  being  irritated  at 
having  to  use  pennies  or  ignoring  them,  do  you  or  do  you  not  think 
that  in  many  instances  a  5-cent-fare  zone  might  be  established  that 
would  work  out  substantial  satisfaction? 

Mr.  SISSON.  I  do;  yes. 

Mr.  WARREN.  Particularly  with  the  present  reduced  purchasing 
power  of  the  nickel  ? 

Mr.  SISSON.  I  certainly  do;  yes. 

Mr.  WARREN.  Turning  to  the  zone  system  more  technically  so" 
en  Hod,  which  you  referred  to.  of  a  small  increment  of  fare  to  each 
new  zone,  usually  a  very  limited  system,  is  it  not  a  fact  that  the 
initial  fare  i.s  almost  wholly  a  flat  fare? 

Mr.  SISSON.  Yes. 

Mr.  WARREN.  And  more  than  the  increment  for  each  successive 
zone  ? 

Mr.  SISSON.  Yes. 

Mr.  WARREN.  And  that  you  had  in  mind,  I  suppose,  when  you 
spoke  of  that  system  ? 

Mr.  SISSON.  Exactly. 

Commissioner  BEALL.  I  would  like  to  bring  out  for  the  benefit  of 
*.he  commission  that  it  is  not  always  outlying  lines  that  are  un- 
profitable. Very  frequently  it  is  duplications,  and  sometimes  it  is 
owing  to  the  change  in  the  characteristics  of  the  neighborhood,  like 
certain  cross-town  lines  in  Xew  York  Citv  which  you  are  familiar 
with. 

Mr.  SISSON.  Yes. 

Commissioner  BEALL.  And  we  have  one  north  and  south  line 
there; — the  Second  Avenue  line — which  is  very  unprofitable. 

Mr.  SISSON.  Yes. 

Commissioner  BEALL.  You  see  as  many  people  on  the  street  as  you 
would  in  other  places  where  the  street-railway  traffic  is  good,  but  it 
happens  to  be  an  avenue,  although  north  and  south,  strange  enough, 
where  there  is  not  a  trend  of  travel. 

Mr.  SISSON.  Yes» 

Commissioner  BEALL.  Very  frequently  these  things  come  about 
from  either  duplication  or  a  change  in  the  neighborhood. 

Mr.  SISHON.  Yes.  That  has  been  a  growth  of  recent  years.  That 
presents  a  peculiar  situation;  of  a  default  upon  receivers'  certificate. 
They  can  not  even  make  good  the  certificates  of  the  court  on  that  line. 


348       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  BEALL.  I  wanted  to  bring  out  that  in  the  bigger 
cities  particularly,  perhaps  there  is  more  trouble  with  duplication  of 
lines  and  changes  in  neighborhood  characteristics  than  there  is  in 
outlying  lines,  although  that  is  a  big  factor. 

Mr.  Sissox.  Yes. 

Commissioner  MEEKER.  May  I  add  a  word  ?  What  I  had  in  mind 
particularly  when  I  spoke  of  unwise  extensions  and  building  of  new 
lines  was  perhaps  primarily  land  speculation;  and  that  should  be, 
I  take  it  you  will  agree,  absolutely  under  the  control  of  a  commis- 
sion. 

Mr.  Sissox.  Yes. 

Commissioner  MEEKER.  So  that  street  railways  would  not  be  built 
in  order  to  make  profits  and  money  for  the  members  of  a  street- 
railway  company  regardless  of  the  need  of  such  an  extension  or  line 
as  a  public  rapid  transit. 

Mr.  SISSON.  Yes,  I  believe  that. 

Mr.  WARREN.  Following  up  the  last  two  questions,  you  would 
agree.  I  think,  that  in  those  jurisdictions  where  the  companies  have 
not  the  authority  to  abandon  lines,  the  authority  ought  to  exist  in 
some  commission  to  permit  the  companies  to  do  so  under  such  cir- 
cumstances ? 

Mr.  Sissox.  It  certainly  should. 

Commissioner  SWEET.  There  is  one  point  that  is  not  quite  clear  to 
me,  Mr.  Sisson.  You  have  stated  that  you  think  there  should  be  a 
qualified  guaranty,  as  we  speak  of  it,  of  at  least  5£  per  cent  on  bonds 
in  order  to  enable  the  companies  to  get  their  needed  capital,  and  8 
per  cent  or  thereabouts  on  stock.  Have  you  not  reference  when  you 
say  that  to  the  conditions  that  have  prevailed  heretofore  in  the  rela- 
tion between  common  stock  and  bonds? 

Mr.  Sissox.  Well,  no;  I  was  speaking  broadly  about  what  I  con- 
ceived to  be  a  sound 

Commissioner  SWEET.  There  never  has  heretofore  been  any  guar- 
anty upon  common  stock  whatever. 

Mr.  Sissox.  No. 

Commissioner  SWEET.  And  the  purchasers  of  common  stock  have 
realized  there  was  more  of  a  speculative  feature  in  their  purchase  and 
ownership  of  stock  than  the  holder  of  the  bonds. 

Mr.  Sissox.  Yes. 

Commissioner  S^EET.  They  might  get  1  or  2  per  cent  or  they 
might  get  10  or  15  per  cent  on  the  common  stock. 

Mr.  Sissox.  Yes. 

Commissioner  SWEET.  Now  if  the  public  was  to  stand  behind  this 
matter  and  so  adjust  the  rates — the  fares  that  could  be  charged — 
that  it  would  produce  an  income  that  would  make  the  return  upon 
common  stock  just  as  certain  as  the  return  upon  bonds,  Avhy  should 
there  be  any  difference  between  the  rate  that  should  be  obtainable  by 
the  holder  of  the  common  stock  and  the  holder  of  the  bonds? 

Mr.  Sissox.  I  had  not  assumed  that  the  public  would  make  any 
such  definite  assurance.  I  dealt  particularly  with  the  cost  of  capital 
and  answered  the  question  broadly  that  in  order  to  sell  bonds  to  the 
public  and  stock  to  the  public  in  a  proper  financial  structure  of  60 
per  cent  bonds  and  40  per  cent  stock,  the  return  ought  to  be  about 
5£  per  cent  on  the  bonds  and  8  per  cent  on  the  stock,  or  a  reasonable 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".      349 

assurance  of  it.  A  return  upon  stock  ought  to  provide  for  years  in 
which  no  dividend  would  be  paid  perhaps,  and  earnings  would  be 
accumulated  for  extensions  and  betterments  and  perhaps  sinking 
funds  and  depreciation.  It  might  not  always  be  possible  to  declare 
an  8  per  cent  dividend  annually.  It  might  be  greater  some  years  and 
less  others,  but  a  reasonable  assurance  of  an  earning  of  8  per  cent 
would  sell  common  stock  at  par;  which  was  the  problem  I  faced  in 
Mr.  Warren's  question. 

Commissioner  SWEET.  In  your  mind  would  the  assurance  given  by 
the  public  to  the  holders  of  stock  be  different  and  less  than  the  assur- 
ance given  to  the  holders  of  bonds? 

Mr.  Sissox.  Well,  I  assume  so,  of  course.  If  you  are  to  have  an 
unqualified  and  positive  guaranty,  there  would  be  no  difference  be- 
tween the  two  classes  of  obligation. 

Commissioner  SWEET.  Suppose  it  were  not  a  guaranty,  but  if  the 
matter  were  left  entirely  to  a  State  commission  to  adjust  these  rates 
so  as  to  produce  enough  to  pay  interest  upon  the  bonds  of  5£  per 
cent  and  5|  per  cent  upon  the  common  stock;  if  the  adjustment  of 
rates  were  to  be  such  as  to  enable  that  to  be  done,  while  taking  care 
of  the  other  necessities  of  the  company,  would  not  that  be  as  fair 
an  arrangement  as  could  be  made  ? 

Mr.  Sissox.  That  does  not  quite  cover  the  question,  because,  bear 
in  mind • 

Mr.  WARREX.  Without  any  definite  guaranty? 

Mr.  Sissox.  Yes. 

Commissioner  SWEET.  Without  any  guaranty  except  that  the  rate 
would  be  changed  from  time  to  time  so  as  to,  as  nearly  as  possible, 
bring  about  that  result. 

Mr.  Sissox.  That  does  not  quite  cover  the  question,  because,  bear 
in  mind,  the  bonds  are  a  first  obligation  on  the  property  and  the  stock 
does  not  come  in  until  after  that  is  met. 

Commissioner  SWEET.  The  stock  only  has  an  equity. 

Mr.  Sissox.  That  is  all ;  and  a  man  ought  to  be  entitled  to  a  larger 
return  on  an  equity  above  the  mortgage  than  the  fellow  below  it,  and 
you  could  not  get  the  people  to  take  an  equit}r. 

Commissioner  SWEET.  Would  that  be  the  case  if  the  arrangement 
with  the  public  were  such  that  the  amount  which  would  be  received 
by  the  stockholders  in  proportion  to  their  holdings  would  be  as  great 
as  the  amount  received  by  holders  of  bonds  ? 

Mr.  Sissox.  I  think  it  would,  because  I  think  there  is  no  definite 
assurance  of  permanency  of  such  an  arrangement  indefinitely.  Politi- 
cal conditions  and  public  sentiment  change,  and  a  man  who  has  an 
underlying  mortgage  upon  physical  property  is  in  much  stronger  po- 
sition and  has  greater  protection  in  the  courts  than  a  man  who  has 
an  equity  which  might  be  greater  or  less  in  accordance  with  the  fluc- 
tuation of  public  sentiment  and  conditions. 

Mr.  WARREX.  In  other  words,  the  fluctuating  conditions  might  af- 
fect the  possibility  of  the  scale's  yielding  a  return  on  stock,  although 
yielding  sufficient  to  cover  the  bonds? 

Mr.  bissoN.  Yes. 

Commissioner  SWEET.  In  other  words,  the  bonds  would  come  in 
first  for  their  share? 

Mr.  Sissox.  Yes. 


350       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  The  holders  of  stock  would  have  to  take 
what  was  left  after  providing  for  the  other  needs  of  the  company? 

Mr.  Sissox.  Yes ;  both  in  earnings  and  ownership. 

Commissioner  SWEET.  And  under  your  plan  there  would  be  some 
variation  in  what  the  holders  of  stock  would  receive  ? 

Mr.  Sissox.  There  must  necessarily  be  so;  yes,  sir. 

Commissioner  SWEET.  And  consequently  you  think  it  would  be 
just  that  the  maximum  would  be  somewhat  larger  than  the  maximum 
provided  for  the  holders  of  bonds? 

Mr.  Sissox.  Yes. 

Commissioner  SWEET.  And  that  is  your  reasion  for  it? 

Mr.  Sissox.  I  think  it  not  only  fair,  but  the  practical  question  is 
that  it  would  be  necessary  in  order  to  sell  stock  to  the  public. 

Commissioner  MEEKER.  Xo  commission  short  of  omniscience  could 
regulate  a  rate  so  that  you  would  get  a  5|  per  cent  return  upon 
bonds  and  the  same  return  upon  stock. 

Mr.  Sissox.  There  is  bound  to  be  fluctuation. 

Commissioner  MEEKER.  The  bonds  would  come  in  first? 

Mr.  Sissox.  Yes. 

Mr.  WARREX.  That  is  the  answer  to  it.  In  other  words,  there  is  a 
business  risk.  This  service  at  cost  does  not  eliminate  after  all  the 
business  risk.  The  street  railway  might  be  a  business  failure  at  a 
service-at-cost  plan  just  as  a  shoe  factory  might  be. 

Mr.  Sissox:  Yes. 

Mi'.  WARREX.  All  service  at  cost  insures  the  investor  that  within 
the  rules  of  business  you  can  charge  enough  to  make  a  profit  in  your 
business  if  your  business  will  yield  a  profit  ? 

Mr.  Sissox.  Yes. 

Mr.  WARREX.  The  minute  you  put  the  guaranty  on  the  investor  is 
safe ;  he  does  not  care  whether  it  is  a  successful  or  unsuccessful  busi- 
ness. But  as  bearing  upon  the  return,  if  I  may  refer  to  the  Boston 
situation — and  I  think  Mr.  Sisson  will  probably  bear  out  my  fig- 
ures— the  Boston  Elevated  stock  is  guaranteed  for  10  years  under  the 
service-at-cost  proposition  and  then  under  the  State  guaranty,  but 
the  street-railway  securities  are  still  in  such  a  position  in  the  public 
estimation  that  that  stock  is  selling  for  about  70,  although  guaran- 
teed a  5  per  cent  return  for  two  years  and  G  per  cent  ultimately ;  so  it 
is  going  to  take  some  time,  is  it  not,  to  rehabilitate  this  guaranty? 

Mr.  Sissox.  Unquestionably. 

Mr.  WARREX.  Even  after  a  sound  system  is  introduced  for  its  as- 
surance in  the  future? 

Mr.  Sissox.  Yes. 

Mr.  WARREX.  There  are  two  or  three  questions  on  the  rate.  You 
said  that  undoubtedly  in  some  cases  an  increase  of  rate  involved  a 
loss  of  traffic.  Did  you  mean  by  that  to  imply  that  in  some  cases 
nn  increase  in  rate  involved  such  a  loss  of  traffic  as  to  yield  no  in- 
crease in  revenue? 

Mr.  Sissox.  There  have  been  such  instances,  but  I  do  not  be- 
liove  that  would  be  true  generally. 

Mr.  WARREX.  They  are  very  exceptional;  are  they  not? 

Mr.  Sissox.  They  are  very  exceptional ;  yes,  sir. 

Mr.  WARREX.  In  other  words,  has  not  this  been  the  usual  situation 
— that  when  the  increased  rate  first  went  into  effect  there  would  be 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      351 

loss  of  traffic,  meaning  by  that  counting  the  number  of  pas- 
sengers. 

Mr.  SISSON.  Yes. 

Mr.  WARREN.  But  there  was  almost  in  every  case  an  immediate  and 
substantial  increase  in  revenue? 

Mr.  Sissox.  Yes. 

Mr.  WARREN.  You  spoke  of  being  in  favor  of  public-service  com- 
mission regulation,  as  the  association  which  I  represent  here  is  on 
record  as  favoring. 

Mr.  SISSON.  Yes. 

Mr.  WARREN.  Is  there  any  particular  feature  in  the  administra- 
tion of  the  public-service  laws  which  in  this  present  emergency  you 
Avould  criticize  or  which  you  think  might  be  improved  ? 

Mr.  SISSON.  Well,  in  some  instances,  the  matter  that  we  discussed 
a  while  ago,  the  conflict  between  the  public-service  commissions  and 
the  local  authorities.  I  think  these  laws  drawn  by  the  States  ought 
to  give  the  commission  the  full  power  to  regulate  rates  upward  as  well 
as  downward. 

Mr.  WARREN.  Take  cases  where  they  have  the  complete  power, 
as  they  have  in  Massachusetts  and  in  numerous  jurisdictions;  is 
there  still  anything  that  you  think  has  militated  against  the  appli- 
cation of  a  remedy  in  this  emergency  in  the  last  year? 

Mr.  SISSON.  I  think  the  fundamental  thing  that  has  militated 
against  it  has  been  political  controversy. 

Mr.  WARREN.  How  about  the  delaj*? 

Mr.  SISSON.  And-  the  slowness  of  action  which  has  failed  to  meet 
the  crtsis,  as  I  pointed  out  in  my  first  statement. 

Mr.  WARREN.  And  the  crisis  is  increasingly  serious  up  to  the 
present  time;  is  it  not? 

Mr.  SISSON.  It  is  indeed;  yes,  sir. 

Mr.  WARREN.  Do  you  think  that  any  of  the  more  fundamental 
remedies  which  have  been  discussed  here  can  in  most  cases  be  ap- 
plied quickly  enough  to  remedy  the  present  situation — service  at 
cost,  guaranty,  or  what  not,  depending  possibly  upon  legislation  or 
action  by  municipalities?  Do  you  think  the  companies  can  get 
along,  in  other  words,  without  some  immediate,  or  almost  immediate, 
relief? 

Mr.  SISSON.  Xo,  I  do  not.  I  think  they  need  it  and  need  it  im- 
mediately, and  I  do  not  know  that  the  word  "  remedy  "  meets  the  case 
even  then. 

Mr.  WARREN.  But  it  would  keep  their  heads  above  water? 

Mr.  SISSON.  It  certainly  would  help ;  yes. 

Mr.  WARREN.  And  that  would  be,  as  I  understood  you,  through 
an  increase  in  rates? 

Mr.  SISSON.  Exactly. 

Mr.  WARREN.  Referring  to  those  street  burdens  again  and  to  a 
possible  profit-sharing  plan  between  the  company  and  the  munici- 
pality, should  not  yo\\  say  that  it  is  generally  true  that  the  com- 
mon phrase  or  term  for  the  street  car,  "  the  poor  man's  carriage," 
is  really  the  fact? 

Mr.  STSSON.  Yes. 

Mr.  WARREN.  And  that  in  dealing  with  the  fares  and  the  burdens 
upon  street  railways,  that  ought  to  be  kept  in  mind? 

Mr.  SISSON.  I  certainly  do.    It  is  only  just. 


352       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREX.  You  spoke  of  the  two  possibilities  in  case  the  reve- 
nue exceeded  the  amount  necessary  to  meet  the  cost  of  the  service, 
I  think;  one  turning  the  money  over  to  the  treasury,  which  you  did 
not  approve  on  the  whole,  because  it  was  helping  the  more  well-to-do 
taxpayer  at  the  expense  of  an  indirect  tax  on  the  poorer  members  of 
Ihe  community. 

Mr.  Sissox.  Yes. 

Mr.  WARREX.  And  the  other  was  to  reduce  the  rate.  Is  there  not, 
in  some  cases,  a  third  method  which  might  be  desirable,  not  to  reduce 
the  rate  but  to  let  that  surplus  earning  be  retained  in  the  property, 
not  as  a  basis  for  payment  of  return  to  anybody  but  simply  to 
strengthen  the  property  ? 

Mr.  Sissox.  I  think  that  most  desirable,  and  I  had  assumed  that 
that  would  be  done  under  any  arrangement. 

Mr.  WARREX.  Through  a  sinking  fund  ? 

Mr.  Sissox.  Yes,  or  accumulated  surplus. 

Mr.  WARREX.  That  is  all. 

Commissioner  MEEKER.  I  would  like  to  ask  Mr.  Warren  a  question, 
if  it  is  allowable. 

Mr.  WARREX.  I  will  be  very  glad  to  answer. 

Commissioner  MEEKER.  You  spoke  of  the  absolute  guaranty  ac- 
corded to  the  Boston  Elevated  for  10  years.  Is  there  any  likelihood 
that  the  stocks  will  sell  above  70  with  such  a  limited  guaranty  as  that? 

Mr.  WARREX.  Well,  considering,  Mr.  Meeker,  that  a  few  years  ago 
the  stock  sold  at  150  without  any  guaranty  whatever,  it  would  seem 
as  if  they  ought  to  sell  higher  than  that. 

Commissioner  MEEKER.  Well,  there  is  not  any  possibility,  is  there, 
of  the  stock  being  rehabilitated  so  as  to  sell  at  par  or  above  under  a 
guaranty  limited  to  ten  years,  because  Heaven  only  knows  what  will 
happen  when  the  ten  years  is  up? 

Mr.  WARREX.  Apart  from  the  guaranty,  of  course,  the  company 
has  the  right  to  charge  on  this  sliding  scale  whatever  is  necessary  to 
pay  the  cost  of  the  service  including  that  return.  The  guaranty  is 
additional  to  the  service-at-cost  principle.  At  the  end  of  the  10 
years,  in  other  words,  the  service-at-cost  principle  involved  in  that 
settlement  continues. 

Commissioner  MEEKER.  After  10  years  the  service-at-cost  principle 
goes  into  effect  ? 

Mr.  WARREX.  It  is  in  effect  now. 

Commissioner  SWEET.  It  is  continued? 

Mr.  WARREX.  Yes. 

Commissioner  MEEKER.  But.  Mr.  Warren,  under  that  system  there 
never  could  be  any  justification  for  the  common  stock  of  the  company 
to  go  up  to  such  figures  as  you  mention. 

Mr.  WARREX.  No,  not  with  the  absolute  guaranty. 

Commissioner  MEEKER.  No;  whether  it  was  an  absolute  guaranty 
or  an  assurance  of  rates  being  changed  in  accordance  with  needs, 
there  never  could  be  the  possibility  of  what  we  might  call  the  gam- 
bling advantages  which  have  been  looked  upon  as  being  connected 
with  common  stock  under  the  old  system.  There  would  not  be  the 
possibilities  of  great  profits. 

Mr.  WARREX.  No;  there  would  not  be.  You  mean  under  the  ser- 
vice-at-cost system  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      353 

Commissioner  MEEKER.  Certainly. 

Mr.  WARREN.  Xo ;  there  would  not.  I  assume  that  there  would  be 
some  limit  fixed.  I  was  asking  Mr.  Sisson  only  to  get  his  idea  as  a 
banker  of  where  that  limit  ought  approximately  to  be  placed  to 
insure  a  market  for  the  stock,  and  I  referred  to  the  Boston  Elevated 
stock  only  as  in  my  judgment  confirming  his  opinion  of  where  the 
stock  ought  to  be  placed. 

A  few  years  ago  street-railway  stocks  in  Massachusetts  sold  on 
a  4  per  cent  basis.  If  their  dividends  were  6  per  cent  the}"  sold  at 
around  140  to  130,  and  some  of  them  earning  8  per  cent,  of  which 
there  were  a  few  sold  for  200  to  220.  But  that  was  under  our  very 
strict  regulation  system,  so  that  everybody  knew  that  not  only  $100 
had  been  paid  in  but,  in  the  case  of  the  Boston  Elevated,  I  think 
the  stock  averages  the  stockholders,  not  in  the  market,  but  in  buying 
it  from  the  company  on  the  original  issue;  I  think  it  is  around  $119 
or  $120  a  share. 

Commissioner  MEEKER.  Actually  paid  in? 

Mr.  WARREN.  Actually  paid  in.  The  street  railways  of  Massa- 
chusetts— and  those  figures  I  have  referred  to  I  must  put  in  and 
will  try  not  to  forget  it — the  Massachusetts  street  railways,  as  a 
whole,  with  $102.000,000  par  capital,  show  in  their  balance  sheet 
something  like  six  and  a  half  million  dollars  paid  into  their  treas- 
uries in  addition  to  par  value  as  premiums:  and  they  really  have 
paid  in  considerably  more,  because  when  that  law  first  went  into  ef- 
fect the  premium  was  not  set  up  in  the  balance  sheet  as  it  is  now 
and  as  the  Interstate  Commerce  Commission's  method  of  account- 
ing requires,  but  the  premium  would  be  paid  in  and  carried  to  profit 
and  loss  and  all  charged  off  again.  In  other  words,  the  property 
would  be  marked  down  by  the  amount  of  premium  paid  in;  and 
my  impression  is  there  were  two  or  three  million  dollars  paid  in  in 
that  way  which  are  not  reflected  on  the  balance  sheet. 

Commissioner  BEALL.  Mr.  Warren,  was  not  one  reason  for  the 
high  price  of  street-railway  stock  in  Massachusetts  and  also  in  Ohio, 
where  the  Cleveland  property  is  located,  the  fact  that  they  were 
legal  investment  for  trustees  and  had  certain  exemptions  from 
taxation? 

Mr.  WARREN.  Yes,  and— 

Commissioner  BEALL.  What  I  want  to  bring  out  is :  Under  exactly 
the  same  conditions  and  same  earning  power  and  same  rate  of  re- 
turn in  certain  other  States  they  would  not  sell  for  anything  like 
as  much,  due  to  peculiar  local  conditions. 

Mr.  WARREN.  I  think  you  are  quite  right.  In  Massachusetts  until 
recently  the  bonds  of  all  corporations — and  which  made  it  impos- 
sible for  trustees  to  buy  bonds  to  any  great  extent — and  the  stock 
of  all  corporations  not  organized  under  the  Massachusetts  law  were 
taxed  on  their  principal  value  at  the  local  rate,  so  that  a  .r>  per  cent 
Ixmd  selling  for  par  would  have  to  pay  a  tax  in  most  towns  and 
cities  of  approximately  $20,  reducing  the  yield  to  3  per  cent.  And 
the  same  would  be  true  of  the  stock  of  a  New  York  corporation  sell- 
ing in  Massachusetts.  That  made  a  very  marked  differential  in 
favor  of  the  Massachusetts  stocks. 

Mr.  Ford,  will  you  take  the  stand? 


354       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 
STATEMENT  OF  MR.  A.  H.  FORD. 

Mr.  WARREN.  I  want  to  call  Mr.  Ford  out  of  the  order  I  had  in 
mind,  Mr.  Chairman,  because  of  the  reference  to  the  effect  of  in- 
creased fares,  and  I  think  he  can  give  the  commission  some  informa- 
tion on  that  which  may  be  very  interesting. 

Your  full  name,  Mr.  Ford? 

Mr.  FORD.  A.  H.  Ford. 

Mr.  WARREN.  Your  residence  is? 

Mr.  FORD.  Portland,  Me. 

Mr.  WARREN.   You  are  connected  with  a  street  railway  there? 

Mr.  FORD.  Vice  president  and  general  manager  of  the  Cumberland 
County  Power  &  Light  Co. 

Mr.  WARREN.  That  company  operates  the  Portland  Street  Rail- 
way Co.? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  And  the  Portland  Street  Railway  Co.  is  merely  a 
street-railwa}'  company;  is  it  not?  Does  it  have  an  electric-light 
company  attached  to  it? 

Mr.  FORD.  The  Cumberland  County  Power  &  Light  Co.  controls 
and  operates  the  Portland  railroad  under  a  lease. 

Mr.  WARREN.  But  the  Portland  Street  Railway  has  no  business 
except  a  street-railway  business? 

Mr.  FORD.  That  is  all ;  yes,  sir. 

Mr.  WARREN.  And  the  Portland  Street  Railway  has  recently  in- 
creased its  passenger  fares? 

Mr.  FORD.  Yes,  sir. 

Mr.  WARREN.  To  what  figure? 

Mr.  FORD.  We  had  originally  5  cents;  and  in  1918  we  increased 
it  to  G  cents,  and  on  June  15  we  increased  it  to  7  cents. 

Mr.  WARREN.  Now,  since  you  increased  the  fare  to  7  cents,  which 
involves  a  theoretical  increase  in  revenue  of  40  per  cent,  does  it  not. 
over  a  year  ago 

Mr.  FORD.  Yes. 

Mr.  WARREN.  Will  you  please  tell  the  commission  what  thus  far — 
as  far  as  you  have  returns — the  actual  increase  in  revenue  has  been? 

Mr.  FORD.  Well,  the  increase  for  the  first  half  of  July  amounts  to 
37  per  cent. 

Commissioner  SWEET.  July  of  this  year? 

Mr.  FORD.  Yes ;  this  present  month. 

Mr.  WARREN.  Compared  to  a  year  ago  when  there  was  a  5-cent 
fare? 
•  Mr.  FORD.  Yes. 

Commissioner  SWEET.  And  this  is  on  the  7-cent  basis? 

Mr.  FORD.  Yes. 

Commissioner  MEEKER.  Will  you  please  repeat  it,  so  I  can  get  it 
clearly  ? 

Mr.  WARREN.  State  what  the  fare  was  a  year  ago  at  the  same  time. 

Mr.  FORD.  The  fare  a  year  ago  was  5  cents.  Then  in  August  the 
fare  was  increased  to  6  cents. 

Commissioner  MEEKER.  That  is  August,  1918? 

Mr.  FORD.  Yes.  Then  on  June  15  of  this  year  the  fare  was  in- 
creased to  7  cents.  We  are  operating  under  the  zone  system. 

Mr.  WARREN.  What  do  you  mean  by  the  zone  system? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      355 

Mr.  FORD.  The  system  was  divided.  We  have  106  miles  of  track, 
and  the  system  was  divided  up  into  practically  mile  zones,  and  a 
charge  is  made  of  so  much  for  each  zone.  Our  rate  at  the^  present 
time  is  2£  cents  for  a  zone — the  city  proper  being  divided' up  into 
three  zones,  making  a  7-cent  fare. 

The  CHAIRMAN.  Do  you  mean  by  that  that  there  is  a  rate  of  less 
than  3  cents  within  one  zone? 

Mr.  FORD.  Yes,  sir ;  that  is,  you  can  ride  on  an  initial  ride  of  three 
zones  for  7  cents,  and  then 

Mr.  WARREN.  That  is  the  minimum  initial  fare  ? 

Mr.  FORD.  Yes. 

The  CHAIRMAN.  For  the  shortest  ride? 

Mr.  FORD.  Yes ;  the  initial  ride  of  three  zones — in  three  zones. 

Mr.  WARREN.  Or  less.  If  you  ride  1  mile  you  pay  7  cents,  or  three 
zones. 

Commissioner  SWEET.  How  about  one  block? 

Mr.  FORD.  Seven  cents. 

Mr.  WARREN.  That  7  cents,  however,  is  good,  if  you  want  to  go  so 
far,  for  three  of  your  zones? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  That  would  be  in  a  continuous  journey? 

Mr.  FORD.  Yes;  but  if  you  want  to  ride  four  zones  you  pay  9^ 
cents;  but  it  is  handled  by  a  system  of  tickets.  A  zone-ride  ticket, 
which  is  the  popular  ticket  used,  costs  35  cents.  Then  we  have  what 
we  call  a  15-zone  ticket  that  costs  35  cents.  So  that  the  passenger 
supplies  himself  with  two  kinds  of  tickets — the  7-cent  ticket,  five 
rides,  and  the  15-zone  ticket — and  if  he  wants  to  make  four  zones 
the  conductor  punches  one  ticket  out  for  the  7-cent  ride  or  the  3- 
zone  ride,  and  then  he  punches  one  of  these  15-zone  coupons  out  for 
the  extra  zone  that  he  rides. 

Mr.  WARREN.  How  many  zones  are  there  in  the  city  limits? 

Mr.  FORD.  Three. 

Mr.  WARREN.  Then  am  I  right  in  thinking  that  the  net  effect  of 
that  system  in  the  city  limits  is  a  7-cent  fare? 

Mr.  FORD.  Yes,  sir. 

Mr.  WARREN.  Just  the  same  as  if  you  had  a  flat  7-cent  fare  in  the 
city  of  Portland? 

Mr.  FORD.  Exactly. 

Mr.  WARREN.  Is  this  increase  you  speak  of  37  per  cent  in  the 
city  limits  or  on  the  entire  system? 

Mr.  FORD.  The  entire  system. 

Commissioner  MEEKER.  It  is  not  yet  clear  to  me  just  what  that  37 
per  cent  increase  means.  Is  it  the  increase  in  July  of  this  year  over 
July  of  last  year? 

Mr.  FORD.  Yes,  sir. 

Commissioner  MEEKER.  For  the  same  length  of  time? 

Mr.  FORD.  Yes. 

Commissioner  MEEKER.  One-half  of  the  month? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  And  what  was  the  system  of  fare  a  year  ago,  Mr. 
Ford? 

Mr.  FOBD.  It  was  the  straight  5-cent  ride,  or  our  ordinary  New 
England  zone  of— 

Mr.  WARREN.  Two  or  3  or  4  miles- in  length? 


356       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  FORD.  Something  like  that. 

Mr.  WARREN.  Then  it  was  a  5-cent  flat  fare  in  the  city  limits  a 
year  ago? 

Mr.  FORD.  Yes.  sir. 

Mr.  WARREN.  And  then  as  yon  went  from  the  city  limits  you  went 
into  a  5-cent  zone  of  2  or  3  miles  in  length? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  .And  then  passed  into  another  5-cent  zone? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  That  was  the  system  a  year  ago  ? 

Mr.  FORD.  Yes,  sir. 

Mr.  WARREN.  This  system  you  have  described  now  as  the  present 
system — 7  cents  in  the  city — is  a  7-cent  fare  for  any  three  much 
shorter  zones? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  And  as  you  go  from  the  city  you  pay  a  certain 
amount.  What  did  you  say  it  was? 

Mr.  FORD.  Two  and  one-third  cents. 

Mr.  WARREN.  Two  and  one-third  cents  for  each  additional  zone? 

Mr.  FORD.  For  each  mile  or  zone. 

Mr.  WARREN.  And  each  zone  is  about  a,  mile? 

Mr.  F"ORD.  Yes. 

Mr.  WARREN.  You  spoke  of  having  increased  the  rate  last  August, 
I  think,  a  year  ago. 

Mr.  FORD.  Yes. 

Mr.  WARREN.  What  system  did  you  adopt  then?  You  had  this 
old-fashioned  Xew  England  5-cent  zone.  What  did  you  put  in  in 
August  ? 

Mr.  FORD.  In  August  we  put  in  the  straight  6-cent  fare,  1  cent  in- 
crease on  those  5-cent  zones. 

Mr.  WARREN.  You  did  not  change  the  limits  at  all's 

Mr.  FORD.  Xo. 

Mr.  WARREN.  You  jacked  up  each  5-cent  fare  to  6  cents? 

Mr.  FORD.  Except  in  the  city,  and  on  the  city  lines  which  were — on 
three  of  our  city  lines  we  charged  a  5-cent  fare. 

Mr.  WARREN.  You  continued  the  5-cent  fare,  in  other  words  ? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  And  did  not  change  it? 

Mr.  FORD.  On  only  three  of  the  city  lines;  those  are  the  principal 
lines  running  up  and  down  the  city  on  the  peninsula. 

Mr.  WARREN.  And  the  other  city  lines  you  did  raise  to  6  cents, 
did  you? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  Was  that  change  of  fare  accompanied  with  a  general 
public  acquiescence  in  August  last,  or  was  it  made  against  a  good 
deal  of  opposition? 

Mr.  FORD.  It  was  made  against  a  great  deal  of  opposition.  We 
made  application  in  February  for  this  increase  in  fare 

Mr.  WARREN.  February,  1918? 

Mr.  FORD.  February,  1918.  We  had  previous^  made  a  valuation 
of  our  property,  and  that  valuation  took  us  19  months  to  make;  and 
that  valuation  was  checked  by  the  public-utilities  commission  engi- 
neers, and  it  took  us  until  August  2 ;  while  the  application  was  made 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      357 

in  February  the  hearing  continued  until  August  2  before  we  got  a 
decision. 

Mr.  WARREN.  And  as  you  have  said,  there  was  a  good  deal  o£ 
public  opposition  to  it? 

Mr.  FORD.  A  great  deal. 

Mr.  WARREN.  How  did  that  first  increase  work  out,  from  5  cents  to 
6  cents? 

Mr.  FORD.  It  was  not  satisfactory. 

Mr.  WARREN.  That  should  have  shown  theoretically  approximately 
20  per  cent. 

Mr.  FORD.  Twenty  per  cent. 

Mr.  WARREN.  But  not  quite,  because  on  three  of  your  best  lines 
in  the  city  you  still  kept  the  5  cents. 

Mr.  FORD.  Yes. 

Mr.  WARREN.  So  it  would  be  less  than  20  per  cent.  But  have  you 
ever  figured  what  is  should  have  shown? 

Mr.  FORD.  Well,  it  ought  to  have  shown  about  18  per  cent.  It 
actually  showed  about  4  per  cent. 

Mr.  WARREN.  For  what  period? 

Mr.  FORD.  For  that  period.  August  2  to 

Commissioner  SWEET.  To  July  15,  1919? 

Mr.  FORD.  To  June  15. 

Mr.  WARREN.  That  period  included  the  influenza  situation? 

Mr.  FORD.  In  October;  yes. 

Mr.  WARREN.  When  you  made  your  change  in  June,  was  that  made 
against  public  opposition  to  any  great  extent? 

Mr.  FORD.  Xo;  we  had  practically  no  opposition. 

Mr.  WARREN.  In  other  words,  the  public  really  recognized  your 
need  of  additional  revenue,  you  think  ? 

Mr.  FORD.  Yes,  because  of  the  efforts  that  had  been  made  by  the 
public-utility"  commission  and  by  ourselves — the  management — to 
make  the  people  acquainted  with  our  condition. 

The  public-utility  commission  recognized  the  gravity  of  our  situ- 
ation and  were  anxious  to  provide  a  remedy.  I  think  they  recognized 
the  fact  that  any  rate  that  they  named  on  our  property  would  not 
yield  the  results  unless  the  people  supported  the  rates.  The  first 
move  they  made  in  that  direction  was  to  invite  representative  citi- 
zens to  a  dinner  given  under  the  auspices  of  the  chamber  of  com- 
merce, and  at  that  dinner  they  promulgated  this  rate  - 

Commissioner  SWEET.  That  is,  the  State  commission  did? 

Mr.  P"ORD.  Yes,  sir;  and  explained  to  the  people  present  what  that 
rate  meant  and  what  it  would  produce  and  the  needs  of  the  com- 
pany for  an  increased  rate.  And  the  whole  purpose  of  that  gather- 
ing was  to  get  the  cooperation  on  the  part  of  the  public  in  support- 
ing that  trolley  company.  Then  they  followed  that  up  by  getting 
the  newspaper  men  together,  and  they  requested  the  newspaper 
people  to  support  the  trolley  company. 

Commissioner  SWEET.  When  you  say  "  they,"  you  still  refer  to 
the  State  commission? 

Mr.  FORD.  The  State  commission.  Those  two  acts  were  rather 
unusual  on  the  part  of  a  State  commission.  However,  that  produced 
the  result.  We  began  to  notice  immediately  a  change  in  the  public 
sentiment. 


358       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Well,  the  management  followed  uj)  that  plan  on  two  increases  that 
we  asked  for,  and  two  separate  hearings  before  the  commission  were 
held  on  those  increases.  We  followed  that  up  by  holding  public 
meetings  in  10  different  locations  on  our  property :  the  people  that  we 
served,  the  community  centers  of  population,  and  the  people  were 
invited.  The  meetings  were  advertised;  and  I  went  with  my  as- 
sistants before  them  to  ask  for  any  criticism  that  they  had  to  make  on 
the  service,  on  the  management,  or  any  suggestions  they  had  to  make. 
At  the  same  time  we  explained  this  ticket  system,  which  is  a  rather 
new  proposition.  We  had  never  tried  it  before  and  did  not  know  of 
any  place  where  it  had  been  tried;  and  it  Was  important  that  the 
people  should  understand  the  system  that  we  proposed  to  put  in  to 
get  these  fares,  and  at  the  same  time  we  had  to  explain  this  new  zone 
system. 

Well,  the  result  of  that  work  and  of  the  work  done  by  the  com- 
mission was  a  complete  change  in  the  public  sentiment.  In  the  mean- 
time, we  were  working  with  our  own  employees.  The  public  senti- 
ment prior  to  that  time  was  antagonistic  to  the  company.  The  men 
themselves  were  unionized  and  they  were  not  interested  in  our  propo- 
sition. The  work  that  we  did  with  them  resulted  in  securing  their 
cooperation. 

Commissioner  SWEET.  Was  that  purely  educational? 

Mr.  FofiD.  Entirely — and  explaining  to  them  wrhat  the  situation 
was  and  what  their  duty  was  in  this  matter. 

The  CHAIBMAN.  Was  there  any  hope  entertained  that  if  a  larger 
fare  was  secured  they  would  have  additional  wages? 

Mr.  FOBD.  No.  sir. 

The  CHAIRMAN.  Xo  promise  was  made? 

Mr.  FORD.  Xo,  sir.  In  Xovember  the  Xational  War  Labor  Board 
had  increased  our  wages  on  that  little  property  $150,000  in  the  award 
that  they  made. 

Mr.  WARREN.  From  what  rate  to  what  rate,  Mr.  Ford? 

Mr.  FORD.  To  45  cents  for  the  maximum  for  motormen  and  42| 
cents  minimum  pay. 

Commissioner  MEEKER.  What  had  been  the  pay  before  that  ? 

Mr.  FORD.  The  pay  before  that  had  been  33  cents. 

Commissioner  MEEKEE.  Flat? 

Mr.  FORD,  Xo,  sir ;  33  cents  for  the  maximum. 

Commissioner  MEEKEE.  For  the  maximum? 

Mr.  FOBD.  Yes.  Xow,  I  stilted  that  we  did  not  have  opposition  on 
this  7-cent  fare.  It  was  because  we  had  done  these  things — or  we 
had  not  done  it,  but  all  of  these  things  had  been  done  to  make  the 
public  acquainted  with  our  condition  and  to  appeal  for  then-  support ; 
and  that  is  the  reason  we  are  getting  37  per  cent  increase  on  this  40 
per  cent  theoretical  raise  in  rate. 

Commissioner  MEEKER.  May  I  ask  a  question  there?  In  case  an 
individual  does  not  provide  himself  with  tickets,  must  he  pay  7  cents 
for  every  zone  outside  of  the  city  limits  ? 

Mr.  FOBD.  The  commission  fixed  a  differential  between  a  cash  fare 
and  a  ticket  fare.  The  cash  fare  is  9  cents,  and  the— 

Commissioner  MEEKER.  That  is  9  cents  within  the  city  limits  I 

Mr.  FORD.  Nine  cents  within  the  city  limits. 

Commissioner  MEEKER.  In  the  three  zones? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      359 

Mr.  FORD.  For  the  three  zones,  and  3  cents  for  each  zone  outside. 
That  is,  they  pay  a  9-cent  fare  and  they  get  a  transfer  which  en- 
ables them  to  continue  their  ride  for  one  zcne  or  two  zones  more  by 
the  payment  of  3  cents  or  6  cents. 

The  CHAIRMAN.  In  the  absence  of  this  differential  what  per  cent 
of  your  revenue  is  cash  fare  ? 

Mr.  FORD.  About  5  per  cent. 

Mr.  WARREN.  Ninety-five  per  cent  is  tickets? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  So  that  really  the  ticket  rate  is  the  actual  rate? 

Mr.  FORD.  Yes.  There  is  no  complaint  from  our  traveling  public 
on  account  of  that  system. 

Commissioner  BEALL.  Can  a  passenger  buy  tickets  from  any  con- 
ductor? 

Mr.  FORD.  Every  conductor  is  supplied  with  a  full  line  of  tickets. 

Mr.  WARREN.  I  think  that  is  all.  I  submit  that  merely  as  indi- 
cating, Mr.  Chairman,  that  the  increase  of  rates  under  circumstances 
where  the  public  appreciates  the  necessity  of  it  has  materially  in- 
creased the  revenue,  and  that  the  opposition — do  you  think  the  oppo- 
sition or  this  whole  public  attitude  toward  the  increase  of  rates,  Mr. 
Ford,  is  a  matter  of  sentiment  on  the  part  of  the  public  psycho- 
logically? 

Mr.  FORD.  I  think  it  is.  I  believe  that  the  success  of  any  rate  de- 
pends upon  the  support  that  the  people  give  that  rate. 

Mr.  WARREN.  When  it  is  first  put  into  effect? 

Mr.  FORD.  When  it  is  first  put  into  effect. 

Mr.  WARREN.  That  leads  me  to  another  question.  Suppose  that 
at  the  beginning  the  new  rate  does  not  yield  either  the  theoretical 
possibility  or  a  substantial  part  of  it :  do  you  think  in  the  long  run, 
after  the  public  gets  used  to  it  and  gets  over  any  irritation  or  pique 
that  they  may  feel,  that  at  the  increased  rate  the  traffic  will  gradu- 
ally return  at  the  higher  rate? 

Mr.  FORD.  I  think  it  will.  There  are  two  things  that  are  psy- 
chologically in  the  public  mind  when  the  rate  is  increased.  The  first 
is  that  the  people  want  to  economize,  and  the  second  is  there  is  a 
rel>ellion  against  the  increase  in  the  rate.  Now  gradually  both  of 
those  are  overcome,  and  I  believe  in  our  situation  that  we  shall  get 
the  full  40  per  cent  theoretical  increase  and  that  we  shall  get  from  2 
to  5  per  cent  of  the  natural  increase  that  ought  to  come  with  the 
growth  of  the  city. 

Mr.  WARREN.  And  I  judge  from  what  you  have  said  and  the 
emphasis  which  you  have  placed  on  the  action  of  the  Public  Utilities 
Commission  of  Maine  that  you  believe  that  that  attitude,  the  com- 
mission itself  having  become  convinced  of  the  exigency,  was  the 
most  helpful  element  of  any  of  the  elements  you  have  mentioned  ? 

Mr.  FORD.  I  think  it  was. 

Mr.  WARREN.  That  is  all. 

Commissioner  MEEKER.  I  would  like  to  ask  what  you  moan  by  2  to 
5  per  cent  increase  due  to  the  natural  growth  of  the  city?  That  has 
been  the  experience  of  the  railway  company  in  times  past,  that  the 
annual  earnings  increase  about  that  much  each  year? 

Mr.  FORD.  Yes;  all  of  our  cities  are  increasing  naturally  in  popu- 
lation; and  we  must  naturally  count  upon  getting  a  larger  travel 
under  exactly  the  same  conditions  next  year  than  we  had  this  year. 


360       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  MEEKER.  You  think  the  institution  of  the  zone  sys- 
tem will  not  have  any  appreciable  effect  upon  the  growth  of  the 
community — centering  the  population  rather  than  spreading  it  out 
as  in  times  past,  so  as  to  diminish  the  rate  of  increase? 

Mr.  FORD.  I  think  not.  The  zone  system  is,  in  my  judgment,  the 
fairest  way  to  fix  a  rate  for  the  reason  that  people  pay  for  what 
they  get. 

Commissioner  SWEET.  When  did  you  establish  the  zone  S}'stem? 

Mr.  FORD.  That  was  established  October  '2,  last  year. 

Commissioner  SWEET.  1?)18? 

Mr.  FORD.  Yes,  sir. 

Commissioner  SWEET.  Since  that  has  been  in  operation  have  you 
noticed  any  tendenc}-  to  greater  congestion  in  the  center  of  your  city? 

Mr.  FORD.  No,  sir. 

Commissioner  SWEET.  The  rate  which  you  have  decided  upon  is 
substantially  3  cents  a  mile  where  cash  is  paid? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  The  zones  are  a  mile  wide? 

Mr.  FORD.  About  a  mile;  they  vary.  Those  zones  were  fixed  to 
convenience  the  greatest  number  of  people.  Sometimes  they  would 
be  three-quarters  of  a  mile  and  sometimes  a  mile  and  a  quarter — 
it  depended  upon  the  centers  of  population. 

Commissioner  SWEET.  But  roughly  speaking,  it  is  about  a  mile? 

Mr.  FORD.  Rpughly  speaking,  it  is  about  a  mile. 

Commissioner  SWEET.  And  3  cents  in  cash  is  paid  for  each  zone? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  And  where  tickets  are  bought 

Mr.  FORD.  Two  and  a  third  cents. 

Commissioner  SWEET.  You  have  a  rather  public-spirited  commis- 
sion in  this  State,  have  you  not? 

Mr.  FORD.  We  certainly  have. 

Commissioner  SWEET.  Made  up  of  pretty  broad-gauge  men? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  How  is  that  commission  appointed? 

Mr.  FORD.  Appointed  by  the  governor. 

Commissioner  SAVEET.  How  many  are  tftere  on  the  commission? 

Mr.  FORD.  Three. 

Commissioner  SWEET.  Were  they  political  appointments? 

Mr.  FORD.  Two  Republicans  and  one  Democrat. 

Mr.  WARREN.  Does  the  law  provide  for  bipartisan  representation  ? 

Mr.  FORD.  No. 

Mr.  WARREN.  It  could  all  be  of  one  party? 

Mr.  FORD.  It  could  be.  They  have  kept  the  public-utilities  com- 
mission out  of  politics  up  there;  and  the  public-utilities  commission 
has  entire  regulation  of  our  rates,  under  our  law.  Any  10  people 
can  hale  us  before  the  commission  on  a  petition,  and  then  30  days' 
rotice  has  to  be  given  before  a  rate  can  be  changed;  and  we  have 
conditions  like  that. 

The  CHAIRMAN.  What  control  is  there  over  your  service? 

Mr.  FORD.  Absolute  control. 

The  CHAIRMAN.  By  the  public-service  commission? 

Mr.  FORD.  Yes. 

The  CHAIRMAN.  Have  the  municipalities  any  control  at  all? 


PROCEEDINGS  OF  FEDEEAL,  ELECTJRIC  RAILWAYS  COMMISSION.      361 

Mr.  FORD.  None  whatever;  and  we  like  the  arrangement  and  are 
very  well  pleased. 

Commissioner  SWEET.  Has  the  commission  handled  other  similar 
cases  in  other  cities  in  Maine? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  What  other  cities  have  had  an  experience 
along  this  line? 

Mr.  FORD.  Well,  the  Lewiston,  Augusta  &  Watcrville  Street  Rail- 
way Co.,  which  is  164  miles  of  practically  interurban  lines.  They 
have  raised  the  rates  on  that  road  from  5  to  7  cents. 

Mr.  WARREN.  Keeping  the  same  old  zones? 

Mr.  FORD.  Practically  the  same  zones. 

Mr.  WARREN.  In  the  5-cent  collection  zone  right  along,  the  rate 
was  raised  to  7  cents? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  What  was  the  experience  there?  Does  it 
correspond  with  Portland's  experience,  if  you  know  ? 

Mr.  FORD.  Well,  yes;  I  know,  because  I  have  a  good  deal  to  do  with 
that  company.  They  are  showing  now  about  36  per  cent  increase 
since  the  first  of  the  year  on  that  road. 

Commissioner  SWEET.  Is  their  business  largely  a  suburban  busi- 
ness? 

Mr.  FORD.  Yes,  sir.  But  they  went  about  the  thing  in  the  same 
manner.  The  utilities  commission  appeared  before  the  chambers  of 
commerce,  and  they  did  other  things  to  help  that  company  out — 
really  doing  the  thing  that  a  public-utility  commission  ought  to  do ; 
and  a  better  sentiment  was  built  up  along  that  entire  system  and 
people  responded. 

Commissioner  SWEET.  What  other  cities  have  been  helped  by  the 
commission? 

Mr.  FORD.  Bangor.  The  Bangor  company  has  increased  their  rate 
from  5  to  6  cents. 

Commissioner  SWEET.  They  have  adopted  the  zone  plan? 

Mr.  FORD.  Well,  no;  they  have  not  the  same  mile-zone  plan  that 
we  have.  They  have  the  usual  New  England  5-cent  zone  or  terri- 
tory :  it  is  about  2  miles  or  2£  miles,  something  like  that. 

Commissioner  SWEET.  And  then  it  jumps  a  full  5.  cents  to  the  next 
zone;  does  it? 

Mr.  FORD.  Well,  yes;  6  cents  is  what  they  charge  for  each  zone. 

Commissioner  SWEET.  That  is  paid  in  cash? 

Mr.  FORD.  Well,  they  have  only  the  one  system. 

Commissioner  SWEET.  They  do  not  have  the  ticket  system  ? 

Mr.  FORD.  No.  Now  on  the  Atlantic  Shore  Railway — that  is  an 
interurban  line  in  the  southern  part  of  the  State — they  have  just 
recently  advanced  their  rates  to  8  cents  per  zone. 

Commissioner  SWEET.  What  have  been  the  results  in  Bangor  and 
on  the  Atlantic  Shore? 

Mr.  FORD.  Well,  of  the  Atlantic  Shore  I  have  not  heard,  because 
that  only  recently  went  into  effect.  In  Bangor  they  have  increased 
their  receipts — I  think  they  have  gotten  about  12  or  15  per  cent  out 
of  the  6-cent  rate  increase. 

Commissioner  SWEET.  Does  that  indicate  some  falling  off  in 
patronage? 

Mr.  FOHD.  Yes;  you  never  get  the  full  amount  of  the  increase. 

100643°— 20 24 


362       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  How  long  has  the  Bangor  raise  been  in 
operation  ? 

Mr.  FORD.  I  think  it  has  been  in  operation  about  four  months. 

Commissioner  SWEET.  Would  you  expect  that,  as  the  public  become 
educated  to  it  in  Bangor  the  same  as  in  Portland,  that  will  increase  ? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  The  patronage  will  return? 

Mr.  FORD.  Yes. 

Commissioner  SwrEET.  In  the  educational  work  that  you  did,  was 
particular  stress  laid  upon  the  advantages  to  the  public  or  both  ? 

Mr.  FORD.  Well,  we  discussed  the  matter  with  them  from  their 
viewpoint. 

Commissioner  SWEET.  That  is,  the  public  viewpoint? 

Mr.  FORD.  It  was  a  question  of  service.  We  did  not  wait  for  the 
increase  in  the  rate.  We  increased  our  service  before  the  rate  came 
in,  showing — or  we  wanted  to  show — our  faith  in  the  public.  I  think 
that  did  a  great  deal  to  get  us  support. 

Commissioner  SWEET.  In  wThat  way  did  you  increase  your  service : 
more  cars? 

Mr.  FORD.  We  ran  cars  more  frequently. 

Commissioner  SWEET.  They  ran  on  shorter  schedule? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  And  you  think  the  public  appreciated  that  ? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  And  showed  its  appreciation  by  acquiescing 
in  the  raise  when  it  finally  came? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  But  in  your  efforts  to  educate  the  public  to 
the  situation,  you  laid  your  cards  practically  on  the  table  and  let 
them  understand  your  financial  situation? 

Mr.  FORD.  Yes. 

Commissioner  SWTEET.  And  everything? 

Mr.  FORD.  And  everything.  There  was  not  a  thing  concealed  from 
them. 

Commissioner  SWEET.  And  they  appreciated  your  frankness  and 
candor  and  responded  in  kind,  in  a  way? 

Mr.  FORD.  Yes.  In  these  meetings  I  gave  them  the  privilege  of 
asking  any  questions  they  wanted  to  and  advance  any  criticism  they 
wanted  to. 

Commissioner  SWEET.  Do  you  think.  Mr.  Ford,  that  similar  tac- 
tics throughout  the  country  would  show  similar  results  ? 

Mr.  FORD.  Undoubtedly. 

Commissioner  SWEET.  Do  you  think  human  nature  is  the  same  in 
Maine  as  it  is  in  other  parts  of  the  country  ? 

Mr.  FORD.  Yes. 

Commissioner  SWEET.  And  you  feel  that  you  have  solved  the  prob- 
lem ;  or  don't  you? 

Mr.  FORD.  I  would  not  like  to  say  that.  I  hope  we  have.  I  be- 
lieve that  we  have  gotten  a  rate  that  the  people  are  going  to  support 
and  that  gradually  we  shall  work  out  of  our  difficulties.  It  is  going 
to  take  time,  but  I  believe  that  a  rate  can  be  put  to  such  a  point  that 
you  will  spoil  your  whole  proposition  and  raise  it  too  high. 

Commissioner  SWEET.  Are  you  making  proper  provision  now  for 
deterioration  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      363 

Mr.  FORD.  Yes,  we  are  depreciating  our  property  through  operating 
expenses,  charging  it  right  to  operating  expenses — 10  per  cent  of  our 
earnings. 

Commissioner  SWEET.  Have  you  any  objection  to  being  as  frank 
with  us  as  you  were  with  the  people  there,  with  regard  to  your  finan- 
cial situation  and  the  result  ? 

Mr.  FORD.  Not  at  all. 

Commissioner  SWEET.  Of  course  it  would  be  very  instructive  to  us 
to  have  you  give  us  a  statement  showing  what  your  condition  was, 
we  will  say,  after  the  first  change  that  you  made,  on  August  2, 1918 — 
was  that  the  date? 

Mr.  FORD.  1918 ;  yes,  sir. 

Commissioner  SWEET.  Now  at  that  time  what  your  situation  was, 
the  results  that  followed  that  first  change,  and  then  the  next  change 
was  made  June  15,  1919,  was  it  not? 

Mr.  FORD.  Yes.     Well,  the  next  change  was  made 

Commissioner  SWEET.  Of  course,  you  have  told  us  in  a  general  way, 
but  what  I  mean  is  more  definitely  with  reference  to  the  lack  of  nec- 
essary earnings  prior  to  the  first  change  that  made  that  change  or 
some  change  necessary,  and  what  the  situation  has  developed  into 
with  reference  to  your  earnings  and  your  ability  to  pay  any  divi- 
dends or  meet  interest  on  obligations  and  so  forth.  I  think  that 
would  be  very  instructive,  if  you  are  willing  to  tell  us. 

Mr.  FORD.  Yes,  sir ;  I  am  entirely  agreeable  to  it. 

The  CHAIRMAN.  Can  you  file  a  statement  showing  those  figures? 

Mr.  FORD,  I  can  do  that  or  I  can  state  it  to  you  very  briefly  now 
probably. 

Commissioner  SWEET.  Stating  it  briefly  and  filing  a  statement  for 
future  reference  would  be  very  helpful;  don't  you  think  so? 

Mr.  WARREN.  On  August  2  were  you  earning  any  dividends? 

Mr.  FORD.  No;  we  were  not  earning  our  dividend. 

Mr.  WARREN.  Were  you  earning  your  fixed  charges  on  August  2  ? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  At  the  old  rate  you  were  just  meeting  your  operating 
expenses  and  fixed  charges? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  And  taking  care  of  your  depreciation? 

Mr.  FORD.  Yes.  . 

Mr.  WARREN.  At  the  same  rate  that  you  are  taking  care  of  it  now  ? 

Mr.  FORD.  Yes,  sir. 

Mr.  WARREN.  Now,  with  this  increase  which  you  have  recently 
made  which  you  figure  at  37  per  cent  of  gross,  you  of  course  would  be 
able  to  take  care  of  your  operating  expenses,  do  you  think? 

Mr.  FORD.  I  think  we  can.  Of  course  the  people  are  not  as  fully 
reconciled  to  the  new  rate  as  they  will  be  eventually.  We  ought  to 
have  a  natural  increase  in  our  business  of,  say  5  per  cent,  and  we 
ought  to  handle  as  much  business  under  the  7-cent  rate  as  we  handled 
under  the  5-cent  rate — as  much  business. 

Mr.  WARREN.  Well,  you  are  very  nearly  handling  as  much? 

Mr.  FORD.  Very  nearly. 

Mr.  WARREN.  I  think  what  Mr.  Sweet  wants  to  know  is,  assuming 
that  that  continues — that  same  increase  in  gross  of  37  per  cent — what 


364       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

will  it  do,  first,  as  regards  operating  expenses;  second,  a  proper  de- 
preciation; third,  fixed  charges;  and  fourth,  dividends? 

Mr.  FORD.  Well,  I  believe  that  the  7-cent  rate  will  pay  5  per  cent 
on  the  $2,000,000  of  stock  we  have  issued — it  will  pay  all  the  interest 
on  the  bonds,  and  provide  this  depreciation  fund. 

The  CHAIRMAN.  How  does  the  value  of  your  property  which  was 
agreed  to  by  the  public-service  commission  correspond  with  your 
capitalization? 

Mr.  FORD.  It  took  us  nearly  two  years  to  make  a  valuation  of  our 
property.  That  valuation  was  checked  by  expert  engineers  em- 
ployed by  the  State;  and  the  value  of  the  stock,  leaving  out  certain 
intangibles,  which  ought  to  be  included  in  value,  they  showed  that 
that  stock  was  worth  $132  a  share. 

Commissioner  SWEET.  On  a  face  value  of  100? 

Mr.  FORD.  Yes. 

Mr.  WARREN.  One  other  question,  Mr.  Ford • 

Mr.  FORD.  In  other  words,  we  had  more  value  in  the  property  than 
the  securities  represented. 

The  CHAIRMAN.  Will  you  resume  the  stand  at  2  o'clock,  please? 

Mr.  FORD.  Yes. 

(At  1  p.  m.  a  recess  was  taken  until  2  p.  m.) 

AFTER  RECESS. 

The  hearing  was  resumed  at  2  o'clock,  p.  m. 

Commissioner  SWEET.  You  may  proceed,  Mr.  Warren. 

Mr.  WARREN.  Will  you  resume  the  stand,  Mr.  Ford,  please? 

STATEMENT  OF  MR.  ALBERT  H.  FORD— Continued. 

Mr.  WARREN.  There  is  only  one  more  question,  Mr.  Ford,  that  I 
wish  to  ask  you,  and  that  is  this:  As  I  understand,  you  have  an 
existing  agreement  with  your  men  for  45  cents  an  hour,  running 
until  next  May? 

Mr.  FORD.  Yes,  sir. 

Mr.  WARREN.  If,  at  the  end  of  that  period,  or  if  before  the  end 
of  that  period,  it  should  become  necessary  to  increase  materially 
your  r^ite  of  wages,  would  it  then,  in  your  opinion,  be  necessary  to 
make  a  further  increase  in  your  rate  of  fare? 

Mr.  FORD.  I  think  it  would. 

Mr.  WARREN.  That  is  all.    Thank  you  very  much. 

Commissioner  SWEET.  Have  you  any  questions  you  want  to  ask? 

Commissioner  MEEKER.  No. 

Commissioner  SWEET.  Have  you,  Mr.  Gadsden? 

Commissioner  GADSDEN.  No  questions. 

Mr.  WARREN.  Mr.  Ford  may  be  excused? 

Commissioner  SWEET.  Yes,  sir. 

Mr.  WARREN.  Mr.  Tingley,  will  you  take  the  stand,  please? 

STATEMENT  OF  MR.  C.  L.  S.  TINGLEY. 

Mr.  WARREN.  Will  you  give  your  full  name,  Mr.  Tingley,  please? 
Mr.  TINGLEY.  C.  L.  S.  Tingley. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      365 

Mr.  WARREN.  You  are  vice  president 

Mr.  TINGLEY.  I  am  vice  president  of  the  American  Railways  Co. 

Mr.  WARREN.  And  that  company  is  interested  in  the  operation  of 
various  street  railways? 

Mr.  TINGLEY.  It  is  a  holding  companv  for  various  public  utilities, 
principally  in  the  States,  including  Virginia,  West  Virginia  and 
Kentucky,  east  of  the  Mississippi  River,  north  of  those  States,  and 
east  of  the  Mississippi  River. 

Mr.  WARREN.  Will  you  name  the  street-railway  companies? 

Mr.  TINGLEY.  The  Jersey  Central  Traction  Co.,  the  Bridgeton  & 
Millville  Traction  Co.,  the  Wilmington  &  Philadelphia  Traction  Co., 
the  Scranton  Railway  Co.,  the  Altoona  &  Logan  Valley  Electric 
Railway  Co.,  the  Roanoke  Railway  &  Electric  Co.,  the  Lynchburg 
Traction  &  Light  Co.,  the  Ohio  Valley  Electric  Railway  Co.,  the 
People's  Railwav  Co.  of  Dayton,  Ohio,  the  Springfield  Railway  Co. 
of  Springfield,  Ohio,  and  the  Chicago  &  Joliet  Electric  Railway  Co. 

Mr.  WARREN.  Now,  Mr.  Tingley,  will  you  tell  the  commission,  as 
regards  any  of  these  companies,  what  your  experience  has  been  in 
increasing  rates  and  what  the  effect  has  been? 

Mr.  TINGLEY.  We  have  increased  rates  on  practically  all  of  these 
companies.  The  increases  and  the  effect  have  been  materially  con- 
trolled by  the  industrial  conditions.  In  communities  which  had  a 
large  war  business  and  where  there  had  been  a  great  influx  of  popu- 
lation the  increases  did  not  have  to  be  so  much  and  the  effect  was 
greater  than  it  was  in  other  communities. 

To  illustrate:  Scranton,  Pa.,  was  not  only  not  affected  by  war  in- 
dustry, having  none,  but  it  lost  substantially  in  population  by  rea- 
son of  the  military  service  of  the  3rounger  men,  who  are  among  the 
best  patrons  of  the  railway,  and  also  the  men  being  attracted  to 
the  centers  where  the  war  work  offered  much  higher  wages  than 
they  could  get  in  the  main  industry  of  Scranton,  which  is  the  an- 
thracite coal  mines.  The  riding  habit  was  also  affected  by  the  stimu- 
lation of  mining,  which  kept  the  men  underground  for  longer  pe- 
riods than  they  would  be  normally. 

In  September,  1917,  we  filed  an  increase  in  rate  from  5  to  6  cents. 
The  municipality  raised  the  question  of  the  authority  of  the  public- 
service  commission  to  permit  an  increase  in  rates  in  the  face  of  a 
rate  of  fare  fixed  in  the  contract  ordinance,  and  we  agreed  with  the 
public-service  commission  that  we  would  not  attempt  to  put  that 
rate  into  effect  until  that  legal  question  was  decided. 

In  explanation  of  that,  I  think  we  should  put  in  right  here  some- 
thing  with  reference  to  our  public-service  law  in  Pennsylvania. 

Under  the  laws  of  Pennsylpania,  a  railway  is  primarily  charged 
with  the  fixing  of  its  rate.  The  railway  files  its  tariff  with  the 
public-service  commission,  and  it  becomes  effective  30  days  after 
filing.  The  commission  is  without  power  to  suspend  rates  until 
after  complaint  and  hearing.  So  that  that  agreement  was  neces- 
sary to  avoid  the  rates  becoming  automatically  effective  at  the  end 
of  the  3(X  days. 

Commissioner  SWEET.  Unless  there  is  some  question  from  some 
private  individual 

Mr.  TINGLEY.  It  becomes  automatically  effective. 

Commissioner  SWEET  (continuing).  The  public-service  commis- 
sion takes  no  action  upon  it  whatever? 


366       PKOCEEDINGS  OF  FEDERAL  ELECTEIC  RAILWAYS  COMMISSION. 

Mr.  TINGLEY.  It  takes  no  action.  Of  course,  if  the  commission 
should  think  that  your  rate  was  unreasonable  or  extortionate,  they 
could  on  their  own  motion  institute  an  investigation. 

Commissioner  SWEET.  They  have  the  power 

Mr.  TINGLEY.  They  have  the  power;  but  it  would  be  an  unusual 
case  in  which  they  would  do  it  that  way,  without  complaint. 

The  matter  dragged  along  until  March,  1918,  when  the  commis- 
sion decided  that  they  had  power,  notwithstanding  the  contract 
ordinance;  and  when  one  or  two  of  the  lower  courts  in  Pennsyl- 
vania had  acted  on  injunction  proceedings  seeking  to  restrain  the 
commission  from  acting,  they  decided  that  the  commission  must  first 
act  before  the  court  had  jurisdiction,  and,  again,  parenthetically, 
the  superior  court  yesterday  handed  down  a  decision  sustaining  the 
powers  of  the  commission,  notwithstanding  the  contract  ordinance. 

Commissioner  SWEET.  Is  that  the  court  of  last  resort? 

Mr.  TINGLEY.  No,  sir.     That  is  the  court  of  appeals  there 

Commissioner  SWEET,  An  intermediate  court  2 

Mr.  TINGLEY.  An  intermediate  court. 

On  the  21st  day  of  March,  1918,  a  6-cent  fare  went  into  effect. 

Commissioner  SWEET.  In  Scranton? 

Mr.  TINGLEY.  In  Scranton;  and  it  resulted  in  a  small  diminution 
in  travel.  Being  a  theoretical  20  per  cent  increase,  it  was  producing 
about  12  to  13  per  cent  increase. 

The  War  Labor  Board,  in  August,  handed  down  a  decision  in- 
creasing our  wages  very  materially.  The  maximum  rate  for  motor- 
men  and  conductors  at  the  end  of  three  years'  service  had  been  36 
cents  an  hour.  It  was  raised  to  45  cents  an  hour  at  the  end  of  the 
first  year's  service.  A  minimum  wage  of  42£  cents  was  established 
for  all  other  employees,  amounting  in  some  instances  to  a  90  per 
cent  increase.  It  was  a  flat  increase  of  all  wages  of  51^  per  cent. 

Under  the  6-cent  fare  we  were  having  a  surplus  of  about  $100,000 
a  year  over  and  above  fixed  charges.  The  theoretical  increase 
granted  by  the  War  Labor  Board  amounted  to  $340,000;  so  it  was 
manifest  that  we  had  to  have  more  income. 

We  filed  in  August  an  8-cent  tariff,  which  became  effective  on  the 
15th  day  of  September. 

Commissioner  SWEET.  Of  this  year  ? 

Mr.  TINGLEY.  Of  1918. 

Commissioner  SWEET.  Oh,  I  mean  1918. 

Mr.  TINGLEY.  Which  resulted  in  a  very  prompt  diminution  in 
travel.  It  was  followed  early  in  October  by  the  outbreak  of  in- 
fluenza, which  was  very  severe  in  that  country  and  the  travel  dropped 
50  per  cent.  By  December,  however,  the  travel  had  returned,  show- 
ing a  loss  of  about  20  per  cent  in  passengers  but  an  incease  of  about 
28  per  cent  in  income;  and  in  May,  when  the  public-utility  commis- 
sion finally  decided  the  rate  case,  the  travel  was  running  along,  show- 
ing a  diminution  of  about  18  or  19  per  cent,  which  was  just  where 
the  company  had  figured  it  woidd  land.  We  had  figured  that  if  we 
only  lost  20  per  cent  of  our  travel  and  collected  an  8-cent  fare  we 
would  be  made  whole  a/nd  able  to  stand  this  increase  in  wages. 

Mr.  WARREN.  Did  that  mean  that  you  were  getting  about  two- 
thirds  of  the  theoretical  possible  increase  in  revenue,  Mr.  Tingley  ? 

Mr.  TINGLEY.  Yes,  sir. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      367 

The  commission  then  handed  down  its  decision,  which  created 
four  tickets  for  a  quarter,  or  6£  cents  each,  sold  on  the  cars,  for  a  trial 
period  of  six  months,  with  a  cash  fare  of  7  cents.  Under  that  7- 
cent  tariff,  in  the  month  of  June,  and  so  far  in  July,  we  are  carrying 
more  people  than  we  carried  last  year  under  the  6-cent  tariff  which 
was  then  in  effect. 

Xow,  taking  the  Wilmington  &  Philadelphia  Traction  system  that 
serves  the  city  of  Wilmington,  the  adjacent  territory,  the  city  of 
Chester,  and  up  to  a  connection  with  the  city  lines  of  the  city  of 
Philadelphia,  the  borough  of  Darby — 

Commissioner  SWEET.  Before  you  leave  Scranton  let  me  ask  you 
this  question,  Mr.  Tingley :  Has  the  return  of  the  soldiers  or  laborers 
had  anything  to  do  with  this  increase  ? 

Mr.  TINGLEY.  The  town  is  getting  back  to  normal ;  yes,  sir. 

Commissioner  SWEET.  Yes. 

Mr.  TINGLEY.  The  town  is  getting  back  to  normal. 

Commissioner  SWEET.  Can  you  differentiate  now  between  the  ele- 
ments ? 

Mr.  TINGLEY.  Well,  I  did  not  refer  to  income  there.  I  said  that 
we  were  carrying  more  passengers. 

Commissioner  SWEET.  I  understand. 

Mr.  TINGLEY.  In  other  words,  we  are  getting  about  what  I  think 
is  more  nearly  approaching  the  growth  of  a  community  of  that  size; 
that  is,  about  5  per  cent  per  annum. 

Commissioner  SWEET.  That  would  be  due  to  the  return  of  the  popu- 
lation ? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  SWEET.  In  part? 

Mr.  TINGLEY.  Yes. 

Commissioner  SWEET.  And  you  also  think  it  is  in  part  due  to  a 
better  feeling  on  the  part  of  the  public  in  regard  to  the  raise  ? 

Mr.  TINGLEY.  Well,  as  to  the  feeling  on  the  part  of  the  public, 
I  want  to  speak  very  guardedly  on  that,  because  we  are  in  a  very 
nasty  political  situation  there.  In  other  words,  it  has  been  made 
a  political  issue  with  the  city  council. 

Commissioner  SWEET.  Of  course,  we  are  all  one  family  here  and 
you  can  tell  secrets  if  you  want  to. 

Mr.  TINGLEY.  I  know,  but  a  good  deal  goes  out  over  the  wire. 

Mr.  WARREN.  At  any  rate,  you  are  now  back  to  your  normal  situa- 
tion? 

Mr.  TINGLEY.  Yes. 

Mr.  WARREN.  In  other  words,  with  this  increased  fare,  your  traffic 
is  just  the  same  as  it  was  with  the  old  5-cent  fare  or  6-cent  fare? 

Mr.  TINGLEY.  Under  the  6-cent  fare  a  year  ago;  yes. 

Now,  the  Wilmington  to  Philadelphia  system,  serving  Wilmington 
and  Chester,  which  probably,  in  proportion  to  their  size,  had  more 
war  business  than  any  other  community  in  the  country — we  instituted 
a  6-cent  fare  there  in  June,  1018.  That  is  a  theoretical  20  per  cent 
increase.  As  a  matter  of  fact,  after  the  armistice  was  signed,  the 
increases  there  ran  from  30  to  40  per  cent,  and  to-day,  with  the  war 
business  practically  eliminated,  we  are  showing  about  a  7  per  cent 
increase  in  those  earnings,  comparing  a  6-cent  fare  this  year  with  a 
6-cent  fare  last  year. 


368       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

There  was  a  complaint  against  that  fare  in  the  city  of  Wilming- 
ton. The  commission  sustained  us,  and  the  court  sustained  the  com- 
mission. 

In  Pennsylvania,  in  the  Chester  end  of  the  system,  complaint  was 
filed  with  the  public  service  commission,  but  was  later  withdrawn. 

Commissioner  SWEET.  When  you  speak  of  the  G-cent  fare,  you  refer 
to  the  fare  within  the  corporate  limits? 

Mr.  TINGLEY.  Yes. 

Commissioner  SWEET.  Only? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  SWEET.  And  from  Wilmington  to  Chester 

Mr.  TINGLEY.  And  from  Wilmington  to  Chester  there  are  three 
zones  of  6  cents  each ;  and  from  Chester  to  Darby  there  are  two  zones 
of  6  cents  each :  and  there  are  collateral  lines  that  have  been  placed 
upon  the  same  basis. 

Commissioner  SWEET.  Yes. 

Mr.  WARREN.  Those  are  somewhat  like  what  Mr.  Ford  called  the 
New  England  old-fashioned  zone? 

Mr.  TINGLEY.  Yes.     Those  zones  are  about  3  miles  long. 

Mr.  WARREN.  And  that  system  you  did  not  change? 

Mr.  TINGLEY.  We  did  not  change  that  system. 

Mr.  WARREN.  As  I  understand  it,  that  6-cent  fare  has  been  in  effect, 
how  long,  Mr.  Tingley? 

Mr.  TINGLEY.  Since  June,  1918. 

Mr.  WARREN.  And  you  show  an  increase  in  revenue  much  in  excess 
of  the  theoretical  increase  in  rates? 

Mr.  TINGLEY.  More  than  double. 

Mr.  WARREN.  During  the  war  period? 

Mr.  TINGLEY.  Yes,  sir. 

Mr.  WARREN.  And  now  this  year,  with  the  restoration  of  normal 
traffic  conditions,  you  show  an  increase  of 

Mr.  TINGLEY.  About  7  per  cent. 

Mr.  WARREN.  Over  last  year  ? 

Mr.  TINGLEY.  Yes. 

Mr.  WARREN.  Over  the  war  period? 

Mr.  TINGLEY.  Yes. 

Mr.  WARREN.  I  suppose,  of  course,  you  are  pretty  well  satisfied 
with  the  increase,  which  has  not  affected  your  traffic? 

Mr.  TINGLEY.  Yes,  sir;  absolutely. 

Commissioner  MEEKER.  Of  course,  you  can  not  tell  what  the  traffic 
would  have  been  if  you  had  still  the  5-cent  fare? 

Mr.  WARREN.  If  we  could  hold  all  of  the  traffic  and  get  a  6  or 
7-cent  fare,  we  would  be  reasonably  satisfied. 

Commissioner  BEALL.  Is  not  that  a  section — through  Chester  and 
that  territory — where  people  are  compelled  to  ride  more  than  usual  ? 

Mr.  TINGLEF.  I  would  not  say  more  than  usual ;  no,  sir. 

Commissioner  BEALL.  It  seems  so  to  me.  I  know  that  section,  and 
you  have  long  stretches  there. 

Mr.  TINGLEY.  It  is  a  long  stretch.  It  is  6  miles  from  the  city  line 
of  Philadelphia  to  the  center  of  Chester. 

Commissioner  BEALL.  But  the  distribution  is  such  between  the 
factories  and  the  residential  sections  that  I  think  that  more  than 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       369 

ordinarily  people  are  compelled  to  ride.  Does  not  that  in  part  ac- 
count for 

Mr.  TINGLEY.  That  would  account  for  the  great  increase  during 
the  war  period. 

Commissioner  BEALL.  If  the  city  there  was  round  in  shape,  and 
the  residences  radiated  out  from  it,  it  would  not  be  so  good  ? 

Mr.  TIXGLEY.  That  was  true  all  during  the  war  period,  because 
many  of  the  employees  of  the  Baldwin  Locomotive  Works  and  the 
Remington  Arms  Co.  lived  in  Philadelphia  and  rode  down.  In 
fact,  the  travel  there  was  so  enormous  that  the  Government  spent 
over  $1,000,000  in  building  a  second  track  on  that  Darby  pike,  and 
we  made  no  protect  against  the  jitneys  which  Avere  simply  flooding 

the  pike,  because  we  simply  could  not  handle  the  people  that  were 

&    • 
ottering. 

Commissioner  BEALL.  Is  not  your  situation  there  a  little  more  fa- 
vorable than  the  average  situation? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  BEALL.  With  a  similar  population.  That  is  the 
point  I  wanted  to  bring  out. 

Mr.  TIXGLEY.  But  now  the  Remington  Arms  Co.  is  closed  down 
entirely.  I  do  not  think  there  is  anybody  in  there  but  a  fewr  clerks 
and  storekeepers  who  are  supervising  the  removal  of  the  machinery 
and  the  necessary  guards  to  protect  the  plant. 

In  Wilmington,  there  is  a  different  situation.  Their  industries 
are  right  plumb  in  the  city. 

Commissioner  SWEET.  The  shipbuilding  industry,  is  it  not? 

Mr.  TixGLEr.  Yes;  and  that  work  is  going  on,  although  not  at  the 
speed  that  it  was  during  the  war. 

Commissioner  SWEET.  No. 

Mr.  TIXGLEY.  Of  course,  the  Pusery  &  Jones  people  have  been  in 
financial  difficulty  and  have  had  to  curtail  their  activities  con- 
siderably. 

Now,  taking  the  Altoona  situation.    In  April,  1917 

Commissioner  SWEET.  Before  taking  up  that  situation,  let  me  ask 
you  this  one  question  in  regard  to  the  Wilmington  and  Chester  sec- 
tion: How  do  you  account  for  the  fact  that  your  earnings  this  year, 
under  the  apparently  adverse  conditions,  are  better  than  they  were 
last  year  under  such  favorable  conditions? 

Mr.  TIXGLEY.  Well,  the  community  is  prosperous.  The  working- 
man  is  receiving  the  highest  wage  he  ever  received  in  his  life,  and 
he  is  perfectly  willing  to  spend  it. 

Commissioner  SWEET.  There  are  not  so  many  people  to  ride? 

Mr.  TIXGLEY.  No. 

Commissioner  SWEET.  How  about  the  jitneys?  Have  they  gone 
out  of  business? 

Mr.  TIXOLEY.  The  jitneys  have  gone  out  of  business.  They  disap- 
peared with  the  signing  of  the  armistice. 

Commissioner  SWEET.  So  that  you  are  getting  now  the  business 
that  they  were  doing? 

Mr.  TIXGLEY.  Yes,  sir. 

Commissioner  MEEKER.  Did  I  understand  you  to  say  that  your 
traffic  this  year  is  7  per  cent  greater  than  it  was  last  year? 

Mr.  TIXGLEY.  Yes,  sir. 


370       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  MEEKER.  Under  the  war  conditions? 

Mr.  TINGLEF.  Yes,  sir. 

Commissioner  MEEKER.  And  last  year  there  was  an  increase  of 
40  or  50  per  cent  over  the  preceding  year  ? 

Mr.  TINGLEY.  From  30  to  45  per  cent. 

Commissioner  MEEKER.  From  30  to  45  per  cent? 

Mr.  TINGLEY.  Yes;  it  fluctuates. 

Commissioner  SWEET.  In  gross  income? 

Mr.  TINGLEY.  In  gross  income. 

Mr.  WARREN.  Not  in  traffic? 

Mr.  TINGLEY.  Not  in  traffic.  In  gross  income.  It  would  have 
indicated,  for  a  20  per  cent  increase  in  rates,  anywhere  from  12  to 
18  per  cent  increase  in  traffic.  With  your  normal  increase  running 
from  about  5  to  7  per  cent,  it  meant  a  war  increase  of  from  5  to  12 
per  cent.  I  am  talking  in  v&ry  rough,  round  figures  because  I  had 
not  expected  to  go  on  the  stand,  and  I  am  talking  purely  from 
memory,  and  my  percentages  may  vary  1  or  2  per  cent  in  either 
direction. 

Commissioner  SWEET.  Well,  the  fare  last  year  and  the  fare  this 
year 

Mr.  TINGLEY.  Are  6  cents  in  each  case. 

Commissioner  SWEET.  They  were  the  same? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  GADSDEN.  Mr.  Tingley,  what  has  been  the  history 
of  the  net? 

Mr.  TINGLEY.  The  history  of  the  net  is  that  it  is  very  much  smaller. 

Commissioner  GADSDEN.  Explain  that  to  the  commission.  I  want 
to  understand  it  myself.  You  have  had  some  very  substantial  in- 
crease in  business.  Give  us  the  history  of  your  net  results. 

Mr.  TINGLEY.  In  1917,  conductors  and  motormen  on  those  lines 
were  receiving,  as  I  recall  it,  a  maximum  of  30  cents  an  hour.  To-day, 
they  are  receiving  48  cents  an  hour,  and  all  other  labor  has  been  in- 
creased proportionately. 

The  cost  of  coal  at  the  power  plant  has  more  than  doubled;  and 
its  having  been  a  war  situation — we  could  not  cheese-pare  on  main- 
tenance and  upkeep.  We  simply  had  to  do  everything  that  we  could 
to  get  the  material  to  do  it  with.  We  have  not  been  able  to  curtail 
expenditures,  as  we  had,  for  example,  in  Scranton.  There,  we  were 
able  to  curtail  our  expenditures  in  the  way  of  maintenance  and  up- 
keep to  the  extent  of  $150,000  to  $200,000  a  year.  That  is  deferred 
maintenance.  It  is  accumulating,  and  it  has  to  be  taken  care  of, 
but  we  were  able  to  avoid  the  expenditure  of  this  money  in  these 
strenuous  times.  In  this  situation  we  were  not  able  to  do  that,  be- 
cause, instead  of  being  able  to  curtail  the  service,  we  had  to  mate- 
rially increase  the  service. 

Commissioner  GADSDEN.  So  that,  notwithstanding  the  increase  in 
business 

Mr.  TINOLEY.  The  net  results  were  very  materially  less.  I  would 
not  dare  give  you  the  figures,  because  I  do  not  carry  them  in  my  head. 

Mr.  WARREN.  In  other  words,  the  increase  was  all  needed  to  main- 
tain  

Mr.  TINGLEY.  More  than  all  of  it  was  needed.  In  1916,  the  street- 
railway  lines  earned  a  surplus.  In  1918,  they  earned  a  deficit. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      371 

Commissioner  GADSDEN.  Would  it  be  fair  to  say  then  that  the  pub- 
lic got  the  benefit  of  all  the  increase,  and  not  the  stockholders? 

Mr.  TIXGLEY.  The  public  and  employees  got  every  penny  of  the 
increase.  „ 

Commissioner  GADSDEN.  Yes;  I  mean  that. 

Mr.  TINGLEY.  And  then  a  little  ntore. 

Commissioner  MEEKER.  Mr.  Chairman,  I  would  like  if  Mr.  Tingley 
would  submit  a  brief  statement  summarizing  the  experience  of  the 
Wilmington  and  Chester  and  Darby  line,  giving  the  experience  with 
the  increase  in  fare  and  the  increase  in  wages  and  the  other  expenses. 

Mr.  TINGLEY.  I  will  be  glad  to  do  that,  sir. 

Mr.  WARREN.  Mr.  Tingley,  you  started  to  speak  of  the  Altoona 
situation. 

Mr-  TINGLEY.  The  Altoona  situation,  again,  was  affected  by  the 
war  situation,  Altoona  being  the  great  repair  and  manufacturing 
shops  of  the  Pennsylvania  Railroad;  and  due  to  the  demands  of 
the  railroad  they  were  unusually  active,  working,  as  a  matter  of  fact, 
throughout  1916  and  1917  in  three  8-hour  shifts — continuous  opera- 
tion. In  April,  1917,  we  did  away  with  the  tickets,  which  thereto- 
fore had  been  sold  in  large  quantities,  good  for  a  5-cent  fare,  at  a 
rate  of  4  cents.  There  was  no  protest,  and  no  diminution  in  riding. 
We  kept  right  on  the  abnormal  growth,  because  riding  had  begun  to 
increase.  The  curve  kept  ascending. 

In  April,  1918,  we  increased  the  fare  from  5  to  6  cents;  and  the 
increases  have  averaged  and  are  averaging  right  up  to  the  present 
time  from  30  to  35  per  cent  over  the  flat  5-cent  fare  of  last  year.  So 
that  the  theoretical  increase  of  20  per  cent  has  practically  all  been 
saved,  and  that  is  notwithstanding  the  fact  that  since  the  armistice 
was  signed  the  activities  in  the  shops  have  been  curtailed.  I  do  not 
know  just  what  they  are  doing  at  the  moment,  but  for  quite  awhile 
they  were  only  working  in  two  8-hour  shifts,  instead  of  three. 

Commissioner  SWEET.  How  do  you  account  for  that,  Mr.  Tingley  ? 
How  do  you  account  for  it? 

Mr.  TINGLEY.  Enormous  earnings.  The  men  in  those  shops  have 
more  money  than  they  ever  dreamed  of  having.  Some  of  those 
men,  under  General  Order  No.  27,  received  as  high  as  $1,000  in 
back  pay. 

Commissioner  SWEET.  Then  it  would  indicate  an  increase  in  the 
riding  habit  ? 

Mr.  TINGLEY.  Yes.    They  have  money,  and  they  are  spending  it. 

Mr.  WARREN.  Is  it  not  true,  Mr.  Tingley,  that  if  the  present  scale 
of  wages  general  in  the  industry  is  maintained,  people  will  feel 
better  able  to  ride  and  pay  higher  rates  of  fare  than  they  did  in  the 
time  of  the  old  5-cent  fare? 

Mr.  TINGLEY.  Unquestionably.  For  example,  we  have  a  very  beau- 
tiful park  located  about  3  miles  out  of  the  city,  and  on  the  Fourth 
of  July  we  hauled  more  people  out  to  that  park  than  had  ever  been 
taken  there  in  the  history  of  the  road. 

The  CHAIRMAN.  What  success  did  you  have  with  the  5-cent  fare 
prior  to  1917? 

Mr.  TINGLEY.  Well,  that  has  always  been  a  substantial,  profitable 
property. 

The  CHAIRMAN.  And  the  difficulty  which  now  confronts  you  is  duo 
wholly  to  war  conditions? 


372       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  TINGLEY.  Absolutely,  sir;  wholly.  Well,  I  would  not  say  to 
the  war  conditions,  but  wholly  due  to  the  increase  in  wages  and  ma- 
terial which,  of  course— 

The  CHAIRMAN.  Which,  of  course,  would  not  have  come  without 
the  European  war? 

Mr.  TIXGLEY.  Well,  they  were  coming  before  the  war  came,  sir. 
The  war  has  simply  hastened  it  and  aggravated  it.  Wages  were 
rising,  and  rising  steadily,  and  have  for  the  last  20  years. 

Commissioner  SWEET.  Can  you  tell  us  what  the  relation  is  be- 
tween the  increase  in  earnings  and  the  increase  in  expenses  on  the 
Altoona  road? 

Mr.  TINGLEY.  I  would  not  want  to  do  that  from  memory;  no,  sir. 
I  will  be  glad  to  submit  it. 

Commissioner  SWEET.  If  it  would  not  be  improper  for  you  to. give 
that  information,  I  think  we  would  be  glad  to  have  it. 

Mr.  TINGLEY.  It  is  a  matter  of  public  record,  and  I  will  be  glad  to 
submit  it. 

Commissioner  SWEET.  All  right.    Thank  you,  sir. 

Commissioner  GADSDEN.  Mr.  Tingley,  the  figures  that  you  have 
given  for  these  various  properties  would  seem  to  indicate  that  the 
income  of  that  class  of  the  population  which  is  particularly  given  to 
car  riding  has  been  proportionately  increased? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  GADSDEN.  So  as  to  justify  and  encourage  them  to 
ride  more,  has  it  not? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  GADSDEN.  It  would  seem  to  carry  with  it,  as  a  logi- 
cal sequence,  that  they  should  be  willing  to  pay  more  ? 

Mr.  TINGLEY.  I  would  think  so. 

Commissioner  GADSDEN.  In  other  words,  it  would  seem  to  indicate 
that  the  car-riding  class  of  the  community  has  profited  to  a  greater 
degree  than  any  other  class,  in  the  increase  in  wages;  is  that  your 
observation  ? 

Mr.  TINGLEY.  That  is  my  observation.  And  in  the  places  where 
they  have,  unless  the  opposition  has  been  stirred  up  politically, 
there  has  been  no  opposition. 

Now,  there  is  not  the  slightest  semblance  of  opposition  from  any- 
one in  the  city  of  Altoona  to  that  increase  in  rates.  We  operate  also 
an  interurban  line  there,  and  there  was  a  complaint  from  a  borough 
on  the  interurban  line — not  against  the  6-cent  fare,  but  it  was  a 
repetition  of  a  complaint  which  the  commission  decided  10  years 
ago  nearly,  that  that  borough  was  discriminated  against,  because  it 
paid  3  cents  to  get  to  Altoona,  when  the  borough  on  the  other  side 
only  paid  2  cents. 

The  CHAIRMAN.  How  many  years  had  that  company  been  profit- 
ably operating  under  a  5-cent  fare? 

Mr.  TINGLEY.  Well,  of  course,  sir,  it  had  a  very  heavy  percentage 
of  4-cent  fares  prior  to  April,  1917.  Oh,  that  road  was  built — 
well,  as  a  matter  of  fact,  the  lines  in  the  city  of  Altoona  were  origi- 
nally a  horse  railroad.  They  were  electrified,  I  think,  in  about  1893. 
The  interurban  lines  were  built  about  the  same  time,  and  they  have 
always  shown  a  reasonable  return.  They  have  never  paid 

The  CHAIRMAN.  What  dividends  had  you  been  paying,  upon  the 
average  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    373 

Mr.  TINGLED  Why,  I  would  say — and,  again,  I  am  speaking  from 
memory — it  would  average  about  somewhere  between  6  and  7  per 
cent. 

Commissioner  SWEET.  On  the  common  stock? 

Mr.  TINGLEY.  There  is  only  one  class  of  stock. 

The  CHAIRMAN.  Did  you  also  lay  up  a  surplus? 

Mr.  TINGLEY.  We  had  some  surplus ;  yes,  sir. 

The  CHAIRMAN.  What  was  the  extent  of  that? 

Mr.  TINGLEY.  I  could  not  answer  that  offhand,  sir. 

The  CHAIRMAN.  Did  you  likewise  set  aside  a  depreciation  fund? 

Mr!  TINGLEY.  Yes,  sir. 

The  CHAIRMAN.  Have  you  made  a  reasonable  effort  to  protect  that 
situation  and  take  care  of  this  large  increase  in  operating  costs? 

Mr.  TINGLEY.  That  road,  sir,  has  the  reputation  of  being  one  of 
the  best-managed  roads  in  the  State  of  Pennsylvania;  so  much  so 
that  when  the  property  over  in  Johnstown,  about  40  miles  away,  got 
into  trouble,  the  citizens  and  stockholders  there  came  over  and  asked 
us  if  we  would  not  come  down  to  Johnstown  and  straighten  them  out. 

The  CHAIRMAN.  Have  you  given  any  consideration  to  the  use  of 
the  one-man  car? 

Mr.  TINGLEY.  Yes,  sir ;  we  have.  There  are  two  or  three  questions 
involved  in  the  one-man  car.  We  have  not  felt  that  it  solved  all  of 
pur  questions.  In  the  first  place,  for  a  company  of  that  size,  it  would 
involve  a  very  considerable  expenditure  of  money  to  scrap  rolling 
stock  in  thoroughly  good  operating  condition  and  replace  it  with 
new  rolling  stock.  In  the  second  place,  Altoona  is  a  mountain  town. 

The  CHAIRMAN.  What  is  that? 

Mr.  TINGLED.  A  mountain  town,  with  very  severe  grades.  And.  I 
am  not  yet  satisfied  in  my  own  mind  as  to  the  advisability  of  operat- 
ing a  car  with  one  man  only  on  it  under  those  circumstances. 

Commissioner  SWEET.  What  kind  of  power  do  you  use  there? 

Mr.  TINGLEY.  Overhead  trolley. 

Commissioner  SWEET.  I  mean  how  is  the  power  generated — water 
power  of  coal  ? 

Mr.  TINGLEY.  Oh,  coal.  There  is  no  water  power  in  that  part  of 
the  State. 

Commissioner  SWEET.  You  get  your  coal  cheaper  than  they  do  in 
most  places;  do  you  not? 

Mr.  TINGLEY.  Coal  is  cheap;  yes,  sir. 

Commissioner  SWEET.  What  kind  of  coal  do  you  use — anthracite? 

Mr.  TINGLEY.  Bituminous. 

Commissioner  SWEET.  Is  that  purchased  in  the  immediate 
vicinity? 

Mr.  TINGLEY.  Yes,  sir;  within  15  miles  of  the  power  plant. 

Commissioner  SWEET.  How  do  your  prices  compare  with  your 
prices  in  Wilmington? 

Mr.  TINGLEY.  Well,  I  think  the  difference  in  price  between  Altoona 
and  Wilmington  is  about  $2. 

The  CHAIRMAN.  Did  you  have  to  make  a  substantial  reduction  in 
the  operating  cost  before  it  made  you  able  to  reduce  your  rates? 

Mr.  TINGLEY.  Yes,  sir. 

The  CHAIRMAN.  What  has  been  your  percentage  increase  in  your 
operating  costs  since  the  war? 

Mr.  TINGLEY.  I  could  not  answer  that  offhand,  sir. 


374       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

The  CHAIRMAN.  Have  you  substantially  the  same  number  of 
employees  ?. 

Mr.  TINGLEY.  Or  more.  There  has  been  no  radical  change  in  the 
number  of  employees  in  the  car  service.  Of  course,  during  the  war 
period  there  was  a  shortage  of  labor,  and  their  shop  force  and  track 
force  were  somewhat  depleted,  and  the  extra  list  was  somewhat 
depleted,  but  that  is  coming  back  again. 

The  CHAIRMAN.  These  rates  were  allowed  by  the  Public  Service 
Commission  of  Pennsylvania? 

Mr.  TINGLEY,  Yes,  sir.  That  is,  they  went  into  force  automatically, 
as  there  was  no  protest. 

The  CHAIRMAN.  Have  any  petitions  been  filed  with  that  commis- 
sion asking  for  a  reduction  of  those  charges? 

Mr.  TINGLEY.  No,  sir;  the  community  is  entirely  satisfied  with  it. 

The  CHAIRMAN.  Do  you  feel  that  you  could  continue  with  these 
charges  a  rather  indefinite  period  without  any  public  protest? 

Mr.  TINGLEY.  I  do;  yes,  sir. 

Mr.  WARREN.  May  I  interrupt  just  a  minute,  Mr.  Chairman,  to 
say  that  before  you  came  in  Mr.  Tingley  explained  the  situation 
there,  and  I  think  it  might  be  of  interest  to  you  to  turn  briefly 
to  it 

The  CHAIRMAN.  Well,  I  will  read  the  record.  I  would  not  ask 
him  to  repeat  it. 

Can  you  conveniently  file  with  us  a  statement  of  your  operating 
sheets  for  the  years  1918,  1917,  and  1916? 

Mr.  TINGLEY.  Yes,  sir. 

The  CHAIRMAN.  And  with  that  a  statement  showing  the  increase 
in  dollars  in  the  wage  account,  for  fuel,  material  and  supplies. 

Mr.  TINGLEY.  That  latter  is  rather  a  large  order,  sir. 

The  CHAIRMAN.  Is  it?  I  supposed  that  you  were  so  much  inter- 
ested in  that  that  you  had  it  all  at  your  fingers'  ends. 

Mr.  TINGLEY.  Well,  to  describe  it  in  that  fashion. 

The  CHAIRMAN.  I  do  not  want  you  to  go  into  too  much  detail,  but 
I  think  it  would  be  helpful  to  this  commission  if  you  had  some  con- 
crete figures  on  that  question.  It  is  one  thing  to  make  a  statement 
that  there  has  been  a  large  increase  in  the  cost  of  wages,  materials, 
supplies  and  fuel,  and  another  thing  to  have  the  figures  to  back  it 
up.  I  think  it  would  be  well  for  you  to  give  some  attention  to  that, 
Mr.  Warren. 

Commissioner  SWEET.  Is  the  Altoona  Co.  paying  legitimate  ex- 
penses now  and  any  more  than  that? 

Mr.  TINGLEY.  In  1918,  it  earned  a  small  surplus — a  very  small 
surplus.  That  was  due  almost  entirely,  as  I  recall  the  figures,  to  the 
fact  that  it  leases  and  operates  the  electric-lighting  plant -in  the 
borough  of  Tyrone,  which  had  a  net  earning  of  about  $30,000. 

Mr.  WARREN.  Do  you  mean  to  say  a  surplus  after  paying 
tliiadends? 

Mr.  TINGLEY.  No,  sir. 

Mr.  WARREN.  A  surplus  over  fixed  charges? 

Mr.  TINGLEY.  A  surplus  over  fixed  charges. 

Commissioner  SWEET.  That  was  the  combined  property? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  SWEET.  The  lighting  property  would  be  somewhat 
more  profitable? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      375 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  SWEET.  Than  the  traction  property? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  GADSDEN.  Mr.  Tingley,  will  you  give  the  commis- 
sion some  idea  of  the  increase  in  the  freight  rate  on  coal,  we  will  say, 
put  on  by  the  Government? 

Mr.  TINGLEY.  I  could  not  give  you  that  offhand,  Mr.  Gadsden. 

Commissioner  GADSDEN.  You  could  not  ? 

Mr.  TINGLEY.  No. 

The  CHAIRMAN.  In  your  experience,  do  you  feel  that  your  com- 
pany could  get  along  all  right  under  the  commission  form  of  regu- 
lation, where  that  body  has  the  power  to  fix  just  and  reasonable  rates, 
according  to  the  operating  conditions? 

Mr.  TINGLEY.  That  would  depend,  sir.  I  will  answer  you  in  this 
fashion:  Under  the  Pennsylvania  law  and  under  the  New  Jersey 
law,  with  one  slight  modification,  yes,  if  you  could  persuade  those 
bodies  to  act  with  reasonable  promptness. 

The  CHAIRMAN.  You  have  difficulty-in  getting  prompt  action  from 
your  commissions? 

Mr.  TINGLEY.  The  Pennsylvania  Commission  has  no  power  to  sus- 
pend a  rate  until  after  a  complaint  and  hearing,  or  upon  its  own 
motion  and  hearing,  and  consequently  the  rate  may  become  effective 
in  30  days  after  you  file  it.  In  New  Jersey  the  commission  has  the 
power,  and  has  exercised  it  very  freely,  to  suspend  the  rates  for  120 
days.  The  result  is  that  the  commission  was  small  until  increased  by 
the  last  session  of  the  legislature — only  three  members,  and  it  was 
increased  to  five— and  the  calendar  was  crowded,  and  it  took  you 
anywhere  from  six  to  nine  months  to  get  a  decision.  In  the  mean- 
time the  patient  died. 

The  CHAIRMAN.  Well,  did  the  patient  die  in  New  Jersey  ? 

Mr.  TINGLEY.  Well,  I  have  in  mind  two  with  which  I  am  con- 
nected which  would  have  died  if  the  holding  company  had  not  gone 
down  into  its  surplus  account  to  the  extent  of  three  or  four  hundred- 
dollars  and  put  it  out  to  take  care  of  it.  If  they  had  been  inde- 
pendently operated  properties,  they  would  have  been  in  the  hands 
of  a  receiver  within  60  days  of  the  application  to  the  commission  for 
relief. 

The  CHAIRMAN.  But  your  experience  in  Pennsylvania  has  not  been 
unsatisfactory. 

Mr.  TINGLEY.  No,  sir.  I  think  the  Pennsylvania  law  is  as  nearly 
a  just  and  equitable  law  as  can  be  drawn  to  both  the  companies  and 
the  public,  with  possibly  the  exception,  from  the  public  point  of 
view,  that  their  power  over  security  issues  is  limited. 

The  CHAIRMAN.  Is  your  criticism  of  the  New  Jersey  Commission 
based  upon  its  judgment  in  passing  upon  rate  questions  or  simphT  on 
its  delay  in  making  an  order? 

Mr.  TINGLEY.  Its  delay  in  making  an  order. 

Commissioner  SWEET.  The  only  very  important  difference,  I  take1 
it,  is  that  in  New  Jersey  the  raise  is  not  made  pending  an  investi- 
gation and  decision. 

Mr.  TINGLEY.  Yes. 

Commissioner  SWEET.  Whereas  in  Pennsylvania  it  is? 

Mr.  TINGLEY.  Yes,  sir.  That,  I  think  you  will  appreciate  there,  is 
the  just  process,  because  the  commission  can,  on  complaint,  say  to 


376       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

the  railroad  company,  "  You  must  issue  rebate  slips  for  this";  to  the 
electric  light  and  power  company,  "  You  must  stamp  your  bills  to 
the  effect  that  if  this  rate  is  approved  you  will  refund  it,"  and  so  on ; 
and  the  consumer  is  not  hurt.  The  consumer  can  get  his,  but  if  the 
rate  is  suspended,  even  though  it  be  declared  just  and  reasonable  at 
the  end  of  the  hearing,  six  months  hence,  the  company  has  lost  that 
money  and  can  never  get  it  back. 

The  CHAIRMAN.  There  has  been  a  good  deal  of  discussion  here 
about  the  cost-of -service  plan.  In  your  judgment,  which  system 
will  give  the  greatest  public  satisfaction — the  increase  of  a  rate  auto- 
matically under  your  cost-of -service  plan  as  your  costs  of  operation 
go  up,  or  an  increase  ordered  by  a  State  commission  after  a  hearing 
in  which  parties  can  be  heard? 

Mr.  TINGLEY.  I  have  had  no  experience,  sir,  with  the  cost-service 
plan.  I  can  only  look  at  it  from  the  outside,  and  as  I  have  seen  it 
working  in  Cleveland  from  the  outside,  it  seems  to  me  that  the  com- 
pany there  does  not  get  the  full  benefit  that  they  were  supposed  to 
get.  In  other  words,  the  tendency  of  the  council  that  regulates  this 
reserve  fund  is  to  keep  down  the  allowance  for  maintenance  and  other 
purposes  and  to  avoid  an  increase  in  fare  which  wTould  be  unaccept- 
able to  the  public. 

The  CHAIRMAN.  Of  course,  you  are  answering  these  questions  from 
the  standpoint  of  the  company? 

Mr.  TINGLEY.  Yes. 

The  CHAIRMAN.  I  am  trying  to  get  your  point  of  view  from  the 
public  standpoint. 

Mr.  TINGLEY.  Well,  I  do  not  believe,  sir,  it  will  make  very  much 
difference  from  the  public  standpoint,  one  way  or  the  other.  Human 
nature  is  very  much  the  same  everywhere.  We  are  all  a  little  bit 
selfish,  and  we  want  to  get  what  we  get  as  cheaply  as  we  can  get  it; 
and  the  public  will  feel  temporarily — it  won't  last  long — that  some 
injustice  has  been  done  when  the  fare  is  increased,  no  matter  whether 
•it  comes  through  automatic  ordinance  or  through  an  order  of  the 
commission. 

The  CHAIRMAN.  Is  it  not  pretty  well  understood  that  our  people 
feel  very  much  better  if  they  get  something  off  their  stomachs  once 
in  a  while  through  a  proper  tribunal? 

Mr.  TINGLEY.  Oh,  sure.  I  think  there  is  no  question  about  that, 
and  I  believe  thoroughly  that  in  those  hearings  they  should  be  given 
the  greatest  possible  latitude  to  ease  their  minds. 

The  CHAIRMAN.  But  there  are  no  hearings  provided  for  in  the  cost- 
of-service  plan. 

Mr.  TINGLEY.  No. 

Commissioner  GADSDEN.  Mr.  Tingley,  is  it  not  a  fair  criticism  of 
the  commission  regulation  that  there  is  delay  in  arriving  at  the 
results  ? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  GADSDEN.  And  while  the  opportunity  is  being  af- 
forded the  public  to  get  something  off  its  stomach,  the  railway  is 
paying  for  it? 

Mr.  TINGLEY.  Yes,  sir;  that  is  true. 

Commissioner  GADSDEN.  Now,  if  that  could  be  remedied,  a  very 
serious  criticism  of  commission  regulation,  so  far  as  the  railways  are 
concerned,  would  be  disposed  of,  would  it  not? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      377 

Mr.  TINGLEY.  You  can  escape  that  by  applying  the  provisions  of 
the  Pennsylvania  law  to  the  case. 

The  CHAIRMAN.  That  is  the  law  in  quite  a  number  of  States. 

Mr.  TINGLEY.  Yes. 

Commissioner  MEEKER.  Is  your  criticism  of  the  Cleveland  so-called 
service-at-cost  plan  that  it  is  not  a  service-at-cost  plan?  If  it  does 
not  provide  enough  for  depreciation,  it  certainly  is  not  a  service-at- 
cost  plan. 

Mr.  TINGLEY.  No,  sir;  and  it  is  exceedingly  difficult  to  get  a  true 
service-at-cost  plan,  because  there  always  will  be  that  tendency  of  the 
city  council  to  keep  down  the  allowance  for  these  expenditures. 

Commissioner  MEEKER.  Do  you  think  that 

Mr.  TINGLEY.  You  see  now,  under  the  Cleveland  plan,  they  are 
allowed  so  much  a  car-mile  for  maintenance.  Now,  they  have  always 
starved  the  company  on  that  maintenance  item.  If  you  take  their 
annual  report  from  the  time  of  the  inception  up  to  the  present  time 
and  compare  their  actual  expenditures  with  the  allowances  made  for 
those  purposes,  you  will  find  that  in  practically  every  year  since  that 
thing  was  instituted,  the  actual  expenditures  have  exceeded  the  allow- 
ances by  the  council. 

Commissioner  MEEKER.  Do  you  think  that  is  likely  to  be  the  case  in 
any  service-at-cost  plan- that  might  be  devised? 

Mr.  TINGLEY.  Well,  there  is  the  most  notable  example  of  the 
service-at-cost  plan,  and  that  is  the  way  it  has  worked  there. 

Commissioner  MEEKER.  Do  you  think  commission  control  as  under 
the  Pennsylvania  law  would  be  a  satisfactory  service-at-cost  plan  so 
far  as  you  know  it? 

Mr.  TINGLEY.  I  do,  sir ;  for  the  simple  reason  that  in  the  service-at- 
cost  plan  the  city  council  or  the  city  authorities,  by  whatever  name 
they  are  called,  are  prosecuting  attorney,  judge,  and  jury;  and  the 
three  offices  are  incompatible. 

Mr.  WARREN.  Mr.  Tingley,  would  not  that  objection  be  lessened  in 
case  of  the  administration  of  the  service-at-cost  by  the  State  commis- 
sion in  cases  where  the  State  commission  has  sufficient  jurisdiction,  to 
change  this  so-called  contractual  franchise? 

Mr.  TINGLEY.  I  do;  yes,  sir. 

Mr.  WARREN.  They  would  be  apt  to  administer  it  without  that 
selfish  purpose. 

Mr.  TINGLEY.  Yes,  sir. 

Mr.  WARREN.  That  is  bound  to  influence  the  other  party  to  the 
contract. 

Mr.  TINGLEY.  Yes,  sir ;  but  then  you  are  back  to  State-commission 
regulation. 

Mr.  WARREN.  Yes ;  but  there  might  be  a  State-commission  regula- 
tion with  an  automatic  sliding  scale. 

Mr.  TINGLEY.  Yes,  sir. 

Mr.  WARREN.  When  once  approved  by  the  State  commission 

Mr.  TINGLEY.  If  that  is  workable  under  the  State  laws.  I  am  not 
a  lawyer,  but  I  am  advised  that  that  could  not  be  done,  for  example, 
in  the  State  of  Pennsylvania. 

Mr.  WARREN.  You  mean  without  more  legislation. 

Mr.  TINGLEY.  Without  more  legislation. 

Mr.  WARREN.  But  I  rather  think  this  commission  is  proceeding 
somewhat  on  the  theory — we  certainly  are — that  legislative  obstacles 
160043°— 20 25 


378       PROCEEDINGS  OP  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

should  not  interfere  with  our  consideration  of  the  best  method,  be- 
cause these  contractual  franchises  are  an  absolute  obstacle  to  the  serv- 
ice-at-cost  plan,  unless  the  parties  are  willing  to  change  it. 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  SWEET.  How  many  members  are  there  on  the  Penn- 
sylvania Commission  ? 

Mr.  TINGLEY.  Seven. 

Commissioner  SWEET.  How  are  they  appointed? 

Mr.  TINGLEY.    By  the  governor,  for  10  years. 

Commissioner  SWEET.  Is  there  any  provision  in  regard  to  their  not 
all  being  from  one  political  party  ? 

Mr.  TINGLEY.  No,  sir. 

Commissioner  SWEET.  How  do  they  stand  at  the  present  time? 

Mr.  TINGLEY.  At  the  present  time  there  are,  I  think,  six  Republi- 
cans and  one  Democrat. 

Commissioner  SWEET.  The  Democrat  leavens  the  whole  lump,  I 
suppose?  [Laughter.] 

Commissioner  MEEKER.  It  is  hard  to  find  a  Democrat  in  Pennsyl- 
vania. 

Mr.  WARREN.  It  sounds  like  a  Pennsylvania  situation,  doesn't  it? 

Mr.  TINGLEY.  As  near  as  I  can  recall,  there  always  has  been  one 
Democrat  on  the  commission. 

The  CHAIRMAN.  I  was  wondering  if  they  would  be  as  liberal  as 
that  down  in  Texas. 

Commissioner  SWEET.  How  many  members  are  there  on  the  New 
Jersey  Commission? 

Mr.  TINGLEY.  Five. 

Commissioner  SWEET.  And  what  is  the  situation  there? 

Mr.  TINGLEY.  Well,  at  the  present  time,  there  are  four  Republicans 
and  one  Democrat.  Up  until  a  year  ago,  when  the  commission  was 
composed  of  three,  there  were  two  Democrats  and  one  Republican. 

Commissioner  SWEET.  You  say  their  calendar  was  somewhat  over- 
loaded, so  that  they  did  not  get  on  with  their  work. 

Mr.  TINGLEY.  Yes,  sir.  Of  course,  the  New  Jersey  Commission  has 
rather  an  insufficient  appropriation  for  their  work. 

Commissioner  SWEET.  Has  there  been  any  difficulty  of  that  kind  in 
Pennsylvania  ? 

Mr.  TINGLEY.  No,  sir. 

Commissioner  SWEET.  The  Pennsylvania  system  has  a  tendency  to 
give  the  commission  less  work,  does  it  not  ? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  SWEET.  Than  the  New  Jersey  system  ? 

Mr.  TINGLEY.  Yes,  sir;  and  then,  further,  the  commission,  of 
course,  practically  never  sits  in  a  body  except  to  hear  argument. 
Your  case  is  never  argued  at  the  time  you  take  the  testimony.  The 
commission  sits  once  a  month  to  hear  argument.  In  Pennsylvania, 
the  taking  of  testimony  is  apportioned  among  the  seven  commis- 
sioners ;  and  if  the  calendar  gets  a  little  congested  they  can  deputize 
their  attorney  or  one  of  their  engineers  as  an  examiner  to  take  the 
testimony;  and  you  can  have  8  or  10  hearings  going  on  at  once. 
That  is  not  true  in  New  Jersey.  They  usually  sit  as  a  body.  Occa- 
sionally they  will  split  up  and  sit  one  commissioner  at  a  time. 

Commissioner  SWEET.  The  Pennsylvania  Commission  keeps  pretty 
well  up  with  its  work ;  does  it  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".      379 

Mr.  TINGLEY.  Yes. 

Commissioner  SWEET.  So  that  the  delays  which  you  regard  as  a 
serious  objection  do  not  occur  so  much  in  Pennsylvania? 

Mr.  TINGLEY.  No,  sir. 

The  CHAIRMAN.  New  Jersey  is  so  small  that  if  you  divide  the 
commission  up  and  have  hearings  in  different  parts  of  the  State,  it 
might  find  itself  outside  of  its  own  domain.  [Laughter.] 

Mr.  TINGLEY.  New  Jersey  is  peculiar  in  this  situation,  too — that 
they  have  three  great  big  companies:  the  Public  Service  Railway, 
the  Public  Service  Electric,  and  the  Public  Service  Gas,  which  over- 
shadow, outside  of  the  steam  roads,  everything  else  in  the  State. 
While  there  are  many  small  companies  serving  them,  still  those  three 
big  companies  overshadow  all  the  rest  of  the  State,  and  naturally 
get  a  larger  percentage  of  the  commission's  time  than  some  of  the 
others  think  they  are  entitled  to. 

Commissioner  SWEET.  Are  you  going  to  tell  us  about  some  of  those 
other  properties  that  you  are  connected  with  ? 

Mr.  TINGLEY.  Well,  I  could  go  on  for  a  considerable  length  of 
time,  if  it  is  interesting,  sir. 

.Mr.  WARREN.  I  would  like  to  ask  you  to  go  on  at  least  to  one  mat- 
ter— as  to  the  increase  of  rates,  and  the  effect  of  the  increase  of  rates 
on  the  traffic.  You  have  mentioned  three  now.  Altoona  was  the  last 
one. 

Mr.  TINGLEY.  Yes. 

Mr.  WARREN.  If  there  are  other  instances  where  you  have  in- 
creased rates,  I  would  like  to  have  you  inform  the  commission  as  to 
the  effect  of  them. 

Mr.  TINGLEY.  In  all  of  the  other  properties,  the  increases  in  rates 
have  not  produced  any  diminution  in  travel,  with  the  exception  of 
Joliet.  111.  There  the  city  itself  is  small.  On  the  interurban  line 
extending  from  Joliet  to  Chicago,  the  increase  to  the  maximum  rate 
of  2  cents  a  mile  under  tickets  and  3  cents  a  mile  under  cash,  has  not 
produced  much  if  any  effect  on  the  travel.  We  have  continued  to  get 
our  normal  increase.  In  the  city  of  Joliet,  however,  where  we  went 
from  a  5-cent  fare  to  a  7-cent  fare,  owing  to  the  smallness  of  the  city 
and  the  infrequent  service  which  the  population  would  sustain,  there 
has  been  a  substantial  diminution  in  travel.  Now,  just  what  the 
percentage  was  I  could  not  tell  you  offhand.  It  has  produced  an  in- 
crease in  gross  revenue,  but  not  at  all  proportional  to  the  increase  in 
rate. 

Commissioner  SWEET.  In  Joliet,  was  there  a  popular  dissatisfac- 
tion? 

Mr.  TINGLEY.  No,  sir.  There  was  some.  There  was  an  effort  on 
the  part  of  one  or  two  labor  agitators  to  make  it  a  political  issue,  and 
they  took  a  complaint  to  the  public-service  commission,  and  the  rate 
was  sustained.  Then  they  took  it  into  the  mayoralty  election,  and 
they  were  defeated ;  and  since  then  we  have  heard  nothing  from  it. 

Commissioner  SWEET.  But  even  there,  as  I  understand  it,  there 
has  been  an  increase  in  revenue. 

Mr.  TINGLEY.  There  has  been  an  increase  in  revenue,  though  not 
nearly  proportional  to  the  increase  in  rate. 

Mr.  WAKREN.  But  in  each  instance,  the  increase  in  revenue  has 
been 

Mr.  TINGLEY.  Has  been  proportional  to  the  increase  in  rate. 


380       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     < 

Mr.  WARREN.  So  you  would  say  to  the  commission,  would  you,  Mr. 
Tingley — because  I  think  this  is  an  important  point  in  the  investiga- 
tion, at  least  it  seems  so  to  me — that  the  increase  in  rates  is  justified 
as  a  measure  by  which  to  increase  the  revenue  of  these  companies 
which  are  so  hard  pressed  now? 

Mr.  TINGLEY.  I  think  it  is  the  only  quick  remedy  that  can  be  had, 
sir. 

Mr.  WARREN.  And  you  have  confidence  in  its  effectiveness? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  MEEKER.  Can  you  file  a  statement  covering  that 
Joliet  situation? 

Mr.  TINGLEY.  Yes,  sir. 

Commissioner  MEEKER.  Along  with  the  other  statements. 

Mr.  TINGLEY.  Yes,  sir. 

Mr.  WARREN.  I  am  very  much  obliged  to  you,  Mr.  Tingley,  and 
unless  the  commission  has  some  further  questions,  I  will  ask  that  you 
be  excused. 

The  CHAIRMAN.  You  are  excused. 

Mr.  WARREN.  Mr.  Barry,  will  you  take  the  stand,  please? 

STATEMENT  OF  MR.  JOHN  G.  BARRY. 

The  CHAIRMAN.  What  is  your  name,  sir? 

Mr.  BARRY.  John  G.  Barry,  sales  manager  of  the  General  Electric 
Co.,  Schenectady,  N.  Y. 

Mr.  WARREN.  This  next  witness.  Mr.  Chairman — the  next  three 
witnesses  will  be  manufacturers,  producing  supplies  very  largely  used 
by  street  railways.  I  have  no  objection  to  your  asking  them  any 
questions  to  aid  in  your  investigation,  but  I  am  merely  calling  them 
for  the  purpose  of  giving  you  information  as  to  the  increased  cost 
of  such  supplies,  and  not  as  experts  on  street-railway  methods. 

The  CHAIRMAN.  We  are  very  glad  to  have  that  testimony. 

Mr.  WARREN.  Mr.  Barry,  your  full  name? 

Mr.  BARRY.  John  G.  Barry. 

The  CHAIRMAN.  And  what  is  your  occupation? 

Mr.  BARRY.  I  am  sales  manager  for  the  General  Electric  Co.,  with 
headquarters  at  Schenectady,  N.  Y. 

Mr.  WARREN.  And  you  have  been  with  that  company  how  long? 

Mr.  BARRY.  Twenty-eight  years. 

Mr.  WARREN.  In  your  position,  is  it  a  part  of  your  duty  to  fix  all 
prices  of  railway  supplies — electrical  supplies — produced  by  the  Gen- 
eral Electric  Co.? 

Mr.  BARRY.  That  is  a  portion  of  my  duty. 

Mr.  WARREN.  You  are  familiar  with  the  course  of  the  prices  of 
electrical  supplies  purchased  by  electric  railways,  are  you? 

Mr.  BARRY.  Yes. 

Mr.  WARREN.  I  think  perhaps,  Mr.  Barry,  you  should  go  right  on 
without  my  questioning  you  and  tell  the  commission  how  the  chief 
articles  are  sold,  what  the  prices  are,  and  how  they  have  increased. 

Mr.  BARRY.  Yes;  I  have  prepared  certain  data  here  on  railway 
motors  and  car  equipment.  By  "  car  equipment "  I  mean  all  of  the 
electrical  material  that  is  used  on  a  car,  including  motors,  controllers, 
trolleys,  cable,  circuit-breakers,  and  so  forth. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      381 

In  1914,  the  selling  price  of  a  four-motor  equipment,  consisting  of 
25-horsepower  motors,  with  control,  was  $1,450.  In  1915,  it  was  the 
same.  In  1916,  it  had  increased  to  $1,850,  or  an  increase  of  28  per 
cent.  In  1917,  the  price  was  $2,275,  an  increase  of  57  per  cent  over 
the  1915  price.  In  1918,  the  selling  price  was  $2,900,  or  an  increase 
of  200  per  cent  over  the  1914-15  price. 

Mr.  WARREN.  That  blue  print  shows  that  in  graphic  form. 

Mr.  BARRY.  This  shows  the  increase  from  year  to  year,  but  I  have 
read  it  off  there  from  the  statement,  showing  the  selling  prices.  This 
shows  it  in  percentages. 

Mr.  WARREN*  I  just  handed  the  commission  my  copy  of  the  blue 
print. 

Mr.  BARRY.  Yes.  Now,  that  particular  size  of  equipment  is  in- 
dicative of  the  prices  of  all  car  equipment  of  all  sizes. 

Mr.  WARREN.  I  notice  that  your  figure  for  1919  shows  a  slight 
drop,  Mr.  Barry. 

Mr.  BARRY.  Yes.  In  the  early  part  of  1919,  there  was  a  drop  in 
prices  of  certain  materials  entering  into  the  manufacture  of  this 
equipment,  such  as  copper.  Copper  dropped  from  23  cents,  which 
was  the  price  established  by  the  Government  during  the  war  time — 
that  is,  the  latter  part  of  the  war  period.  Copper  dropped  to  be- 
tween 15  and  16  cents  during  February  or  March  of  this  year.  Steel 
also  went  off  some.  That  caused  a  reduction  in  the  prices  of  car 
equipment,  although  not  anything  like  the  increases  that  had  gone 
into  effect,  because  there  was  no  reduction — in  fact,  there  was  an  in- 
crease in  labor  costs. 

Now,  at  the  present  time,  it  looks  to  me  like  prices  will  be  some- 
what increased,  due  for  one  reason  to  the  fact  that  copper  has  now 
^one  back  from  between  15  and  16  cents  to  22  to  23  cents,  and  copper 
is  one  of  the  largest  raw  materials  that  we  use  in  electrical  apparatus. 
I  am  informed  that  copper  has  taken  a  very  rapid  and  sudden 
advance  in  the  past  10  days,  going  from  18  to  22*5  or  23  cents. 

The  CHAIRMAN.  What  has  become  of  this  vast  quantity  of  copper 
which  the  Government  had  in  store,  Mr.  Barry? 

Mr.  BARRY.  Well,  I  understand  that  a  great  deal  of  that  copper 
has  already  been  purchased — oh,  that  the  Government  had  in  store, 
you  mean? 

The  CHAIRMAN.  Yes. 

Mr.  BARRY.  Well,  I  don't  know,  I  am  sure;  but  it  was  reported  in 
the  early  part  of  this  week  that  there  was  a  very  large  amount  of 
copper  on  hand  in  the  hands  of  producers,  but  I  believe  that  a  very 
considerable  portion  of  that  has  already  been  bought  for  foreign  use. 

Mr.  WARREN.  In  other  words,  the  market  has  caught  up  with  that 
temporary  drop,  due  to  the  armistice,  in  the  price  of  copper,  entirely? 

Mr.  BARRY.  Yes;  copper,  as  I  say,  is  back  to  the  figure  where  it  was 
put  by  the  Government  at  the  time  the  armistice  was  declared. 

Mr.  WARREN.  Is  there  anything  further  that  you  want  to  say  on 
that? 

Mr.  BARRY.  Now,  the  next  article  that  I  have  prepared  data  upon 
is  the  electric  motors  used  by  quite  a  number  of  electric  railways, 
particularly  interurban  lines;  and  these  have  increased  from  the 
1914  basis  100  per  cent.  In  1915,  they  increased  70  per  cent.  In 
1916,  the  increase  was  31  per  cent,  and  in  1917,  the  increase  was  82 
per  cent.  In  1918,  it  was  101  per  cent;  and  in  1919  it  is  97  per  cent. 


382       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  CHAIRMAN.  What  was  the  first  figure  there  ? 

Mr.  BARRY.  In  1914  the  price  was  $13,700. 

The  CHAIRMAN.  $15,700? 

Mr.  BARRY.  $13,700. 

Commissioner  SWEET.  And  it  is  what  now  ? 

Mr.  BARRY.  $27,000 ;  that  is,  for  a  locomotive  of  50-ton  weight. 

Mr.  WARREN.  There  is  a  slight  drop,  I  notice  there,  in  1919,  as 
there  was  in  the  case  of  car  equipment.  Is  that  probably  due  to  the 
same  thing? 

Mr.  BARRY.  On  all  of  this,  you  will  find  that  there  has  been  a  slight 
drop  in  the  first  few  months  of  1919.  That  is;  applicable  to  nil  elec- 
trical material,  I  think. 

Mr.  WARREN.  And  in  your  opinion,  it  is  only  temporar}'  ? 

Mr.  BARRY.  In  my  opinion,  it  is  only  temporary. 

The  CHAIRMAN.  Do  you  mean  by  that  that  these  high  costs  of 
locomotives  and  other  material  will  continue  for  a  long  period  of 
years  ? 

Mr.  BARRY.  Well,  I  could  not  say  for  a  long  period  of  years,  but 
they  will  continue,  in  my  judgment,  for  at  least  a  year.  They  will 
continue  while  materials  are  at  the  price  they  are  now  and  while 
labor  is  at  the  price  at  which  it  is  now,  and  I  do  not  look  for  any 
reduction  in  either. 

The  CHAIRMAN.  Within  a  year? 

'Mr.  BARRY.  No,  sir. 

Mr.  WARREN.  During  the  year? 

Mr.  BARRY.  Within  a  year. 

Mr.  WARREN.  Within  a  year. 

The  CHAIRMAN.  Do  you  expect  a  falling  off  in  the  price  of  ma- 
terials and  labor  after  the  year  has  passed? 

Mr.  BARRY.  Well,  I  don't  know.  I  can  not  express  an  opinion  on 
that.  I  do  not  believe  labor  is  going  to  fall  off,  unless  the  cost  of 
living  falls  off  very  materially. 

Mr.  WARREN.  WTiat  is  your  next  item? 

Mr.  BARRY.  In  the  matter  of  power  apparatus,  the  electrical  com- 
panies furnished  a  large  number  of  rotary  converters  for  substation 
operation.  These  rotaries  have  increased  very  substantially,  but  not 
to  the  marked  extent  of  car  equipment.  This  data  shows  that  in 
1914 — we  have  taken  as  an  example  a  300-kilowatt  rotary  convert- 
er— our  selling  price  was  $2,350.  In  1915,  it  was  $2,400.  In  1916, 
it  was  $2,900.  In  1917,  it  was  $3,875.  And  in  1918,  it  Was  $4,225 ; 
and  that  price  practically  prevails  to-day — very  little  lower.  That 
means  an  increase  in  that  class  of  apparatus  of  79  per  cent  over  the 
1914  prices. 

Commissioner  MEEKER.  How  do  you  explain  the  lower  rate  of  in- 
crease of  this  type  of  apparatus  as  .compared  with  the  other? 

Mr.  BARRY.  The  explanation  of  that,  Mr.  Commissioner,  I  think, 
is  this,  that  in  certain  classes  of  apparatus  while,  of  course,  the  basic 
prices  of  materials — copper,  and  so  forth — would  be  the  same,  the 
percentage  of  labor  as  applied  to  certain  classes  of  apparatus  is  higher 
or  lower  than  in  other  classes.  The  percentage  of  labor  involved  in 
the  building  of  a  railway  rotary  converter,  the  percentage  of  the 
total  cost,  is  less  than  it  would  be  in  the  case  of  a  railway  motor. 

Commissioner  MEEKER.  Then  it  is  the  labor  costs  that  make  the 
greater  increase  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      383 

Mr.  BARRY.  Yes.  The  railway  companies,  of  course — many  of 
them — have  got  to  generate  their  own  current.  We  furnish  a  ma- 
chine known  as  a  steam  turbine  generator.  The  prices  of  this  class 
of  product  have  been  increased,  in  the  case  of  a  1,000-kilowatt  tur- 
bine, from  a  price  of  $12,750  in  1914  to  $24,000  in  1918.  The  price 
is  $23,000  to-day. 

Commissioner  MEEKER.  Do  these  prices  represent  the  actual  selling 
price,  or  are  they  the  list  prices  ? 

Mr.  BARRY.  Oh, 'these  are 

Commissioner  MEEKER.  Are  these  prices  subject  to  discounts  ? 

Mr.  BARRY.  Xo ;  these  are  actual  net  prices  on  this  particular  piece 
of  apparatus. 

Commissioner  MEEKER.  And  that  is  true  of  all  of  your  prices? 

Mr.  BARRY.  That  is  true  of  all  of  these  prices. 

Commissioner  MEEKER.  So  the  discoimts  would  not  enter  into  it  to 
explain  any  of  the  difference  in  the  rate  of  increase  in  prices? 

Mr.  BARRY.  No;  these  are  all  net  prices  that  I  cite,  and  I  have 
taken  a  certain  specific  capacity  of  machine,  and  all  the  machines  are 
of  the  same  kind. 

On  motor  generator  sets,  which  are  also  used  to  a  considerable 
extent  by  railway  companies,  our  prices  increased  from  1914,  on  a, 
particular  machine,  costing  $3,600,  gradually  up  to  1919,  to  $6,200, 
or  72  per  cent. 

Commissioner  MEEKER.  May  I  suggest  that  it  would  help  us  in  in- 
terpreting these  graphs  that  you  put  in,  if  you  give  us  the  actual 
prices  as  well  as  the  percentages  ? 

Mr.  WARREN.  Yes.     Can  you  leave  your  copies? 

Mr.  BARRY.  Oh,  yes ;  I  will  leave  them. 

Mr.  WARREN.  I  was  following  your  testimony  with  this  copy. 

Commissioner  MEEKER.  As  I  understand  it,  we  have  the  percentage 
of  increase  here,  but  we  have  not  the  actual  prices  except  as  we  have 
written  them  off. 

Mr.  BARRY.  Here  is  the  explanation  of  each  one,  showing  the 
actual  amounts. 

Commissioner  SWEET.  Mr.  Barry.  I  suppose  it  is  none  of  our  busi- 
ness what  profit  the  General  Electric  Co.  makes  on  this  stuff,  but  if 
you  do  not  object  to  telling  us,  I  would  like  to  know  whether  the 
profit  has  been  substantially  the  same  during  this  period  from  1914 
to  1919. 

Mr.  BARRY.  I  can  assure  you  that  the  profits  have  not  been  any 
greater  during  the  war  period  than  they  were  during  the  previous 
years — that  is,  the  percentage  of  profit  obtained  by  us. 

Commissioner  SWEET.  In  the  profit  on  a  percentage  basis,  do  you 
mean  a  percentage  cast? 

Mr.  BARRY.  We  usually  figure  our  selling  price  on  a  certain  per- 
centage over  our  cost. 

Commissioner  SWEET.  Then  in  dollars  the  actual  profit  in  1919 
would  be  greater  on  some  of  this  material  than  it  would  be  on  the 
same  material  in  1914? 

Mr.  BARKF.  In  dollars,  the  profit  would  be  greater,  because  .your 
selling  price  has  been  increased.  If  you  sell  your  machine  in  1914 
for  $2,000.  you  get  a  certain  amount  of  profit. 

Commissioner  SWEET.  I  understand. 


384       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BARRY.  And  if  you  sell  it  in  1918 

Commissioner  SWEET.  You  would  get  the  same  percentage  of 
profit? 

Mr.  BARRY  (continuing).  The  same  percentage  of  profit  would 
apply. 

Commissioner  SWEET.  But  it  would  be  more  proportionately  in 
dollars  ? 

Mr.  BARRY.  Yes,  sir. 

Mr.  WARREN.  That  is,  I  suppose,  because  it  requires  much  more 
working  capital  tq  produce  it  ? 

Mr.  BARRY.  Yes,  it  does ;  and  the  volume  6£  business  has  dropped 
off  very  substantially.  While  you  get  more  profit  on  a  single  ma- 
chine, you  have  been  selling  a  great  many  less  machines. 

The  CHAIRMAN.  You  have  given  some  very  striking  figures  here, 
showing  the  increase  in  cost  of  machinery  and  so  forth,  during  the 
past  two.  years  particularly. 

Mr.  BARRY.  Yes. 

The  CHAIRMAN.  As  a  matter  of  fact,  have  you  sold  much  of  this 
equipment  to  the  utilities  during  this  period  ? 

Mr.  BARRY.  We  have  prepared  figures  along  this  line,  showing 
that  in  a  normal  year — and  I  mean  by  a  normal  year  1912,  1913,  and 
1914 — our  company's  business  with  the  railway  companies  aggre- 
gated from  eighteen  to  twenty  million  dollars  of  materials  and 
supply  parts.  During  the  years  1917  and  1918,  our  business  with 
the  railway  companies  amounted  to  approximately  $9,000,000  per 
year.  In  other  words,  it  was  cut  to  less  than  half  in  money  amount, 
but  due  to  these  increases  in  the  selling  price,  the  output  of  this 
class  of  apparatus  was  reduced  to  about  25  to  30  per  cent  of  our 
normal  sales. 

The  CHAIRMAN.  That  is  what  I  expected. 

Mr.  BARRY.  Now,  during  1917  and  1918,  whereas,  I  say  we  did 
business  up  to  about  $9,000,000,  a  considerable  amount  of  that  busi- 
ness was  financed  by  the  Emergency  Fleet  Corporation — where  equip- 
ment had  to  be  furnished  to  certain  roads.  A  good  example  is  the 
Philadelphia  Rapid  Transit  Co.  They  had  to  supply  about  125  or 
150  cars  additional  to  their  ordinary  equipment  to  supply  service  to 
the  Hog  Island  shipyard.  Now,  we  made  a  contract  with  the  Phila- 
delphia Rapid  Transit  Co.  for  that  equipment,  but  I  have  reason 
to  believe — in  fact,  I  am  sure — that  the  money  was  provided  by  the 
Emergency  Fleet  Corporation  on  some  basis  or  other.  That  is  true 
of  other  roads,  like  Baltimore,  the  Bay  State  road  of  Massachusetts, 
and  several  other  large  properties  that  have  to  serve  shipbuilding 
industries. 

The  CHAIRMAN.  Have  the  utilities  which  have  not  been  affected 
by  war  industries  purchased  much  equipment  during  the  last  two 
years? 

Mr.  BARRY.  They  have  not,  Mr.  Commissioner.  They  would  like 
to  purchase  equipment,  but  unfortunately,  they  are  not  in  a  position 
to  get  the  equipment.  Their  credit  is  gone. 

The  CHAIRMAN.  Are  there  many  orders  for  new  business  filed  by 
the  utilities  ? 

Mr.  BARRY.  There  are  orders  filed  by  certain  utilities.  Take  the 
Brooklyn  Rapid  Transit  Co.,  which  is  now  in  the  hands  of  a  receiver. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      385 

They  have  recently  ordered  quite  a  large  amount  of  motor  equip- 
ment but.  by  and  large,  the  business  is  very  poor. 

The  CHAIRMAN.  How  does  new  business  now  compare  with  the 
normal  period  for,  say,  the  first  six  months  of  this  year? 

Mr.  BARRY.  Our  business  for  the  first  six  months  of  this  year  is, 
I  should  say,  30  per  cent  of  our  normal  business — say,  during  the 
years  1913,  1914,  and  1915. 

Mr.  WARREN.  Are.  you  speaking  of  the  utility  business  or  all  of 
your  business? 

Mr.  BARRY.  No;  I  am  speaking  of  the  railway  business. 

Mr.  WARREN.  The  railway  business? 

Mr.  BARRY.  The  railway  business  alone.  You  were  speaking  of  the 
railway  business  or  the  general  business? 

The  CHAIRMAN.  I  was  speaking  of  your  general  business. 

Mr.  BARRY.  Oh,  the  general  business? 

The  CHAIRMAN.  That  is,  I  was  in  my  last  question. 

Mr.  BARRY.  Yes.  Well,  our  general  business  is  about  75  to  80  per 
cent  of  what  it  was  last  year. 

The  CHAIRMAN.  Well,  the  last  year  was  not  a  normal  year. 

Mr.  BARRY.  I  thought  you  asked  me  how  it  would  compare  with 
last  year. 

The  CHAIRMAN.  No;  I  asked  you  how  your  general  business  for 
the  first  six  months  of  this  year  v  ould  compare  with  the  same  period 
during  normal  years. 

Mr.  BARRY.  Our  business  for  the  first  six  months  of  this  year — our 
total  business — has  been  practically  normal. 

The  CHAIRMAN.  But  the  business  with  the  utilities  has  been  about 
30  per  cent  normal? 

Mr.  BARRY.  Thirty  per  cent. 

Now,  the  increase  is  due  mostly  to  industrial  plants.  Many  cen- 
tral-station plants  are  adding  to  their  equipment,  and  that  has  offset 
the  reduced  business  from  the  railway  companies. 

Mr.  WARREN.  Mr.  Barry,  right  in  that  connection  on  the  amount 
of  business  done  with  railway  companies — I  suppose  that  in  some 
cases  the  companies  had  stocked  up  to  a  greater  or  less  extent  to 
supply  their  needs  before  the  war,  had  they  not?  Such  things  as 
entered  into  their  operating  expenses,  they  would  carry  more  or  less 
of  on  hand;  would  they  not? 

Mr.  BARRY.  Well,  not  any  great  amount. 

Mr.  WARREN.  Not  any  great  amount? 

Mr.  BARRY.  No.  We  ordinarily  do  carry  a  considerable  stock  on 
hand,  but  in  1914 

Mr.  WARREN.  I  do  not  mean  that  you  were  stocked  up.  I  mean 
the  companies. 

Mr.  BARRY.  Oh,  the  railway  companies? 

Mr.  WARREN.  Yes. 

Mr.  BARRY.  Well,  the  railway  companies  previous  to  the  war 
period,  of  course,  did  keep  a  considerable  stock,  especially  of  supply 
parts  or  repair  parts. 

Mr.  WARREN.  So  that  during  the  last  two  or  three  years,  by  using 
what  they  had  on  hand  and  by  restricting  themselves  to  the  lowest 
point  in  what  they  did,  they  could  drift  along  on  these  small  pur- 
chases that  you  have  mentioned? 


386       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BARKY.  Yes.  Of  course,  they  have  been  buying  as  a  sort  of 
hand-to-mouth  proposition. 

Mr.  WARREN.  But  that  means  that,  sooner  or  later,  they  will  have 
to  buy  in  larger  quantities,  if  they  can  get  the  money  to  pay  for  it? 

Mr.  BARRY.  Yes;  or  else  break  down  the  railways,  I  imagine. 

Mr.  WARREN.  Yes. 

The  CHAIRMAN.  Perhaps  they  are  like  a  good  many  people — they 
are  waiting  for  prices  to  fall.  I  think  most  of  us  are  beginning  to 
think  that  it  is  not  worth  while  to  wait  much  longer. 

Mr.  BARRY.  I  think  for  the  first  three  months  of  this  year  it  was 
the  general  impression  of  all  purchasers  of  -large  apparatus,  by  and 
large,  outside  of  railways,  that  there  would  be  a  marked  reduction 
in  prices,  and  buying  was  held  off.  There  was  a  slight  reduction. 
I  think  it  is  the  opinion  of  the  trade  generally  that  there  will  not  be  a 
marked  reduction — that  prices,  instead  of  going  down,  will  likely 
go  up;  and,  therefore,  during  the  past  three  months,  business  has 
been  improving  very  substantially. 

Mr.  WARREN.  Have  you  some  other  items  there,  Mr.  Barry? 

Mr.  BARRY.  Yes;  I  have  some  data  on  supply  parts  which  railway 
companies  must  have.  They  can  probably  get  along  without  having 
to  buy  actually  entire  new  equipment  to  put  on  new  cars,  but  they 
must  have  certain  material — gears  and  pinions,  which  is  a  wearing 
article.  Our  prices  on  gears  and  pinions  have  increased  from  1914, 
when  the  gear  and  pinion  cost  $14,  to  $34.60  in  1918,  and  $31.82  in 
1919. 

Mr.  WARREN.  That  was  an  increase  of  how  much,  what  percentage  ? 

Mr.  BARRY.  That  was  a  total  increase  from  1914  to  the  present 
time  of  127  per  cent. 

Commissioner  MEEKER.  Do  the  labor  costs  enter  very  largely  into 
these  costs? 

Mr.  BARRY.  Xot  so  great  there.  That  is  largely  a  special  grade 
of  steel  used  in  a  railway  motor  and  pinion — a  special  high-grade 
steel. 

Commissioner  MEEKER.  I  am  interested  in  the  statement  you  made 
a  moment  ago  that  the  greater  increases  occurred  in  the  types  of 
apparatus  into  which  the  labor  cost  entered  most  largely.  Is  it 
your  experience  that  the  wages  of  labor  have  increased  to  a  greater 
extent  than  prices  of  materials? 

Mr.  BARRY.  I  should  say  that,  by  and  large,  the  increase  in  both 
has  been  approximately  100  per  cent. 

Commissioner  MEEKER.  It  would  seem  to  me,  if  that  is  the  case, 
that  your  explanation  of  your  answer  to  my  former  question  is 
hardly  correct. 

Mr.  BARRY.  As  applicable  to  this  gearing? 

Commissioner  MEEKER.  You  stated,  as  I  understood  it,  that  in 
those  types  of  equipment  and  apparatus  in  which  your  labor  enters 
most  largely,  the  increase  in  prices  had  been  greatest. 

Mr.  BARRY.  Yes. 

Commissioner  MEEKER.  Now,  if  labor  has  increased  at  about  the 
same  rate  as  the  cost  of  materials,  I  do  not  see  that  it  would  make 
any  difference. 

Mr.  BARRY.  Well,  I  tried  to  explain  that  in  certain  classes  of  ap- 
paratus, the  percentage  in  cost  of  labor  is  not  as  great.  That  is, 
you  do  not  have  to  perform  as  much  labor  on  certain  classes  of 


PROCEEDINGS  OF  FEDEBAL  ELECTRIC  EAILWAYS  COMMISSION".      387 

apparatus  as  you  do  on  other  classes.  For  example,  on  a  rotary 
converter,  which  involves  large  castings,  the  percentage  of  the  labor 
cost  of  that  rotary  converter  to  the  total  cost  of  the  rotary  converter 
is  considerably  less  than  would  be  the  percentage  of  labor  cost  to 
a  railway  motor,  which  involves  a  considerable  amount  of  hand 
work. 

Commissioner  MEEKER.  Yes.  Now,  if  the  cost  of  labor  has  in- 
creased 100  per  cent,  let  us  say,  and  the  cost  of  materials  has  in- 
creased 100  per  cent,  why  would  not  the  cost  of  both  t}rpes  of  appa- 
ratus increase  approximately  100  per  cent?  Instead  of  that,  in  one 
case  it  has  increased  100  per  cent  and  in  the  other  only  some  79  per 
cent. 

Mr.  BARRY.  Because  there  is  simply  not  as  much  labor  used  on  a 
large  machine  as  there  would  be  on  a  small  machine. 

Commissioner  MEEKER.  I  do  not  think  it  is  worth  while  pressing 
the  point  any  further.  I  did  not  quite  see,  if  the  rate  of  increase  is 
the  same  on  all  elements  entering  into  the  cost  of  the  final  product 
why  the  increase  would  not  be  the  same  in  each  case. 

Mr.  BARRY.  Suppose  you  had  a  machine 

Mr.  WARREN.  Does  the  overhead  expense  have  anything  to  do 
with  it?  How  is  the  overhead  figured? 

Mr.  BARRY.  The  overhead  expense  on  large  machinery  which  in- 
volves a  considerable  expense  in  tools  is  somewhat  greater  than  on 
small  stuff. 

Mr.  WARREN.  What  is  it  figured  on — labor  or  the  materials,  or 
both? 

Mr.  BARRY.  The  overhead  is  figured  on  labor. 

Mr.  WARREN.  So  that  in  any  item  where  labor  enters  less  into  the 
total  cost  the  overhead  would  be  less ;  would  it  not  ? 

Mr.  BARRY.  Yes;  that  would  apply  to  overhead;  the  percentage 
of  overhead  is  applied  only  on  direct  labor. 

Mr.  WARREN,  feo  if  you  had  something  that  was  largely  material 
and  only  to  a  small  extent  labor  that  you  applied  in  your  own  shop, 
then  the  overhead  on  that  particular  item  would  be  very  much  less  ? 

Mr.  BARRY.  It  would  be  correspondingly  reduced. 

Mr.  WARREN.  Does  that  explain  the  difference  somewhat,  Mr. 
Barry? 

Mr.  BARRY.  Yes ;  that  would  explain  it  to  a  certain  extent. 

Now,  on  what  we  term  overhead  line  materials — that  is,  hangers, 
and  so  forth,  that  are  furnished  to  railway  companies  for  their  over- 
head line — this  material  is  largely  composed  of  malleable  iron.  Mal- 
leable iron  took  a  tremendous  advance  during  the  war  period,  much 
more  so  than  about  any  other  product;  so  that  on  the  basis  of  mal- 
leable iron — 100  per  cent  in  1914 — it  has  run  up  to  350  per  cent  in 
1919. 

Transformers  used  with  substation  apparatus  have  increased  from 
100  per  cent  in  1914  to  178  per  cent  in  1918. 

Switchboards  have  increased  from  100  per  cent  to  182  per  cent, 
1914  to  1918. 

Commissioner  MEEKER.  That  is,  it  is  an  increase  of  82  per  cent? 

Mr.  BABRY.  Eighty-two  per  cent;  yes.  So  taking  all  of  those,  the 
average  cost  of  all  electrical  material  used  by  the  railroad  companies 
has  increased  from  1914  on  a  100  per  cent  basis  to  204  in  1918  and 
19T  per  cent  in  1919. 


388       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 


Commissioner  GADSDEN.  One  hundred  and  ninety-seven  per  cent  is 
the  average  increase? 

Mr.  BARRY.  Well,  97  per  cent  is  the  increase. 

Mr.  WARREN.  And  that  is  all  the  apparatus  you  have  referred  to? 

Mr.  BARRY.  That  I  have  previously  cited.  It  simply  throws  it 
into  an  average. 

Mr.  WARREN.  Can  you  leave  the  statements  with  the  figures  ac- 
companying those  blue  prints  with  the  commission  ? 

Mr.  BARRY.  Yes;  surely. 

The  statements  above  referred  to  are  as  follows : 

Average  cost  of  all  electrical  apparatus  and  supplies  used  &j/  electric  railways. 


Year. 

Per  cent. 

Year. 

Per  cent. 

1912  .                 

104 
101 
100 
104 

1916... 

130 
175 
204 
197 

1913                                   

1917  

1914                                

1918  

1915                 

1919  

Railway  switchboards. 

Year. 

Per  cent. 

Year. 

Per  cent. 

1912                                

100 
100 
100 
91 

1916... 

110 
146 
182 
172 

1913                   

1917  

1914                                   

1918... 

1915 

1919.. 

Transformers  for  rotary  converters. 

3  HR.,  60-100  Kva.,  11,000  volts. 


Year. 

Price. 

Percent. 

Year. 

Price. 

Percent. 

1912                          

$1,700 

121 

1916. 

$1  600 

114 

1913.                

1,600 

114 

1917  

2,000 

143 

1914 

1,400 

100 

1918... 

2  500 

178 

1915                                   .... 

1,550 

110 

1919  

2,400 

171 

Railway  rotary  converters. 

500  kw.,  1,200  rev.,  600  volts,  60  cycles. 


Year. 

Price. 

Percent. 

Year. 

Price. 

Per  cent. 

1912 

$2,325 

% 

1916.  . 

$2  900 

123 

1913                                 

2,375 

101 

1917  

3,875 

165 

1914 

2,350 

100 

1918. 

4  225 

179 

1915 

2,400 

102 

1919  

4,200 

177 

Railway  locomotives. 

(50-ton,  600  volts.) 


Year. 

Price. 

Per  cent. 

Year. 

Price. 

Per  cent. 

1912           

$14,000 

101 

1916  

18  000 

131 

1913  

13,000 

95 

1917  

25  000 

182 

1914  

13,700 

100 

1918  

27  500 

201 

1915  

16,000 

117 

1919     

27  000 

197 

PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      389 


Railway  car  equipments. 

(4-motor,  G.E.-258,  "K"  control.) 


Year. 

Price. 

Per  cent. 

Year. 

Price. 

Per  cent. 

1912 

|1,  475 

102 

1916... 

$1  850 

128 

1913                       

1,475 

102 

1917  

2  275 

157 

1914       • 

1  450 

100 

1918  

2  900 

200 

1915 

1,400 

97 

1919  

2  800 

19$ 

Railway  line  material,  round  top  hanger. 
(Price  per  100.) 


Year. 

Price. 

Per  cent. 

Year. 

Price. 

Per  cent. 

1912 

$22  50 

103 

1916  

823.40 

103 

1913        ... 

19.00 

87 

1917  

40.77 

183 

1914 

21  75 

100 

1918        

57  75 

266 

1915 

21.75 

100 

1919  

75.75 

350 

Malleable  iron  Sherardized  and  molded  compound.    No  copper. 

Railway  motor  gears  and  pinions. 
(Solid,  rolled,  grade  "M".) 


Year. 

Price. 

Per  cent. 

Year. 

Price. 

Per  cent. 

1912 

$14  87 

106 

1916  

$18  90 

135 

1913                                     

15.29 

109 

1917  

25  11 

179 

1914     

14.01 

100 

1918  

34.60 

247 

1915                                       ..   . 

15.16 

108 

1919  

31  82 

227 

Steam  turbines — Condensing  turbine  with  exciter. 
(1,000  k.w.,  3,600  rev.,  2,300  volts,  3-phase.) 


Year. 

Price. 

Per  cent. 

Year. 

Price. 

Per  cent. 

1912                            .... 

$13,000 

102 

1916... 

$15  500 

121 

1913       

13,000 

102 

1917  

20  000 

157 

1914               

12,750 

100 

1918  

24  200 

189 

1915     

13,000 

102 

1919  

23  000 

180 

Mr.  WARREN.  I  think  that  is  all,  unless  something  occurs  to  you, 
Mr.  Barry,  that  the  commission  ought  to  be  advised  upon. 

Mr.  BARRY.  I  might  say  that  the  General  Electric  Co.  are  operat- 
ing under  a  wage  scale  established  by  the  War  Labor  Board  in  July 
or  August  of  1918,  with  the  exception  that  some  increases  have  been 
put  into  effect  in  that  wage  scale  by  reducing  the  number  of  hours 
in  our  shops  from  50  hours  per  week  to  48  hours  per  week  and  mak- 
ing a  corresponding  increase  of  4  per  cent  in  the  wage  scale. 

The  CHAIRMAN.  Has  there  been  a  large  turnover  of  labor? 

Mr.  BARRY.  Our  turnover  during  the  war  period  was  very  large. 
We  were  employing  at  our  Schenectady  works  during  1918  approxi- 
mately 23,000  hanus.  A  considerable  portion  of  that  proved  to  be 
of  very  little  value  and  drifted  back  to  farms  or  other  occupations, 
and  we  are  now  operating  a  force  of  approximately  20,000.  We  are. 


390       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

operating  more  efficiently,  the  turnover  is  cut  down  very  materially, 
and  as  far  as  we  can  see  we  will  continue  to  operate  at  that  rate. 

Commissioner  GADSDEN.  Mr.  Barry,  from  the  standpoint  of  the 
General  Electric  Co.,  what  is  the  credit  of  the  electric  railways? 

Mr.  BARRY.  Well,  I  am  sorry  to  say,  Mr.  Gadsden,  that  the  credit 
of  electric  railways,  by  and  large,  is  in  very  poor  repute. 

Commissioner  GADSDEN.  These  electric  rail  ways  would  like  to  order 
a  good  many  of  these  apparatuses  from  you  if  you  would  sell  them 
to  them,  would  they  not? 

Mr.  BARRY.  Yes,  they  would;  particularly  if  they  can  get  long 
accommodation. 

Commissioner  GADSDEN.  They  are  trying  to  do  it  all  the  time,  are 
they  not? 

JJr.  BARRY.  Yes. 

Commissioner  GADSDEN.  Are  you  accommodating  them  ? 

Mr.  BARRY.  We  are  accommodating  them  to  this  extent:  In  the 
sale  particularly  of  equipment  for  the  one-man-operated  safety 
car,  we  furnish  equipments  to  railway  companies  and  have  made — 
we  will  sell  the  equipment  for  25  per  cent  cash,  the  balance  of  75 
per  cent  in  car-trust  certificates  running  over  a  period  of  from  1 
month  to  36  months. 

Commissioner  MEEKER.  What  kind  of  certificate? 

Mr.  BARRY.  Car-trust  certificate.  We  can  ordinarily  turn  a  total 
of  50  per  cent  of  the  car-trust  certificates  over  to  certain  banking 
connections  who  will  take  it  as  a  banking  proposition.  That  leaves 
25  per  cent  of  car-trust  certificates  on  our  hands  on  which  we  take 
more  or  less  chance  of  being  paid  for.  That  is  the  way  we  are  now 
furnishing  a  considerable  amount  of  car  equipment  to  railway 
companies. 

Commissioner  GADSDEN.  Therefore  your  credit  in  the  first  instance 
is  practically  limited  to  equipment  for  one-man  cars  ? 

Mr.  BARRY.  Yes;  in  most  cases.  Of  course,  there  are  cases — from 
the  Brooklyn  Rapid  Transit  Co.,  which  is  in  receivers'  hands,  we 
have  recently  received  orders  for  $600,000  or  $700,000  worth  of  busi- 
ness, and  the  cash  is  provided — it  is  assured. 

Commissioner  GADSDEN.  You  get  receiver's  certificates? 

Mr.  BARRY.  No ;  we  get  cash  in  that  case. 

Commissioner  GADSDEN.  But  I  am  talking  about  the  general  run  of 
the  electric-railway  industry.  What  has  become  of  their  credit  with 
you? 

Mr.  BARRY.  I  am  sorry  to  say  it  is  very  poor. 

Commissioner  GADSDEN.  Does  the  General  Electric  Co.  feel  that 
there  is  hope  in  this  one-man  car  that  they  are  willing  to  extend  the 
credit  on  it? 

Mr.  BARRY.  Well,  we  are  willing  to  extend  credit  by  the  amount  I 
have  stated. 

Commissioner  GADSDEN.  By  practically  taking  a  mortgage  on  the 
equipment  ? 

Mr.  BARRY.  Yes. 

Mr.  WARREN.  The  reason  you  can  do  that  is  that  they  can  give  you 
a  mortgage  on  the  new  equipment,  but  can  not  give  you  a  mortgage 
on  old  equipment  which  is  already  mortgaged;  is  not  that  it?  These 
car-trust  equipment  certificates  are  put  on  when  the  one-man  cars  are 
purchased,  are  they  not  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      391 

Mr.  BARRY.  We  get  these  certificates  when  the  car  is  delivered. 

Mr.  WARREN.  Exactly.  In  other  words,  it  is  delivered  to  the  trolley 
company  subject  to  the  mortgage  represented  by  certificates? 

Mr.  BARRY.  Oh,  yes;  and  of  course,  if  the  railway  company  should 
be  in  default  in  any  of  their  payments  we  have  a  lien  on  the  property 
and  can  take  the  car. 

Mr.  WARREN.  That  is  all,  unless  the  commission  has  some  questions. 

The  CHAIRMAN.  How  long  has  that  certificate  plan  been  in  op- 
eration ? 

Mr.  BARRY.  We  instituted  that  about  three  or  four  months  ago. 

Mr.  WARREN.  As  a  means  of  helping  them  out  ? 

Mr.  BARRY.  Yes. 

Commissioner  GADSDEN.  From  the  standpoint  of  a  salesman,  that  is 
just  about  the  last  ditch  in  credit ;  is  it  not? 

Mr.  BARRY.  Why,  yes,  Mr.  Gadsden.  We  are  in  the  manufactur- 
ing business;  we  are  not  in  the  banking  business.  We,  in  common 
with  most  manufacturers,  want  to  get  our  money  when  the  stuff  is 
delivered,  but  in  order  to  help  out  the  situation  and  in  order  to  get  a 
certain  amount  of  business  in  our  own  shops  for  this  class  of  material, 
we  have  been  willing  to  extend  this  accommodation. 

The  CHAIRMAN.  You  feel  that  the  hazard  in  the  utility  business 
is  greater  than  it  has  been  before  ? 

Mr.  BARRY.  Oh,  in  the  railway  business ;  yes,  sir. 

The  CHAIRMAN.  Are  you  increasing  the  price  of  the  articles  you 
sell  to  these  utilities  on  account  of  the  increasing  hazard  ? 

Mr.  BARRY.  No ;  we  do  not  take  any  unreasonable  business  hazard. 
If  we  do  not  feel  reasonably  sure  that  our  money  will  be  forthcoming 
from  a  railway  property  we  do  not  want  to  sell  the  stuff,  so  we  make 
no  increase  in  profit  on  account  of  a  railway  company's  wanting  to 
buy  the  stuff. 

Mr.  WARREN.  That  is  one  of  the  reasons  the  sales  have  fallen  off, 
I  suppose,  is  it  not — that  you  do  not  sell  where  you  have  to  take  an 
undue  hazard? 

Mr.  BARRY.  Yes;  but  I  think  the  main  reason  is  that  the  railway 
companies  simply  can  not  see  their  way  clear  to  pay  for  apparatus 
on  a  cash  basis  or  most  any  other  basis. 

Mr.  WARREN.  They  can  not  see  their  way  clear  to  pay  for  it  and 
even  if  they  tried  to  make  you  think  they  could,  you  can  not  see  your 
way  clear? 

Mr.  BARRY.  No:  unless  we  could  obtain  some  data  that  would  war- 
rant our  furnishing  it. 

Commissioner  SWEET.  Is  this  car  trust  a  sort  of  mortgage  on  the 
property  ? 

Mr.  BARRY.  Yes;  it  is  a  first  lien  on  that  particular  equipment. 

Commissioner  SWEET.  The  title  passes  from  the  General  Electric 
Co.  to  the  purchaser,  does  it  ? 

Mr.  WARREN.  The  title  usually  passes  to  a  trustee. 

Mr.  BARRY.  The  title  is  held  by  a  trustee  until  paid  for. 

Mr.  WARREN.  It  is  roally  a  conditional  sale,  as  I  understand  it. 

Commissioner  SWEET.  The  legal  effect  would  be  similar  to  selling  a 
piano,  for  instance,  and  retaining  the  title  in  the  manufacturer  until 
it  is  paid  for. 

Mr.  BARRY.  Yes. 


392       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Except  in  these  cases  it  is  usually  put  in  a  trustee  to 
pass  to  the  carrier  when  it  is  all  paid  for. 

Mr.  BARRY.  Yes. 

The  CHAIRMAN.  Under  this  plan  of  certificates  what  part  of  the 
purchase  price  must  be  paid  on  delivery  ? 

Mr.  BARRY.  Twenty -five  per  cent. 

Mr.  WARREN.  And  the  rest  is  payable  in  installments  ? 

Mr.  BARRY.  The  rest  is  paid  in  installments  running  from  1  month 
to  36  months. 

Commissioned  SWEET.  Is  the  custom  of  selling  the  same?  Do  you 
send  salesmen  out,  or  do  you  go  and  visit  these  companies  as  in  the 
years  past,  or  do  the  orders  come  in 

Mr.  BARRY.  Oh,  no. 

Commissioner  SWEET.  Or  both  ways  ? 

Mr.  BARRY.  Orders  do  not  come  in.    You  have  to  go  after  orders. 

Commissioner  SWEET.  Very  well 

Mr.  BARRY.  Our  methods  of  sale  are  .these:  We  have  eight  large 
district  offices  in  the  country  with  a  certain  amount  of  material  stored 
at  these  places,  Chicago,  Boston,  New  York 

Commissioner  SWEET.  For  ready  delivery  ? 

Mr<  BARRY.  Philadelphia  and  San  Francisco.  There  are  eight  of 
what  we  term  district  offices.  Under  those  district  offices — we  will 
take  San  Francisco  for  example — we  have  a  district  office  in  San 
Francisco  with  a  certain  amount  of  stock  there.  We  have  a  local 
office  in  Portland,  Oreg.,  one  in  Seattle,  one  in  Spokane,  one  in 
Los  Angeles,  one  in  Phoenix,  Ariz.,  which  report  to  that  district 
office  and  are  directed  by  the  management  of  the  district  office.  And 
all  these  district  offices  or  local  offices  will  have  a  corps  of  engineers 
and  salesmen  who  are  meeting  the  trade  all  the  time  and  trying  to 
get  their  business.  The  day  of  sitting  down  and  waiting  until 
orders  are  delivered  to  you  by  mail  has  gone. 

Commissioner  SWEET.  Have  you  charge  of  these  various  district 
offices  or  their  management? 

Mr.  BARRY.  I  have  charge  of  it  in  so  far  as  establishing  selling 
prices  and  method  of  sales  are  concerned.  Of  course  they  have 
executive  charge  of  their  men — 

Commissioner  SWEET.  The  detail  work? 

Mr.  BARRY.  The  detail  work. 

Commissioner  SWEET.  Have  your  duties  brought  you  in  contact 
with  the  street-railway  companies  and  their  managers  in  the  past? 

Mr.  BARRY.  Oh.  yes;  I  frequently  meet  them. 

Commissioner  SWEET.  Have  you  any  distinct  idea  now  as  to 
what  is  the  matter  with  the  street-railway  companies  and  what 
would  be  the  best  remedy  for  it? 

Mr.  BARRY.  Well,  my  motion  is  this:  Of  course  the  street  rail- 
ways are  reduced  to  the  deplorable  condition  in  which  they  are  now, 
due  to  the  tremendous  increases  they  have  had  to  pay  for  their  ma- 
terials, the  tremendous  increase  they  have  had  to  pay  for  wages 
and  taxes  and— 

Commissioner  SWEET.  Without  a  proportionate  increase  in  income  ? 

Mr.  BARRY.  Without  the  income.  Now  while  I  do  not  know  very 
much  about  the  financial  or  operating  conditions  of  electric  rail- 
ways outside  of  unfortunately  investing  some  of  my  personal  money, 
in  electric  railways,  my  notion  is  that  the  electric-railway  companies 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      393 

must  be  given  immediate  relief  by  an  increase  in  fare  or  many  more 
of  them  are  going  to  the  wall.  I  think  that  if  it  were  possible  to 
give  the  electric  railways  an  increase  to  6  cents  or  7  cents  or  what- 
ever is  considered  reasonable,  that  that  is  the  only  method  of  saving 
many  electric  railway  companies  from  bankruptcy. 

Commissioner  SWEET.  Is  it  your  judgment  that  there  are  many 
economies  that  can  be  effected  in  the  conduct  of  the  street-railway 
business  ?  • 

Mr.  BARRY.  I  do  not  think  I  am  qualified  to  answer  that.  I  do 
not  know  enough  about  the  operation  of  railways  to  give  an  intelli- 
gent opinion  on  that. 

(Witness  excused.) 

STATEMENT  OF  ME.  M.  B.  LAMBERT. 

Mr.  WARREN.  Will  you  state  your  full  name  ? 

Mr.  LAMBERT.  Miles  B.  Lambert. 

Mr.  WARREN.  Your  occupation? 

Mr.  LAMBERT.  Assistant  manager  of  the  railway  department, 
Westinghouse  Electric  Manufacturing  Co. 

Mr.  WARREN.  How  long  have  you  been  in  that  business  ? 

Mr.  LAMBERT.  Nineteen  years,  about. 

Mr.  WARREN.  Does  that  bring  you  in  touch  with  the  sale  and 
prices  of  equipment  and  apparatus  for  electric  railways? 

Mr.  LAMBERT.  That  is  part  of  my  duty — to  have  charge  of  the 
prices  of  electric-railway  equipment  and  locomotives. 

Mr.  WARREN.  Will  you,  in  your  own  way,  make  a  statement  from 
such  data  as  you  have  prepared  for  the  commission,  touching  the 
cost  of  electric  apparatus  and  equipment  handled  by  the  Westing- 
house  Co.? 

Mr.  LAMBERT.  Yes,  sir.  The  Westinghouse  Co.  is  engaged  in  the 
manufacture  and  sale  of  electric  street  railways  and  railway  motors 
and  car  equipment  to  electric  street  railways — controlling  apparatus, 
locomotives,  rotary  converters,  transformers,  switchboards,  motor- 
generator  sets,  turbines,  and  other  electrical  apparatus. 

Our  prewar  average  gross  sales  of  this  apparatus  and  equip- 
ment ran  from  $7,000,000  to  $15,000,000  a  year;  it  varies  that  way, 
within  the  United  States,  our  customers  being  generally  throughout 
the  United  States.  During  the  past  two  years  it  has  ranged  from 
30  to  40  per  cent  of  this  normal. 

Beginning  with  about  the  middle  of  the  year  1915  there  has  been 
a  steady  and  steadily  accelerating  increase  in  the  prices  of  the 
various  equipment  and  apparatus  until  at  the  present  time,  as 
compared  with  the  middle  of  the  year  1915,  the  percentages  are 
about  as  follows: 

Railway  motors  and  car  equipment,  approximately  87  per  cent 
increase. 

Locomotives,  approximately  87  per  cent  increase. 

Rotary  converters,  approximately  75  per  cent  increase. 

Transformers,  approximately  70  per  cent  increase. 

Switchboards,  100  per  cent. 

Motor-generator  sets,  95  per  cent. 

Turbines,  100  per  cent. 

100643*— 20 20 


394       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

I  have  given  some  thought  to  the  future  conditions  and  prices, 
but  can  see  nothing  at  present  which  would  indicate  to  me  a  sub- 
stantial reduction  in  prices  other  than  the  slight  reduction  that  has 
taken  place  during  the  past  two  months. 

These  increases  in  our  prices  as  manufacturers  and  producers  of 
electrical  equipment  have  been  caused  by  our  increased  cost  of  raw 
material,  manufacturing  machinery,  and  labor.  In  comparing  the 
present  time  with  the  latter  part  of  the  year  1914  and  the  first  half 
of  1915,  I  find  that  machine  tools  which  wre  must  purchase  to  manu- 
facture our  apparatus  and  equipment  show  an  increase  of  approxi- 
mately 100  per  cent.  The  raw  materials  have  shown  great  increases, 
as  shown  by  the  following  tabulation. 

It  might  be  well  to  inject  at  this  point  the  fact  that  we,  as  manu- 
f acurers,  and  I  think  also  the  General  Electric  Co.  and  other  manufac- 
turers supplying  electric  railways,  depend  to  a  very  large  extent  on 
other  manufacturers  to  supply  raw  material,  sometimes  partially 
fabricated  and  sometimes  just  in  the  raw  state;  and  the  following 
will  give  you  an  idea  of  the  increases  we  have  had  to  pay  for  the 
materials  which  we  fabricate.  All  raw  materials  have  shown  great 
increases,  as  shown  by  the  following  tabulation:  Pig  iron,  approxi- 
mately 106  per  cent;  steel  plates,  141  per  cent;  copper,  58  per  cent. 
That  corrected  as  of  to-day  would  go  up  a  bit,  because  copper  has 
gone  up  from  the  time  I  had  this  tabulation  made.  Steel  castings, 
'220  per  cent. 

I  niight  digress  here  for  a  moment  for  the  benefit  of  the  com- 
missioner who  is  asking  about  the  discrepancy  in  the  high  cost  of 
cars.  The  reason  for  the  high  cost  of  cars  is  because  of  the  steel 
castings  which  both  companies  get  from  the  foundries  and  the 
Carnegie  Steel  Co.;  so  the  price  of  materials  entering  into  cars  has 
gone  up  220  per  cent. 

Spelter,  30  per  cent ;  coke,  35  per  cent ;  mica,  100  per  cent ;  asbes- 
tos material,  which  we  use  a  great  deal  of,  560  per  cent;  other  in- 
sulating materials,  125  per  cent;  magnetic  sheet  steel,  280  per  cent. 

The  development  of  electric  railways  has  been  very  rapid,  and  in 
general  the  equipment  and  apparatus  are  not  always  used  until  worn 
out,  being  laid  aside  very  frequently  by  reason  of  advances  in  the 
art.  In  my  opinion,  it  is  proper  that  the  reserve  for  depreciation 
and  obsolescence  of  electric  railways  should  notjbe  wholly  based  on 
the  physical  life  of  the  equipment.  I  thought  it  would  be  interesting 
to  the  commission  to  know  that  point.  Actual  experience  has  shown 
that  it  is  necessary  to  make  special  provision  for  what  may  be  called 
the  shorter  economic  life  of  equipment  and  other  apparatus  where 
the  physical  life  has  not  ended  but  where  the  life  of  the  investment 
in  the  old  equipment  has  not  as  yet  been  economically  reached.  I 
could  not  state  any  definite  term  of  this  economic  life  because  it 
varies  very  much,  depending  very  largely  upon  the  improvements 
which  we  and  other  manufacturers  develop.  Nevertheless  this  has 
an  actual  bearing  and  serious  importance  and,  in  my  judgment, 
would  largely  affect  all  electric  railways  in  setting  up  their  deprecia- 
tion reserve  in  order  to  meet  these  economic  conditions. 

That  is  a  very  brief  statement,  but  if  there  are  any  questions  you 
would  like  to  ask  I  will  be  very  glad  to  answer  them. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       395 

Mr.  WARKEN.  One  question  I  would  like  to  ask,  if  you  are  willing 
to  answer  it,  whether  in  your  judgment  the  prices  for  labor  are  likely 
to  diminish  within  the  next  year  or  within  the  next  few  years. 

Mr.  LAMBERT.  In  my  judgment  the  price  of  labor  during  the  next 
year  and  perhaps  the  next  two  years  is  going  to  increase  unless,  as  a 
former  witness  said,  the  high  cost  of  living  comes  down  very  rapidly. 

It  might  be  well  to  mention  there,  Mr.  Warren,  that  when  you  stop 
to  consider  it,  and  segregating  the  price  of  materials  and  labor  as 
two  distinct  and  separate  factors,  labor  after  all  is  nearly  the  whole 
thing  when  you  take  everything  from  its  source.  Take  the  ore,  for 
instance:  you  might  say  that  the  raw  materials  cost  nothing,  it  is 
the  cost  of  labor  producing  them.  They  are  in  the  earth.  Therefore, 
the  content  of  labor  enters  into  the  whole  thing,  and  therefore  prices 
are  not  going  down ;  in  fact  I  think  they  are  going  to  increase  mod- 
erately. 

Mr.  WARREN.  That  is  all  I  want  to  ask. 

The  CHAIRMAN.  Do  you  sell  a  large  quantity  of  materials  to  these 
utilities  ? 

Mr.  LAMBERT.  Well,  in  proportion,  if  you  call  it  large,  to  that 
which  I  mentioned  here — that  is,  seven  to  fifteen  million  dollars. 

The  CHAIRMAN.  Have  you  many  orders  on  hand  at  this  time? 

Mr.  LAMBERT.  No ;  probably  30  per  cent  of  normal. 

The  CHAIRMAN.  Are  you  expecting  an  increase  in  the  volume  of 
your  business  with  electric  railways  within  the  next  year? 

Mr.  LAMBERT.  Our  hope  is  that  some  relief  will  be  given  the  rail- 
roads to  restore  their  normal  buying  power. 

The  CHAIRMAN.  Does  that  statement  of  yours  apply  exclusively  to 
the  electric  lines? 

Mr.  LAMBERT.  No;  the  electric  railways  are  in  worse  straits,  I 
think,  than  any  other  industry  in  the  country  or  in  the  world. 

(Witness  excused.) 

STATEMENT  OF  MR.  WILLIAM  H.  HEULINGS.  JR. 

Mr.  WARREN.  Your  name  is? 

Mr.  HEULINGS.  William  H.  Healings,  jr. 

Mr.  WARREN.  You  reside  where? 

Mr.  HEULINGS.  Philadelphia. 

Mr.  WARREN.  You  are  vice  president 

Mr.  HEULINGS.  Vice  president  of  the  J.  G.  Brill  Co. 

Mr.  WARREN.  That  is  one  of  the  largest  electric  car-building  con- 
cerns in  the  country,  is  it  not? 

Mr.  HEULINGS.  Yes;  it  is. 

Mr.  WARREN.  How  long  have  you  been  connected  with  that  com- 
pany ? 

Mr.  HEULINGS.  About  35  years. 

Mr.  WARREN.  You  are  now  in  the  sales  department? 

Mr.  HEULINGS.  Yes,  sir. 

Mr.  WARREN.  How  long  have  you  been  in  that  department? 

Mr.  HEULINGS.  I  have  had  complete  charge  of  it  for  20  years  and 
have  been  associated  with  it  for  25  year's. 

Wr.  WARHEN.  What  plants  does  that  company  operate? 

Mr.  HEULINGS.  At  the  present  time  we  own  four  plants:  The  .1.  G. 
Brill  Co.,  Philadelphia,  Pa.;  The  G.  C.  Kuhhnan  Car  Co.,  Cleveland, 


396       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Ohio ;  The  American  Car  Co.,  'St.  Louis,  Mo. ;  and  The  Wason  Manu- 
facturing Co.,  Springfield,  Ohio. 

Mr.  WARREN.  If  you  will  go  on  in  your  own  way  and  state  to  the 
commission  the  situation  regarding  street  cars,  especially  the  electric- 
raihvay  industry,  I  shall  be  much  obliged. 

Mr.  HEULINGS.  I  have  prepared  a  little  statement,  gentlemen. 
Shall  I  read  it? 

The  CHAIRMAN.  Yes. 

Mr.  HEULINGS.  I  have  been  given  to  understand  that  the  character 
of  information  you  want  from  me  is  data  that  will  enable  you  to  form 
an  opinion  as  to  why  the  street-railway  properties  through  this  coun- 
try have  been  called  upon  to  make  the  heavy  investments  that  they 
have  made  and  are  making  in  street-railway  rolling  stock.  There  are 
several  important  elements  that  contribute  most  largely  to  this  re- 
sult, and  they  are  as  follows: 

First.  Change  in  the  character  of  car.  There  have  been,  within  the 
past  10  years,  very  decided  changes  made  in  the  constructional  details 
of  the  electric-motor  car  for  street-railway  service,  inasmuch  as 
metal  has  to  a  considerable  extent  been  used  in  substitution  of  wood. 
This  condition  has  produced  a  situation  in  our  various  plants  making 
it  necessary  for  us  to  lay  aside  a  great  deal  of  woodworking  machin- 
ery and  to  increase  our  capital  account  by  the  introduction  of  metal- 
working  machinery  in  its  stead,  and  the  further  introduction  of  spe- 
cially designed  and  especially  built  machinery  for  working  special 
metal  for  special  service  conditions. 

This  change  in  the  character  of  cars  from  wood  construction  to 
metal  construction  has,  in  itself,  made  a  material  increase  in  the  cost 
of  the  finished  vehicle.  It  must  not  be  overlooked  that  in  this  change 
from  wood  to  metal  cars  the  element  of  safety  to  the  traveling  public 
was  the  foremost  consideration. 

Second.  When  the  various  horse-drawn  street-railway  properties 
made  their  conversion  to  cable  and  electrically  propelled  equipments' 
the  tendency  seemed  to  be  to  adhere  to  about  the  then  approximate 
length  of  the  horse  car  most  popular  at  that  time.  This  was  doubt- 
less a  mistake  and  the  street-railway  operators  were  quick  to  increase 
the  carrying  capacity  of  the  vehicle  to  hereby  influence  and  decrease 
the  cost  to  carry  a  unit  passenger.  This  led  to  the  replacement  of  the 
smaller  cars  with  larger,  heavier,  and  consequently  more  expensive 
rolling  stock. 

Third.  The  factor  of  obsolescence  is  a  very  important  one  and 
many  changes  in  design  all  tending  toward  economy  of  operation 
have  been  produced  in  the  past  15  years.  It  is  also  perfectly  reason- 
able to  state  that  cities  which  have  been  served  with  a  type  of  car  not 
of  the  very  latest  design  have  through  their  public  organizations  al- 
most invariably  made  demands  for  the  more  up-to-date  and  addi- 
tional rolling  stock. 

Possibly  the  most  important  fundamental  change  wras  the  introduc- 
tion of  the  prepayment  system.  This  item,  in  itself,  made  necessary 
the  expenditure  on  the  part  of  the  railway  company  from  six  to  eight 
hundred  dollars  on  each  of  their  then  present  cars  to  convert  them 
into  prepayment  cars,  the  only  alternative  being  to  scrap  them  and, 
as  a  matter  of  fact,  the  scrap  heap  was  used  actively,  for  the  average 
railway  company  purchased  up-to-date  and,  generally  speaking,, 
metal  prepayment  cars. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      397 

These  elements — character,  design,  and  obsolescence — have  always 
contributed  toward  the  introduction  of  new  and  better  equipment,  so 
much  so  that  it  is  the  exception  for  a  car  to  ever  render  service  for  its 
complete  lifetime.  I  believe  that  there  are  few  if  any  instances 
wherein  an  electric-motor  car  has  actually  remained  in  service  on  the 
line  that  originally  purchased  it  for  a  period  of  anything  like  its 
lifetime. 

The  above  elements  are  fundamental  factors  that  have  made  addi- 
tional outlay  for  rolling  stock  on  the  part  of  the  railway  companies 
positively  imperative,  but  the  excessive  costs  of  every  increase  in 
labor  and  material  have  made  a  marked  increase  in  the  selling  price 
of  cars  within  the  past  five  years.  We  have  considered,  for  the  sake 
of  making  a  starting  point,  that  the  prices  of  material  and  labor  that 
prevailed  in  1914  and  1915  were  about  normal.  It  is  quite  true  that 
the  labor  rate  has  been,  for  a  great  many  years,  constantly  increasing. 
The  yearly  average  of  increase  has  been  small  except  under  special 
conditions,  but  nevertheless  it  has  shown  an  average  of  increase. 

In  the  early  part  of  1915  both  material  and  labor  advanced  in  un- 
heard of  proportions,  and  while  it  is  a  fact  that  from  the  early  part 
of  1918  to  January,  1919,  there  has  been  a  reduction  in  the  cost  of 
material,  material  has  remained  stationary  as  far  as  our  purchases 
were  concerned,  from  January  1,  1919,  to  the  present  day.  It  is  my 
opinion  that  material  will  increase  from  now  on,  rather  than  de- 
crease. In  contradistinction  to  the  drop  in  material,  the  cost  of 
labor  has  shown  a  constant  increase. 

I  have  charted  the  direct  material  and  direct  labor  in  the  proper 
proportions  in  which  they  appear  in  the  car  of  to-day  and  I  present 
this  chart  as  showing  the  actual  conditions.  Note,  if  you  will,  the 
material  increase  from  January,  1915,  to  January,  1916,  was  about 
36  per  cent.  From  January,  1915,  to  January,  1917,  it  wras  119  per 
cent.  From  January,  1915,  to  January,  1918,  it  was  126  per  cent. 
From  January,  1918,  to  January,  1919,  however,  the  decrease  was  18 
per  cent. 

The  labor  curve,  however,  shows  the  following  course :  From  Janu- 
ary, 1915,  to  1916, 12  per  cent  increase;  from  January,  1915,  to  Janu- 
ary. 1917,  40  per  cent;  from  January,  1915,  to  January,  1918,  117  per 
cent;  from  January,  1915,  to  January,  1919;  119  per  cent;  and  the 
course  since  January  1  of  this  year  to  the  present  day  has  been 
upward. 

One  of  my  reasons  for  contending  that  material  will  advance  is 
that  I  know  our  labor  has  advanced  and  is  continuing  to  advance,  and 
as  a  matter  of  fact,  as  labor  constitutes  a  very  great  proportion  of 
that  which  we  buy  as  "material,"  it  is  but  to  be  expected  that  the 
material  will  follow  the  course  of  labor,  especially  when  the  absorp- 
tion of  stocks  is  completed. 

I  want  to  make  perfectly  clear  to  your  commission  that  this  chart 
shows  the  actual  different  grades  of  material  and  the  actual  different 
grades  of  labor  in  the  correct  proportion  and  quantities  as  appears 
in  the  average  standard  double-truck  car  of  to-day. 

In  the  foregoing  information  I  have  not  elaborated  at  all  on  one 
very  important  item  of  obsolescence.  This  item  is  the  Birney  safety 
car.  The  adoption  of  this  car  has  been  phenomenal.  We  have  built 
about  1,000  of  them  for  different  parts  of  the  country  and  the  prin- 
ciples of  operation  which  they  involve  have  shown  pronounced  econ- 


398        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

omies.  The  introduction  of  the  safety  car,  however,  means  a  further 
outlay  for  rolling  stock  on  the  part  of  the  railway  companies.  It 
is,  moreover,  economical  and  warrants  adoption  on  exactly  the  same 
ground  that  the  introduction  of  the  prepayment  idea  was  economical 
and  warranted  adoption. 

My  testimony,  I  understand,  is  to  be  confined  to  rising  costs  of  cars, 
and  as  a  consequence  I  will  not  elaborate  on  the  Birney  safety  car, 
especially  as  I  understand  some  direct  testimony  is  to  be  given  by 
another  witness. 

That  is  all,  Mr.  Warren. 

Mr.  WARREN.  I  am  very  much  obliged  to  you. 

The  CHAIRMAN.  When  you  speak  of  the  labor  cost  increasing  120 
per  cent  from  1915  to  1919,  do  you  speak  of  the  labor  that  enters  into 
the  car  that  you  sell  to  these  utilities  ? 

Mr.  HEULINGS.  No,  I  mean  the  price  we  pay  to  the  man  to  pro- 
duce the  car  that  we  sell  to  the  utilities — that  is,  the  actual  direct 
labor  as  differentiating  between  indirect  labor. 

The  CHAIRMAN.  But  the  direct  labor  which  goes  into  that  car 
has  increased  120  per  cent  from  1915  to  1919  ? 

Mr.  HEULINGS.  Yes,  sir. 

The  CHAIRMAN.  And  what  per  cent  of  the  cost  of  the  car  is  repre- 
sented by  labor? 

Mr.  HEULINGS.  Direct  labor  about  33^  per  cent.  The  material  at 
the  present  time  averages  about  $2  for  every  $1  of  labor.  It  used  to 
be  practically  even. 

Commissioner  SWEET.  You  say  now  the  material  cost  of  a  car  is 
about  double  what  the  labor  cost  is  ? 

Mr.  HEULINGS.  Yes — well,  that  is  hardly  fair.  I  say  that  for 
every  dollar  in  labor  that  you  invest  in  a  car  you  will  invest  about  $2 
for  material,  making  $3  as  the  total.  In  other  words,  a  car  that  costs 
$3,000  will  be  represented  by  $2,000  for  material  and  $1,000  for  direct 
labor. 

Commissioner  SWEET.  Well,  that  would  be  twice  as  much  in  mate- 
rial as  in  labor? 

Mr.  HEULINGS.  Yes. 

The  CHAIRMAN.  But  you  said  before  it  used  to  be  fifty-fifty? 

Mr.  HEULINGS.  Yes,  it  used  to  be  even  and  now  it  is  two  to  one. 

The  CHAIRMAN.  So  material  has  advanced  twice  as  fast  as  labor. 

Mr.  HEULINGS.  Material  has  advanced;  yes. 

Commissioner  GADSDEN.  To  state  it  the  other  way,  let  us  take  a 
standard  car — one  of  your  standard  cars — and  give  us  the  price  before 
the  war  and  the  price  now,  and  let  us  get  at  it  that  way. 

Mr.  HEULINGS.  It  is  an  extremely  difficult  thing  to  give  a  price 
on  a  standard  car  because  there  is  no  such  article. 

Commissioner  GADSDEN.  Well,  any  car  you  choose  to  take,  so  you 
use  the  same  car  in  each  case.  Take  any  double-truck  car  that  you 
make  and  give  us  the  price  for  1914  and  give  us  the  price  for  1918. 

Mr.  HEULINGS.  Of  the  same  car? 

Commissioner  GADSDEN.  Of  the  same  car. 

Mr.  HEULINGS.  Would  you  let  me  send  that  to  you  accurately. 
I  would  hesitate  to  guess  at  it. 

Commissioner  GADSDEN.  Well,  I  thought  you  could  approxi- 
mate it. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       399 

Mr.  HEULINGS.  I  can  approximate  it,  but  I  would  like  to  give  it  to 
you  accurately. 

Commissioner  GADSDEN.  Just  approximate  it,  in  order  that  the 
commission  may  understand  what  you  mean  about  the  material  being 
double  the  labor. 

Mr.  HEULINGS.  Well 

Commissioner  GADSDEN.  I  can  tell  you  approximately  myself. 

Mr.  HEULINGS.  Yes.    Well,  about  $3,000  to  $6,500. 

Mr.  WARREN.  That  is,  a  $3,000  car  in  1914 

Mr.  HEULINGS.  Would  be  $6,500  to  $7,000  now. 

The  CHAIRMAN.  Then  in  1915  that  $3,000  car  would  represent 
$1,500  in  labor  cost  and  $1,500  in  material? 

Mr.  HEULINGS.  Yes. 

The  CHAIRMAN.  To-day  that  $6,500  car  would  represent  two  thou- 
sand a  hundred  and  odd  dollars  in  labor  and  the  rest  in  material  ? 

Mr.  HEULINGS.  Yes. 

Commissioner  SWEET.  Has  not  the  advance  in  wages  and  labor 
been  more  than  that? 

Mr.  HEULINGS.  The  advance  in  labor  has  been  about  119  per  cent — 
nearly  double. 

Commissioner  SWEET.  If  $1,500  of  labor  was  put  in  in  1915,  why 
would  it  not  be  more  than  $3,000  now,  if  it  has  more  than  doubled  ? 

Mr.  HEULINGS.  As  a  matter  of  fact  it  would  be,  because  labor  has 
increased  over  100  per  cent. 

Commissioner  SWEET.  Well 

Mr.  HEULINGS.  Then  my  guess  is  off.  That  is  the  story;  that  is 
the  exact  answer. 

Commissioner  SWEET.  I  accept  your  apology. 

Mr.  WARREN.  Is  your  guess  off,  Mr.  Heulings? 

Mr.  HEULINGS.  I  think  it  must  be,  if  they  do  not  check. 

Mr.  WARREN.  As  I  look  at  this  chart,  apparently  the  cost  of  ma- 
terial accelerated  very  much  more  rapidly  than  the  cost  of  labor. 

Mr.  HEULINGS.  Oh,  it  did. 

Mr.  WARREN.  In  other  words,  is  it  not  generally  a  fact  that  labor 
lags  behind  in  this  readjustment  of  prices  to  a  depreciated  currency 
or  increase  in  cost  or  whatever  one  chooses  to  call  it? 

Mr.  HEULINGS.  It  has,  as  far  as  our  work  is  concerned,  lagged  be- 
hind materially. 

Mr.  WARREN.  Your  material  cost  in  1916  was  substantially  higher 
than  your  labor? 

Mr.  HEULINGS.  Yes. 

Mr.  WARREN.  But  in  June,  1917,  it  had  jumped  up  almost  to  120 
per  cent. 

Mr.  HEULINGS.  Yes,  as  against  40  per  cent, 

•Mr.  WARREN.  As  against  40  per  cent  for  labor? 

Mr.  HEULINGS.  Yes. 

Mr.  WARREN.  It  was  not  until  January  1,  1918,  that  they  began 
to  got  nearer  together,  and  it  was  not  until  the  middle  of  1918  that 
they  crossed? 

Mr.  HKULINGS.  That  is  correct. 

The  CHAIRMAN.  Are  you  selling  much  to  the  utility  companies 
at  this  time? 

Mr.  HKULINGS.  Not  a  great  deal ;  no. 

The  CHAIRMAN.  Have  you  during  the  past  six  months? 


400       PKOCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  HEULIXGS.  No;  our  business  I  should  say  has  been  consid- 
erably less  than  the  average. 

The  CHAIRMAN.  How  much  less? 

Mr.  HEULINGS.  Well,  in  dollars  and  cents  it  ran  about  the  same, 
but  that  represents  about  100  per  cent  increase  over  normal  times, 
so  it  must  be  about  half  of  the  normal. 

The  CHAIRMAN.  Is  the  industry,  speaking  of  it  as  a  whole,  hav- 
ing any  difficulty  in  financing  its  purchasers  with  you? 

Mr.  HEULINGS.  Oh,  yes. 

The  CHAIRMAN.  How  do  they  do  it? 

Mr.  HEULINGS.  Well,  they  do  it  as  Mr.  Barry  just  referred  to. 
We  are  jointly  interested  with  him  in  the  car-trust  matter.  That 
is  how  we  are  being  able  to  finance  quite  a  few  of  the  purchasers  of 
these  safety  cars  and  to  help  the  railroads  make  economies  which 
they  will  provide  them  with. 

Commissioner  GADSDEN.  Are  you  requiring  certificates  on  other 
types  of  cars  than  the  safety  cars? 

Mr.  HEULINGS.  No.  We  can  not  handle  them.  You  see  they  are 
not  a  standard  article.  Barring  the  safety  cars  we  have  never  dupli- 
cated an  order.  Except  in  one  instance  have  we  ever  duplicated 
an  order  for  exactly  the  same  style  as  the  other  order.  We  built 
1,500  cars  for  Philadelphia  in  a  period  of  four  years  and  they  are 
so  nearly  the  same  you  can  not  tell  the  difference,  but  each  particu- 
lar set  required  a  new  set  of  drawings  and  specifications. 

Commissioner  GADSDEN.  Does  not  that  suggest  one  of  the  economies 
that  the  railway  people  could  work  out,  in  the  standardization  of 
equipment  ? 

Mr.  HEULINGS.  Unquestionably  they  could,  and  they  could  do  us 
great  good  and  economize. 

Commissioner  GADSDEN.  If  we  could  come  out  of  this  hearing  by 
standardizing  the  railway  equipment  would  not  that  help  solve  this 
problem  ? 

Mr.  HEULINGS.  You  would  take  a  great  step  in  the  right  direction. 

Commissioner  SWEET.  How  much  difference  do  you  think  it  would 
make  if  the  cars  were  standardized  instead  of  having  different 
specifications  for  each  car? 

Mr.  HEULINGS.  I  might  answer  that  by  the  experience  of  the  safety 
car.  The  safety  car  is  practically  standard.  The  total  amount  of 
advance  in  the  safety  car  was  about  50  per  cent,  and  that  was  due 
to  the  fact  it  was  standardized  and  we  could  run  them  through  in  100 
and  200  car  lots  and  sell  them  to  the  individual  as  he  wanted  them 
and  practically  take  them  off  the  shelf.  Now  other  cars  have  ad- 
vanced over  100  per  cent.  That  is  the  best  answer. 

The  CHAIRMAN.  Yet  the  Railroad  Administration  let  an  order  for 
100,000  cars  that  used  to  sell  for  somewhere  around  $900  and  their 
order  was  about  $3,000.  There  is  another  sample  of  standardization. 

Mr.  HEULINGS.  Yes.  It  possibly  would  have  gone  a  great  deal 
higher 

Mr.  WARREN.  Is  it  not  a  fact — or  perhaps  you  do  not  know  about 
them,  but  some  of  us  to  our  sorrow  do — that  many  of  the  differentia- 
tions in  rolling  stock  on  street  railways  are  caused  by  the  require- 
ments of  different  local  authorities.  Do  you  know  as  to  that  ? 

Mr.  HEULINGS.  Yes,  that  is  quite  a  factor.  The  individual  ideas  of 
the  mechanical  departments  of  the  various  railroads  make  for 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      401 

standards  that  are  peculiar  to  their  property ;  and  that  is  the  reason 
we  have  so  many. 

Mr.  WARREN.  But  is  not  that  largely  the  result — perhaps  you  do 
not  know  that,  but  I  will  ask  you — is  not  that  the  result  of  the 
requirements  of  the  local  municipal  authorities  themselves? 

Mr.  HEULINGS.  Well.  I  do  not  think  I  would  want  to  say  that.  I 
have  never  had  an  experience  which  would  warrant  an  answer  to  that. 

Mr.  WARREX.  I  do  not  want  to  justify,  but  I  think  we  can  bring 
some  witnesses  who  will  show  that  is  so.  In  Xew  England  the  local 
authorities  have  very  set  ideas  as  to  the  kind  of  rail,  for  instance,  to 
be  used.  The  worst  of  it  is  that  the  successive  incumbents  of  the 
same  office  have  very  different  ideas  of  the  kind  of  rail  to  be  used; 
and  many  of  the  specifications  which  make  our  rails  cost  much  more 
money  are  due  to  the  absolute  requirements  of  road  commissioners, 
superintendents  of  streets,  and  so  forth. 

The  CHAIRMAN.  Do  you  believe  that  in  a  country  with  such  diversi- 
fied climate  and  territories,  part  being  prairie  and  other  parts  rolling 
and  others  mountainous,  and  where  in  the  Xorth  you  have  your  cold 
winters  and  heavy  snows,  and  in  the  South  your  large  precipitation, 
that  there  is  such  a  thing  as  a  standard  car  that  can  be  used  all 
over  this  country  ? 

Mr.  HEULINGS.  Well,  Mr.  Commissioner,  I  will  also  again  refer  to 
the  safety  car.  The  safety  car  is  used  in  the  southern  part  of  Texas, 
it  is  used  in  Jacksonville  and  Tampa,  and  it  is  used  in  Bangor,  Me., 
and  in  Canada,  and  it  is  used  in  Seattle,  in  Portland,  and  Lower 
California. 

The  CHAIRMAN.  Well,  your  safety  car  is  a  one-man  car. 

Mr.  HEULINGS.  Yes;  a  one-man  car. 

The  CHAIRMAN.  Light  equipment. 

Mr.  HEULINGS.  Light  equipment,  light  weight;  and  it  is  used  in 
all  those  various  climatic  conditions. 

The  CHAIRMAN.  Could  the  same  principle  be  applied  to  a  heavier 
car  ? 

Mr.  HEULINGS.  I  do  not  see  why  it  could  not.  The  safety  car 
applies  to  certain  conditions  where  your  travel  does  not  get  to  prac- 
tically a  moving  platform.  Then  you  have  to  have  larger  equipment 
and  greater  carrying  capacity,  but  I  do  not  see  why  to  a  very  con- 
siderable degree  the  same  standard  should  not  prevail. 

The  CHAIRMAN.  Has  the  diversity  in  the  car  been  due  largely  to 
the  demands  of  the  municipalities  or  has  it  been  due  to  the  competi- 
tion between  car  manufacturers  in  the  sale  of  a  superior  car? 

Mr.  HEULINGS.  While  the  car  manufacturers  I  think  have  all  tried 
to  outdo  each  other  in  regard  to  the  superiority  of  their  equipment, 
I  know  we  have  always  tried  to  hold  the  better  position.  I  really 
think  the  diversity  of  car  equipment  is  more  due  to  the  opinion  of  the 
local  men  than  anything  else — the  local  operators. 

Commissioner  SWEET.  The  local  what? 

Mr.  HEULINGS.  The  local  operating  men. 

The  CHAIRMAN.  What  effort  has  been  made  in  the  industry  as  well 
as  in  the  manufacturing  end  to  get  together  upon  some  standard  form 
of  carl 


402       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  HEULJNGS.  I  do  not  believe  that  any  considerable  effort  has 
been  made  along  that  direction,  where  we  tried  to  bring  all  the  rail- 
way operatives  together  and  to  present  a  standard  form  of  vehicle 
for  them. 

The  CHAIRMAN.  Do  you  think  that  the  saving  in  dollars  to  the 
public  is  sufficient  to  warrant  an  effort  being  made  by  interested 
parties  to  agree  upon  a  standard  form  of  equipment? 

Mr.  HEULJNGS.  There  would  be  a  big  saving  in  the  manufacture, 
without  a  question  of  doubt. 

Mr.  WARREN.  How  much  saving?  I  want  to  get  at  the  percentage 
of  saving  you  thought  might  result. 

Mr.  HEULINGS.  There  would  be  a  saving  of  from  $300  to  $400  on 
every  double-track  car. 

The  CHAIRMAN.  But  would  it  not  be  open  to  this  objection,  if  it  is 
one :  The  moment  the  country  agrees  upon  a  standard  form  of  car, 
you  have  thus  at  that  very  moment  prevented  any  further  improve- 
ment in  the  art? 

Mr.  HEULINGS,  You  would.  You  would  probably  stop  initiative 
and  you  would  halt  inventive  genius,  I  believe. 

Commissioner  GADSDEN.  You  would  also  stop  obsolescence,  too. 

Mr.  HEULINGS.  Yes. 

Commissioner  GADSDEN.  Which  would  be  desirable. 

The  CHAIRMAN.  Have  you  reached  the  point  of  development  in 
the  industry  where  it  can  be  safely  said  that  we  can  agree  upon  a 
standard  car  that  is  going  to  meet  the  demands  of  the  country? 

Mr.  HEULINGS.  No,  I  do  not  think  so.  I  do  not  believe  you  could 
get  an  agreement  on  that  basis. 

Now,  to  illustrate  that,  there  are  many  very  successful  operators 
who  will  insist  upon  the  use  of  center-entrance  cars.  We  have  had 
them  in  Washington;  we  have  had  them  in  Boston,  and  we  have 
them  in  New  York;  we  have  them  in  Brooklyn;  and  yet  there  are 
other  roads  that  would  not  have  a  center-entrace  car  under  any  cir- 
cumstances. 

The  CHAIRMAN.  To  agree  upon  a  standard  form  of  car  would 
mean  the  practical  elimination  of  all  the  equipment  which  you  have 
got  to-day,  or  a  very  great  part  of  it? 

Mr.  HEULINGS.  It  would. 

The  CHAIRMAN.  And  in  the  present  state  of  the  industry  is  there 
any  hope  of  being  able  to  abandon  that  equipment  and  put  in  a  new 
form  01  car  ? 

Mr.  HEULINGS.  I  doubt  it;  only  so  far  as  the  introduction  of  the 
new  Birney  safety  car  is  concerned.  There,  I  think,  it  can  be  done. 

The  CHAIRMAN.  Would  there  be  any  hope  of  agreeing  upon  a  plan 
for  a  standard  car  that  could  be  used  for  new  equipment  as  it  is  be- 
ing purchased? 

Mr.  HEULINGS.  Well,  the  United  States  Housing  Corporation  took 
up  that  identical  thing  here  about  a  year  and  a  half  or  two  years  ago, 
maybe,  and  they  tried  to  come  to  some  conclusion  with  regard  to  a 
standard  car  or  something  that  could  be  called  a  standard  car,  but 
I  doubt  if  you  would  consider  that  very  much  headway  was  made 
with  it. 

Xow.  there  is  another  very  popular  type  of  car  that  is  used  in 
Cleveland,  known  as  the  Peter  Witt  type  of  car — a  front  entrance 
and  center  exit — that  probably  presents  some  advantages.  It  han- 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      403 

dies  passengers  probably  as  quickly,  or  more  quickly,  than  any  other 
type  of  vehicle. 

The  CHAIRMAN.  Do  I  understand  you  have  another  witness  you 
want  to  put  on  to-night  ? 

Mr.  WARREN.  If  you  please,  Mr.  Chairman. 

(Witness  excused.) 

STATEMENT  OF  MR.  HENRY  L.  DOHERTY. 

Mr.  WARREN.  Your  full  name? 

Mr.  DOHERTY.  Henry  L.  Doherty. 

Mr.  WARREN.  You  are  interested  in  a  great  many  public  utilities? 

Mr.  DOHERTY.  Yes,  sir. 

Mr.  WARREN.  Including  street  railways? 

Mr.  DOHERTY.  Including  street  railways. 

Mr.  WARREN.  What  are  some  of  your  street  railways,  Mr.  Doherty  ? 

Mr.  DOHERTY.  We  have  a  street-railway  company  at  Toledo,  Ohio, 
a  number  of  interurbans  there;  we  have  a  street-railway  property 
running  over  the  Manhattan  Bridge  and  down  to  Jamaica,  Long 
Island,  from  New  York  City ;  we  have  some  8  or  10  small  street-rail- 
way companies. 

Mr.  WARREN.  He  being  interested  in  all  these  railways — I  think, 
as  the  time  is  limited,  I  would  like  to  turn  Mr.  Doherty  over  to  the 
commission  to  answer  questions  that  may  interest  the  commission, 
instead  of  my  questioning  him  directly. 

Mr.  Doherty  represents  the  Cities  Service  Co.,  I  think,  do  you  not, 
Mr.  Doherty? 

Mr.  DOHEHTY.  I  am  president  of  the  Cities  Service  Co.,  and  then  we 
have  other  interests  besides  that — the  firm  of  Henry  L.  Doherty 
&  Co. 

Mr.  WARREN.  So  your  experience  has  been  very  great.  I  might 
ask  one  question  following  the  line  of  the  other  witness,  and  that  is, 
have  you  had  experience  in  increasing  your  rates  of  fare  on  any  of 
your  companies? 

Mr.  DOHERTY.  Yes,  sir;  I  have. 

Mr.  WARREN.  Has  the  result  justified  what  some  of  the  other  wit- 
nesses said  here  to-day,  that  they  got  a  substantial  increase  in 
revenue  ? 

Mr.  DOHERTY.  I  have  not  heard  any  of  the  other  testimony  that 
has  been  given  before  at  this  hearing,  and  I  have  not  read  about  it. 
A  raise  of  fare  eventually  results  always  in  a  raise  in  revenue;  but  if 
I  were  trying  to  state  the  effect  of  it,  I  would  prefer  to  make  a  funda- 
mental analysis  of  it  rather  than  to  take  the  specific  figures  from 
some  certain  town  and  assume  that  that  would  apply  elsewhere. 
Now  you  can  divide  your  riding,  into  two  classes — necessity  riding 
and  nonnecessity  riding.  If  you  are  in  a  city  where  practically  all 
your  riding  is  necessity  riding,  where  the  rider  has  to  ride,  of  course 
a  raise  in  faros  will  not  bring  any  greatly  diminished  amount  of 
riding.  But  if  you  are  in  a  city  where  the  distances  are  .short,  it 
will  bring  a  diminished  amount  of  riding,  at  least  for  the  time  being, 
and  I  think  that  depends  largely  on  the  temper  of  the  people  toward 
the  road,  whether  they  believe  the  rate  is  justified  or  not.  What  I 
expect  to  see  is  this — that  a  raise  in  rates  will  always  cause  mo- 
mentarily a  falling  off  in  the  number  of  passengers  but  eventually 


404       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

I  believe,  except  in  the  smaller  cities,  the  same  number  of  people  will 
ride. 

Mr.  WARREN.  And  even  immediately  on  the  change  there  is  some 
increase  in  revenue,  is  there  not,  unless  it  is  an  exceptional  case  ? 

Mr.  DOHERTY.  Unless  it  is  an  exceptional  case  there  is  immediately 
an  increase  in  revenue. 

Mr.  WARREN.  So  that  it  is  a  real  means  of  relief  to  the  companies 
needing  additional  revenue? 

Mr.  DOHERTY.  Yes,  sir. 

Mr.  WARREN.  Are  there  any  questions  the  commission  would  like 
to  ask? 

The  CHAIRMAN.  I  would  like  to  have  Mr.  Doherty  go  ahead  and 
talk  awhile.  He  has  had  a  wide  experience.  Tell  us  what  the  trouble 
with  the  street-car  industry  is  and  what  is  the  remedy,  if  there  is  one. 

Mr.  DOHERTY.  Mr.  Chairman,  I  did  not  come  down  for  this  hear- 
ing, although  I  am  intensely  interested  in  it,  and  I  am  very  glad  that 
the  street-railway  men  are  having  an  opportunity  to  tell  their  story. 

In  the  early  days  of  street  railroading — and  in  a  great  deal  of  this 
I  may  be  simply  repeating  what  other  witnesses  have  said — but  in 
the  early  days  of  the  street  railway,  most  of  the  roads  were  not  to 
exceed  2  miles  long  and  the  platform-labor  cost  not  to  exceed  15  cents 
an  hour.  I  think  in  the  city  I  was  brought  up  in  the  maximum  wage 
for  a  long  time  was  $1.80  and  the  hours  were  about  12.  Now  we 
have  seen  wages  gradually  increase  from  15  cents  to  a  maximum  of  60 
cents  and  we  have  seen  the  distances  increase  from,  say,  2  miles  to, 
I  believe  in  some  cases,  15  or  20  miles,  and  the  average  distance  of 
riding  constantly  going  up  on  account  of  the  size  of  the  city.  And 
it  seems  to  me  perfectly  obvious  that  we  can  no  longer  stick  to  the 
original  amount  that  was  fixed  for  a  street-railway  fare.  That  was 
fixed  at  that  time  largely  as  a  matter  of  convenience,  on  account  of 
the  nature  of  our  coins. 

Now,  in  addition  to  that,  we  went  through  the  bicycle  craze  and  we 
saw  the  effect  that  had  on  the  street-railway  companies,  and  now  we 
have  the  automobile  with  us  and  apparently  we  have  got  that  with 
us  permanently. 

I  do  not  know  the  answer  to  these  problems.  I  would  be  perfectly 
willing  to  try  to  sit  down  and  work  them  out  with  any  group  of 
men.  There  must  be  some  answer,  and  if  things  are  allowed  to  go 
the  way  they  are  I  am  sure  that  in  the  end,  while  the  security  holders 
and  street-railway  men  will  suffer  severely,  it  will  be  the  public  that 
will  suffer  the  most  and  it  will  be  the  wage-earning  class  of  the 
public  that  will  be  punished  most,  because  they  will  have  no  other 
means  of  conveyance. 

The  public  are  always  imbued  with  the  idea  in  public-service  work 
that  the  thing  they  are  the  most  interested  in  is  low  cost  of  service. 
It  seems  to  me  they  are  interested  first  in  complete  service  from  a  geo- 
graphic standpoint,  second  in  good  service,  and  lastly  in  low  rates. 

The  only  solution  that  I  see  to  the  difficulty  is  to  raise  the  rates  of 
fare  to  a  point  where  the  street-railway  companies  can  live ;  and  until 
some  scheme  of  premiumizing  good  management  and  economical 
operation  can  be  devised — something  like  what  is  known  as  the 
London  sliding  scale — I  do  not  see  that  there  is  any  other  way  to 
work  except  on  a  cost-plus  basis.  I  am  a  believer  that,  if  we  had  the 
methods  developed  for  doing  it,  we  ought  to  go  to  a  metered  system 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      405 

of  riding,  paid  for  distance.  But  I  think  that  the  paramount  thing 
is  immediately,  before  the  credit  of  street-railway  companies  is  en- 
tirely wrecked  in  the  minds  of  the  investing  public,  to  get  some  sort 
of  relief  for  the  street  railways,  and  that,  as  I  see  it,  can  only  be 
done  by  an  increase  in  the  rates  of  fare. 

The  CHAIRMAN.  Could  the  problem  be  solved  by  getting  away 
from  fixed  franchise  rates  and  leaving  it  to  the  utility  commissions 
to  determine  the  reasonableness  of  a  rate? 

Mr.  DOHERTY.  Yes,  if  the  utility  commissions  would  act  promptly 
it  would;  and  I  think  utility  commissions  are  in  better  shape  to  de- 
termine what  a  rate  should  be  than  the  local  authorities. 

I  have  had  one  case  where  we  have  been  trying  to  settle  the  street- 
railway  difficulty  for  a  number  of  years  and  we  have  had  continu- 
ous negotiations,  I  would  say,  for  nearly  five  years  with  the  city 
authorities  and  have  never  reached  a  settlement,  and  largely  I  think 
because  the  city  authorities  felt  that  they  had  to  comply  with  what 
they  believed  to  be  the  wishes  of  the  people;  and  yet  in  many  ways 
those  conditions  would  have  been  something  under  which  the  com- 
pany could  not  have  lived. 

In  that  case — I  refer  to  Toledo — we  took  hold  of  the  Toledo  situ- 
ation when  it  had  been  a  matter  of  controversy  for  a  long  time,  and 
the  people  there  were  determined  to  have  a  3-cent  fare,  and  a  great 
number,  perhaps  a  majority  of  the  population,  felt  that  if  they  voted 
for  a  3-cent  fare  that  that  should  entitle  them  to  a  3-cent  fare- — 
simply  because  they  had  voted  for  a  3-cent  fare.  They  had  that  im- 
bued in  their  minds,  and  when  we  would  try  to  tell  them  we  could 
not  furnish  street-railway  service  at  3  cents,  they  would  say,  "  We 
voted  to  have  you  do  it." 

Xow,  we  have  never  been  able  to  make  the  local  authorities  believe 
that  the  people  of  the  city  understood  that  we  must  have  a  higher 
rate  of  fare;  and  yet  I  think  the  people  as  a  whole  know  that  we 
must  have  a  higher  rate  of  fare,  and  I  think  they  would  be  willing 
to  pay  it. 

I  think  in  most  every  case  if  the  matter  was  laid  properly  before 
the  people,  without  any  confusion  from  the  other  side,  and  was  hon- 
estly presented  from  both  sides,  the  people  would  be  willing  to  pay 
the  necessary  amount  to  provide  adequate  and  proper  street-railway 
service. 

The  CHAIRMAN.  Well,  of  course,  it  is  the  law  that  a  utility  is 
entitled  to  a  fair  return  on  property  which  it  uses  in  the  public 
service.  Now,  if  we  can  reach  the  time  when  the  street-railway 
properties  are  given  an  honest  valuation  by  State  regulating  authori- 
ties or  some  others  who  have  the  power  to  say  what  that  value  is,  and 
then  a  close  examination  is  made  of  the  operating  sheet  of  the  com- 
pany, can  you  see  that  there  would  be  any  difficulty  in  having  State 
commissions  or  other  tribunals  promptly  determine  the  question  of 
a  rate  increase? 

Mr.  DOIIERTY.  Xo.  sir. 

The  CHAIRMAN.  Has  not  the  great  trouble  heretofore  been  that 
there  is  always  a  dispute  as  to  the  value  of  your  property,  as  to  the 
amount  of  the  actual  investment  in  the  property,  and  a  feeling  that 
your  property  has  been  greatly  overcapitalized,  and  because  of  that 
the  investors  are  getting  really  more  than  they  are  entitled  to  I 


406       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  DOHERTY.  Well,  there  has  been  so  much  of  a  play  made  on  the 
matter  of  watered  stocks  and  capitalization  in  excess  of  cost  that  the 
public  can  not  dissociate  that  from  the  idea  of  a  valuation  made 
strictly  on  the  property. 

The  CHAIRMAN.  Yes.  Now,  then,  when  you  get  a  valuation,  is 
not  that  in  and  of  itself  going  to  remove  most  of  the  difficulties  which 
you  have  in  dealing  with  the  public  ? 

Mr.  DOHERTY.  If  you  can  make  the  public  understand  that  the 
amount  of  bonds  and  stocks  issued  on  these  properties  is  not  going 
to  be  considered  at  all  in  making  the  valuation  of  the  property — the 
newspapers  in  the  different  cities  generally  play  up  the  matter  of 
watered  stock,  whether  there  has  been  any  watered  stock  or  not ;  but 
if  you  can  make  it  plain  that  the  property  is  going  to  be  valued  as  a 
property  and  without  regard  to  its  capitalization— I  think  the  public 
woiild  be  perfectly  willing  to  pay  a  rate  of  fare  that  would  in  turn 
yield  a  fair  rate  of  return  of  the  actual  value  of  the  property.  Now 
in  the  matter  of  the  value  of  the  property,  I  do  not  see  that  there 
should  be  such  a  great  difference  of  opinion  as  there  has  been  on  some 
of  the  valuations. 

The  CHAIRMAN.  Well,  that  is  a  matter  of  detail  and  does  not  go 
into  the  principle  we  are  trying  to  discuss. 

Mr.  DOHERTY.  No;  I  just  want  to  make  a  point — that  it  is  very 
easy  to  determine  the  value  of  the  property. 

The  CHAIRMAN.  I  was  back  in  St.  Paul  last  winter,  and  the  Twin 
Cities  lines  were  trying  to  get  some  sort  of  legislation.  The  mayors 
of  the  cities  and  some  others  immediately  took  advantage  of  a  public 
feeling  that  there  were  about  $10.000,000  or  more  of  watered  stock  in 
the  property,  and  that  element  alone  I  think  had  more  to  do  with 
defeating  really  wise  legislation  than  any  other  single  factor.  Now, 
if  those  properties  could  have  been  properly  valued  by  the  State,  sub- 
ject to  the  right  of  appeal  to  the  courts  by  either  party,  that  element 
of  criticism  would  have  been  removed. 

Mr.  DOHERTY.  And  I  agree  with  you — if  you  can  just  get  out  of 
the  public  mind  that  that  watered  stock  has  anything  to  do  with 
the  valuation  that  is  going  to  be  made. 

The  CHAIRMAN.  Exactly.  Now,  if  the  utilities  and  the  public 
authorities  can  reach  the  point  where  these  properties  can  be  prop- 
erly valued  and  you  get  away  from  a  fixed  franchise  rate,  have  jrou 
not,  as  a  matter  of  fact,  got  about  all  that  a  public-service  corpora- 
tion should  have? 

Mr.  DOHERTY.  Well,  that  is  all  I  think  that  any  of  the  public- 
service  corporations  should  ask  for,  but  they  are  asking  if  possible 
that  that  really  be  granted  to  them  very  quickly. 

The  CHAIRMAN.  Oh,  I  am  asking  questions  now  with  reference  to 
a  permanent  policy  and  not  immediate  relief. 

Mr.  DOHERTY.  I  agree  with  that  policy  until  we  can  find  some 
better  one.  If  there  is  a  better  one,  all  right;  but  that  is  the  only 
one  I  see  now. 

The  CHAIRMAN.  If  you  can  reach  this,  proper  value  and  have  the 
State  fix  the  rates,  is  there  any  reason  why  you  should  adopt  the 
cost-of -service  plan  ?  I  am  asking  these  questions,  and  I  am  entirely 
open-minded  on  the  proposition. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      407 

Mr.  DOHERTY.  Is  it  not  practically  the  same  thing?    Because 

The  CHAIRMAN.  No;  because  one  operates  automatically  with  the 
rise  and  fall  of  the  cost  of  operation  and  the  other  addresses  itself 
to  the  judgment  of  the  tribunal. 

Mr.  DOHERTY.  Well,  I  should  think  it  would  be  preferable  to  have 
the  State  commission  determine  the  valuation — I  did  not  quite  catch 
the  distinction  that  you  make  between  your  plan  and  the  cost-of- 
service  plan.  I  should  think 

The  CHAIRMAN.  I  am  not  announcing  a  plan  but  I  am  stating 
the  plans. 

Mr.  DOHERTY.  No.  Well,  your  question,  I  will  put  it.  But  it 
seems  to  me  the  matter  of  being  able  to  adjust  yourself  to  new  con- 
ditions without  a  new  hearing  is  very  valuable.  Now,  here  is  what 
happened,  Mr.  Elmquist,  in  the  matter  of  public-service  commissions. 
If  the  day  ever  comes  when  the  farmer  must  go  to  the  public-service 
commission  or  some  agricultural  commission  and  get  the  consent  of 
that  body  to  plant  one  field  in  wheat  and  another  field  in  corn  he 
will  probably  say,  "  Oh,  well,  it  is  so  much  trouble  I  will  just  let  it 
go ;  I  will  not  plant  anything,"  simply  on  account  of  the  delay.  We 
have  not  been  hurt  so  much  by  public-utility  commissions,  even 
where  they  have  shown  their  teeth  in  many  cases,  because  we  have 
been  able  to  tell  our  story  to  them  and  get  it  before  them.  But  we 
have  often  been  intensely  hurt  by  delay,  and  the  street-railway  com- 
panies now  are  in  a  condition  where  they  need  assistance,  and  they 
need  assistance  at  once,  and  if  they  do  not  get  it  at  once  their  credit 
is  going  to  be  permanently  crippled.  The  whole  industry's  credit  is 
going  to  be  so  crippled  that  I  doubt  if  it  can  be  reestablished.  I  do 
not  know  that  I  make  myself  entirely  clear.  But  if  some  man  would 
go  around  to  a  farmer  and  say,  "  I  am  starving,"  and  the  farmer 
would  say,  "  Old  fellow,  I  am  going  to  have  the  finest  crop  of  wheat 
next  year  you  ever  saw.  You  come  around  when  that  crop  is  in  and 
I  will  give  you  something  to  eat."  That  would  not  do  the  starving 
man  much  good,  because  he  would  be  dead  when  the  crop  came  in. 
Now,  the  street  railways  are  just  in  a  crucial  condition.  In  fact, 
their  credit  is  already  strained  beyond  the  elastic  limit,  and  when 
we  talk  about  stopping  and  making  an  accurate  valuation  of  these 
properties  a  very  long  period  of  time  can  be  consumed.  It  is  sur- 
prising how  much  time  it  does  require  sometimes  in  connection  with 
a  State  commission  making  an  accurate  valuation. 

The  CHAIRMAN.  I  hope  you  did  not  get  the  idea  that  I  meant  there 
had  to  be  a  valuation  of  these  properties  in  order  to  determine  the 
immediate  pressing  question.  You  know 

Mr.  DOHERTY.  Well,  I  was  afraid  the  conclusion  would  be  drawn 
by  many  of  our  State  commissions  that  no  relief  whatever  should  be 
granted  until  this  very  detailed  determination  of  values  could  be 
made. 

The  CHAIRMAN.  Well,  of  course  you  know  that  State  commissions 
during  the  war  times  have  uniformly  granted  rate  increases  with- 
out going  through  the  form  of  valuing  the  properties.  They  have 
simply  overlooked  that  during  the  time  of  the  war  and  have  treated 
thorn  as  emergency  propositions. 

Mr.  DOHERTY.  They  have  in  many  cases,  but  in  other  cases  they 
have  not  granted  the  increase;  and  my  theory  would  be  whatever  is 
done,  to  make  an  approximate  valuation  and  make  some  rate  ad- 


408       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

justment  on  that  basis  and  then  later  make  the  detailed  and  more 
accurate  valuation. 

The  CHAIRMAN.  Are  we  to  understand  that  in  your  opinion 
this  commission  has  just  one  duty  to  perform,  and  that  is  to  evolve 
some  plan  by  which  immediate  relief  can  be  given  to  the  utility? 

Mr.  DOHERTY.  Will  you  read  that  to  me? 

(The  question  was  then  read  as  above  recorded.) 

Mr.  DOHERTY.  Now,  I  did  not  assume  that,  but  I  do  assume  that 
if  anything  is  going  to  be  done  and  eventually  serve  the  public 
properly  with  street-railway  service,  there  must  be  immediate  re- 
lief given.  In  other  words,  that  a  permanent  plan  will  be  greatly 
handicapped  unless  immediate  relief  is  given. 

The  CHAIRMAN.  Well,  might  we  assume  then  that  tlxere  are  two 
functions  to  be  performed  by  this  commission :  One  to  evolve  a  plan 
for  temporary  relief  and  another  to  outline  a  plan  for  permanent 
relief  ? 

Mr.  DOHERTY.  That  would  be  very  wise,  I  think. 

The  CHAIRMAN.  Now,  addressing  yourself  to  the  first  proposition — 
of  immediate  relief — how  can  we  serve  the  utilities  in  that  respect? 

Mr.  DOHERTY.  I  would  say  by  recommending  that  revaluations 
of  the  properties  be  made  by  approximate  methods  and  rates  predi- 
cated on  the  valuation  by  the  approximate  methods  until  such  time  as 
credit  valuations  of  these  properties  can  be  made. 

The  CHAIRMAN.  Do  you  mean  that,  where  a  utility  is  actually 
operating  in  the  red  and  paying  nothing  at  all  to  its  stockholders, 
there  should  be  a  valuation  of  the  property  before  relief  is  given, 
even  upon  an  approximate  basis? 

Mr.  DOHERTY.  Now,  I  do  not  think  that  is  necessary.  I  will  amend 
my  answer  by  saying  that  in  many  cases  there  is  no  need  of  even  mak- 
ing an  approximate  valuation.  We  know  that  a  raise  has  to  be  made. 
But  I  should  think  an  approximation  should  be  made.  I  should 
think  rates  could  be  based  better,  even  in  a  situation  like  that,  if  an 
approximation  was  made.  Say,  for  instance,  you  just  took  roughly 
and  said  for  a  railroad,  we  will  allow  a  valuation — I  am  just  talk- 
ing now  in  round  figures — we  will  allow  a  valuation  of  $100,000  a 
mile  of  track  as  an  approximate  valuation,  and  then  we  will  see  what 
the  situation  would  have  to  be  on  that  valuation  to  yield  a  proper 
return,  and  then  these  rates  will  prevail  until  an  accurate  valuation 
can  be  made. 

The  CHAIRMAN.  Irrespective  of  value,  the  utility  has  got  to  have 
enough  money  out  of  its  rates  to  pay  its  operating  costs. 

Mr.  DOHERTY.  Oh,  yes,  absolutely.  But  I  would  not  like  to  see 
just  enough  given  to  them  to  pay  operating  expenses,  because  "that 
does  not  save  their  credit  and  that  does  not  save  the  credit  of  the 
business. 

The  CHAIRMAN.  No  doubt  about  that,  but  I  was  trying  to  develop 
the  point  that  there  are  cases  where  valuation  is  not  necessary. 

Mr.  DOHERTY.  Certainly,  in  most  cases  valuation  is  not  necessary 
to  know  that  there  has  to  be  an  increase  in  rates. 

The  CHAIRMAN.  Now  then,  to  whom  should  our  recommendation  be 
made,  and  how,  answering  with  respect  to  immediate  relief? 

Mr.  DOHERTY.  Well,  I  do  not  know,  of  course;  I  am  not  a  very 
quick  thinker,  but  it  seems  to  me  we  have  got  to  make  that  apparent 
to  whoever  the  rate-making  body  is.  In  many  States  both  the  city 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      409 

and  the  commission  have  to  act,  and  having  two  bodies  which  must 
act  makes  it  more  than  doubly  difficult. 

I  think  that  the  one  important  thing  to  do  here  is  to  make  the  pub- 
lic understand  it,  because  I  know  from  my  dealings  with  public  offi- 
cials that  very  often  they  know  that  a  thing  ought  to  be  done,  but 
they  are  not  going  to  do  it  unless  they  believe  the  public  thinks  it 
ought  to  be  done. 

The  CHAIRMAN.  Do  you  believe  the  function  of  this  commission, 
then,  is  largely  educational? 

Mr.  DOHERTY.  Yes,  largely  educational.  I  would  say  that  the  work 
of  this  commission  would  not  be  entirely  covered  if  it  simply  suc- 
ceeded in  impressing  upon  the  rate-making  body  that  this  or  that 
were  so.  Unless  it  can  go  further  and  be  of  enough  public  interest 
to  make  them  courageous  enough  to  act,  not  much  will  be  accom- 
plished from  it. 

The  CHAIRMAN.  Now  to  step  from  the  temporary  plan  to  a  perma- 
nent plan ;  how  can  this  commission  serve  the  utilities  and  the  public 
with  respect  to  a  permanent  plan? 

Mr.  DOHERTY.  Well,  it  can  point  out  the  possibilities  of  street-rail- 
way economies,  and  it  can  point  out  the  possibilities  of  the  relief  of 
persons  that  street-railway  companies  should  not  bear.  There  has 
been — I  do  not  know  how  many  cities  there  are  where  there  is  an 
occupation  tax  laid  on  street  railways.  I  do  know  that  many  public 
utilities  are  subjected  to  an  occupation  tax.  And  in  talking  with 
people  responsible  in  some  cases  for  levying  that  tax  I  find  that  they 
always  look  upon  it  as  a  tax  upon  the  occupation  of  the  street,  not 
using  the  name  of  the  tax  in  the  way  it  originally  started — as  being 
the  character  of  business  carried  on.  And  many  gas  and  electric- 
light  and  street-railway  companies  are  compelled  to  pay  a  tax  for  oc- 
cupying the  streets  in  some  form  or  other.  Well,  that  is  a  very  un- 
wise policy,  it  seems  to  me,  from  the  standpoint  of  the  public.  Be- 
cause, taking  a  gas  or  electric  company — they  transmit  the  equivalent 
of  an  enormous  amount  of  energy  over  or  under  the  public  streets 
without  noise,  wear  and  tear  or  causing  the  city  the  expense  of  main- 
taining the  streets.  A  street-railway  company  operates  on  its  own 
steel  tracks,  and  it  does  not  wear  out  the  pavement,  and  to  tell  the 
truth,  it  saves  a  great  deal  of  the  city's  pavement  by  the  amount  of 
trucking  that  is  done  on  its  tracks. 

The  CHAIRMAN.  I  assume  we  will  have  witnesses  who  will  develop 
this  part  of  the  question  more  fully,  but  what  I  am  trying  to  find 
out  is  if  you  can  not  sketch  out  in  a  word  the  things  this  commission 
will  do. 

Mr.  DOHERTY.  I  am  trying  to  think  of  a  few;  but  if  you  will  al- 
low me  to  proceed  a  moment — no  occupation  tax  ought  to  be  put  on  a 
street  railway,  because  a  car  carries  an  average  of  30  passengers  as 
compared  with  an  automobile  which  carries  2,  yet  we  are  subjected 
to  a  paving  tax  and  it  is  not.  There  was  a  time  we  wore  out  the 
pavement;  there  was  a  time  when  the  horses  littered  up  the  pavement 
and  we  had  to  clean  them.  We  have  lots  of  obligations  forced  on  us 
now  that  are  relics  of  the  past,  and  we  can  not  get  rid  of  them.  I 
can  not  think  of  all  of  them  sitting  here.  But  every  possible  relief 
which  can  be  given  to  the  street  railways  and  transferred  from  a 
specific  charge  against  them  to  either  the  property  holders  or  the 
1GOG430— 20 27 


410       PROCEEDINGS  Or  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

general  fund  should  be  done.  Because  even  if  a  man  has  an  auto- 
mobile and  does  not  use  the  street  railway,  he  wants  it  there — it  is 
an  asset  there  to  him.  It  is  there  ready  to  serve  the  needs  of  his 
premises,  with  a  messenger  boy  or  anything  else  that  comes  along; 
and  in  a  way  you  could  almost  justify  a  subsidy  for  a  railway  rather 
than  have  it  shut  down.  Even  if  the  people  did  not  use  it  enough 
to  pay  for  it,  it  would  still  be  a  municipal  necessity.  One  of  my  first 
thoughts  would  be  to  take  off  every  load  that  can  possibly  be  taken 
off  of  the  street  railway  company. 

The  CHAIRMAN.  That  involves  a  very  comprehensive  study  of  the 
chief  function  of  a  utility  with  reference  to -its  service  to  the  public. 

Mr.  DOHERTY.  Yes ;  and  it  even  involves  the  matter  of  the  differen- 
tiation between  a  street-railway  company  and  another  form  of  public 
utility,  because  there  is  a  differentiation  there. 

The  CHAIRMAN.  Should  this  commission  undertake  to  recommend 
a  definite  form  of  franchise  to  be  used  by  utilities  throughout  the 
country  I 

Mr.  DOHERTY.  I  would  say  no  to  that,  because  I  assume  we  are 
not  going  to  get  away  from  regulation  by  some  regulating  body, 
and  I  think  the  franchise  is  more  or  less  a  superfluous  thing,  if  you 
are  going  to  have  a  regulating  body.  I  do  not  think  you  can  write 
into  a  franchise  in  advance  as  wisely  as  you  can  be  regulated^  and 
I  take  it  that  by  no  chance  will  regulation  be  given  up  of  the  public 
utilities;  and  if  regulation  is  going  to  be  maintained,  it  is  a  good 
deal  better  not  to  have  any  other  instrument  that  interfered  with 
regulation.  Have  your  franchise  just  that  you  are  able  to  operate 
and  have  it  of  an  indeterminate  character  and  subject  to  regulation, 
I  would  say — just  thinking  out  loud,  because  I  did  not  know  that 
question  would  be  asked  and  have  not  thought  of  it. 

The  CHAIRMAN.  Then  you  would  be  satisfied  with  a  recommenda- 
tion for  an  indefinite  term  franchise  ? 

Mr.  DOHERTY.  Yes. 

The  CHAIRMAN.  And  have  the  utilities  regulated  by  public  author- 
ities? 

Mr.  DOHERTY.  I  would,  as  a  street-railway  man.  I  do  not  know 
as  that  represents  the  views  of  the  other  street-railway  men. 

The  CHAIRMAN.  Then  there  is  one  kind  of  a  franchise  which  you 
would  be  satisfied  to  have  us  recommend  ? 

Mr.  DOHERTY.  Yes. 

The  CHAIRMAN.  Are  there  any  other  features  you  would  have  in- 
corporated in  that  franchise? 

Mr.  DOHERTY.  Well,  I  do  not  know  how  to  distinguish  between 
what  is  in  the  franchise  and  what  is  in  the  law  creating  the  regu- 
latory body.  If  the  duty  of  the  regulatory  body  is  to  act  and  act 
promptly,  I  would  say  the  less  in  the  franchise  the  better.  Most 
every  franchise  to-day — if  you  would  start  out  to-day  and  get  a 
franchise  from  the  city,  you  would  get  what  I  have  seen  in  my  own 
case ;  they  want  to  give  you  half  a  page  as  to  the  rights  of  the  com- 
pany and  68  pages  of  restrictions  on  the  company.  That  is  what  a 
franchise  is  to-day. 

Mr.  WARREN.  And  attempt  to  regulate  in  advance,  for  all  time? 

Mr.  DOHERTY.  Yes,  and  attempt  to  regulate  in  advance.  Now,  we 
are  not  asking  to  get  away  from  State  regulation,  so  if  we  are  not 
asking  to  get  away  from  State  regulation  and  are  going  to  have  State 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      411 

regulation  permanently,  it  seems  to  me  it  is  better  not  to  write  a, 
State  regulation  in,  in  advance,  at  the  time  the  franchise  is  granted. 

The  CHAIRMAN.  Don't  you  think  it  would  be  well  for  a  Federal 
commission  to  make  certain  general  recommendations  to  the  States 
and  to  the  municipal  authorities  that  can  be  incorporated  in  new 
franchises. as  they  are  granted? 

Mr,  DOHERTY.  There  may  be  some  things,  but  I  do  not  think  of 
them  now.  But  I  am  very  sure  you  could  make  one  very  valuable 
recommendation  by  saying,  "  Put  very  little  in  it." 

Commissioner  SWEET.  If  real  relief  is  obtained  through  this  com- 
mission or  otherwise,  does  it  not,  in  your  judgment,  mean  a  rather  com- 
plete revolution  as  compared  with  what  has  been ;  in  other  words,  has 
there  not  been  antagonism  of  a  certain  kind  between  the  general  pub- 
lic and  the  public-service  corporations  in  the  past — a  feeling  on  the 
part  of  the  public  that  the  public-service  corporations  were  grasping, 
were  seeking  to  get  more  than  they  were  fairly  entitled  to,  and  that 
it  was  the  duty  of  the  public  to  be  very  watchful  and  to  do  a  great 
many  things  in  the  way  of  punishing  the  public-service  corporations 
for  what  tney  might  do? 

Mr.  DOHERTY.  Well,  you  have  described  the  attitude.  I  would  use 
your  same  words  in  trying  to  answer  your  question. 

Commissioner  SWEET.  Well,  do  you  think  that  has  been  the  situa- 
tion? 

Mr.  DOHERTY.  I  think  that  has  been  the  situation.  I  think  there 
have  been  some  grievances  that  the  public  have  had,  but  I  think  they 
have  been  enormously  overagitated;  and  so  many  men  have  capital- 
ized the  little  original  unpopularity  of  the  utility  corporations  to 
put  themselves  into  political  power  and  have  kept  at  it,  and  the  pub- 
lic have  felt  that  they  had  to  be  watched  very  close. 

Commissioner  SWEET.  Is  it  not  necessary  to  change  that  attitude 
entirely  and  wipe  out  this  whole  feeling,  to  get  permanent  relief? 

Mr.  DOHERTY.  You  have  to  make  the  public  understand  that  ordi- 
nary, common  garden  variety  of  fair  play  demands  that  the  street- 
railway  company  be  given  a  fair  and  adequate  rate  of  return,  and  it 
can  not  do  it  with  the  old  rate  of  fare,  with  all  its  expenses  increased 
so  enormously. 

Commissioner  SWEET.  Now  you  are  putting  that  solely  as  a  street- 
railway  man  and  not  as  a  citizen.  Don't  you  think  that  instead  of 
demanding  it  or  recommending  it  as  far  as  this  commission  is  con- 
cerned— as  a  matter  of  justice  to  the  street-railway  company — that 
particular  stress  should  be  laid  upon  the  fact  that  the  public  can  not 
have  this  absolute  necessity,  to  say  nothing  about  convenience,  unless 
it  changes  its  attitude  and  becomes  helpful  and  cooperative  instead 
of  having  its  tentacles  out  looking  for  trouble  ? 

Mr.  DOHERTF.  Yes,  sir;  I  agree  with  you  thoroughly.  But  the 
only  distinction  at  all  between  you  and  me  is  that  I  believe  that 
sentiment  would  be  largely  removed  if  they  did  understand  that 
these  companies  were  really  losing  money.  But  you  will  find  in 
every  community  some  demagogue  telling  them  that  is  all  a  bluff — 
the  street-railway  company  is  not  losing  money;  and  that  is  one  of 
the  troubles.  But  I  agree  with  you  on  another  thing,  Mr.  Sweet, 
and  very,  very  thoroughly;  and  you  took  a  slant  at  it,  and  I  was 
hoping  you  would  come  out  and  say  so.  Let  us  assume  we  all  do 
get  wiped  out;  for  every  dollar  we  lose  it  will  bo  nothing  in  com- 
parison with  the  punishment  inflicted  upon  the  public. 


412       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Let  us  take  our  railroad  situation.  I  saw  the  railroad  situation 
made  a  toy  of.  I  lived  in  Wisconsin,  I  was  a  young  man  there ;  and 
I  tried  to  point  out  what  was  to  be  the  effect  of  making  the  railroads 
of  this  country  a  political  football.  But  on  the  plea  of  saving  money 
for  the  wage  earners,  they  kept  reducing  fares  and  regulating  and 
regulating.  Now  the  wage  earners  are  not  great  travelers.  And  I 
maintain  this,  and  this  is  conservative — that  for  every  penny  that 
was  saved  the  wage  earners  of  this  country  by  a  reduction  of  fares 
and  regulation  of  railroads,  it  cost  those  people  at  least  10  cents  in 
the  way  of  increased  food,  increased  cost  of  clothing,  and  increased 
cost  of  sheltering  and  housing  them,  because  we  were  a  rapidly 
growing  country;  we  had  more  mouths  to  feed  and  more  bodies  to 
clothe  and  shelter  and  were  not  opening  up  more  land  to  take  care 
of  them.  Now  in  the  end  it  was  the  public  that  paid  the  bill.  The 
railroad  companies  paid  first,  but  the  big  bill  was  paid  by  the  public. 
And  how  much  it  cost  the  public  after  we  got  into  the  war  I  do  not 
know,  but  if  it  had  not  been  for  the  development  of  the  automobile 
and  the  substitution  of  gasoline  for  horsepower  I  do  not  know  how 
we  would  have  fed  ourselves  and  our  Allies.  We  could  not  have 
done  it.  And  that  is  just  what  foolish  regulation  cost  and  always 
does,  that  is  done  for  the  political  advancement  of  the  men  who  pro- 
mote it.  It  would  have  cost  us  the  loss  of  the  war  if  it  had  not  been 
for  the  development  of  gasoline-consuming  devices  instead  of  food- 
consuming  animals.' 

Commissioner  SWEET.  Well,  that  is  a  little  bit  aside  from  the  im- 
mediate question,  but  as  a  matter  of  fact 

Mr.  DOHERTY.  Well,  it  is  a  public  utility,  and  we  are  doing  the 
same  way  with  the  public  utilities;  and  the  public  will  pay  the  big 
bill  in  the  future. 

Commissioner  SWTEET.  But  the  internal  combustion  engine  has 
really  played  a  big  part  in  this  war. 

Mr.  DOHERTY.  Yes;  and  in  hurting  the  street  railways;  and  it 
did  not  save  us  on  the  fare  question. 

Commissioner  SWEET.  Certainly,  but  we  would  have  no  aeroplanes 
if  it  was  not  for  that  kind  of  an  engine. 

Mr.  DOHERTY.  No. 

Commissioner  SWEET.  And  no  dirigible  balloon. 

Mr.  DOHERTY.  Well,  we  might  have  the  balloon,  but  not  the  lighter- 
than-air  machine.  But  it  was  the  substitution  of  gasoline,  a  mineral 
product,  for  a  food  product,  that  enabled  the  existing  lands  to  feed 
ourselves  and  our  Allies. 

Commisisoner  SWEET.  Now,  to  come  back  to  the  main  question 

Mr.  DoHERTr.  In  other  words,  it  is  a  mere  accident  that  the  matter 
of  trying  to  capitalize  railroad  unpopularity  for  political  advance- 
ment did  not  ruin  us. 

Commisisoner  SWEET.  Now  the  real  point  is,  to  get  away  from 
that  prejudice  which  we  all  realize  does  exist  to  a  certain  extent 
and  that  there  was  some  ground  for  in  the  past  a  great  deal  more 
than  there  is  at  present ;  in  fact,  the  evidence  so  far  introduced  seems 
to  be  that  there  is  little  if  any  ground  for  it  now,  and  yet  we  all  recog- 
nize its  existence  to  a  certain  extent.  How  to  get  rid  of  it  is  the  real 
problem,  is  it  not  ? 

Mr.  DOHERTY.  I  think  so.  But  I  think  the  real  way  to  get  rid  of 
it  is  to  convince  the  public — that  is,  I  think  it  will  change  their 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      413" 

attitude  of  unfriendliness  if  they  thoroughly  appreciate  that  the 
roads  are  losing  money  and  that  they  must  be  supported,  because  this 
is  a  public  necessity,  it  is  not  a  matter  of  something  alone  purely  for 
the  benefit  of  the  stockholders ;  but  they  must  have  it,  and  it  is  more- 
essential  to  them  than  it  is  to  the  stockholders. 

Commissioner  SWEET.  Then  would  it  be  your  opinion  that  if  this 
commission,  by  reason  of  all  the  investigation  that  it  is  capable  of 
making  within  a  comparatively  short  time,  should  report  that  the 
interest  of  the  public,  in  its  judgment,  demands  first  the  immediate 
relief  that  you  have  referred  to  and  later  on  more  permanent  meth- 
ods of  relief,  to  say  comparatively  little-  about  the  interests  of  the 
companies,  although  that  means,  however,  the  interest  of  investors, 
who  are  a  part  of  the  public — often  widows  and  orphans  and  a  com- 
paratively few  people 

Mr.  DOHERTY.  Yes,  and  some  of  them  savings  banks  and  life- 
insurance  companies. 

Commissioner  SWEET.  Well,  if  the  whole  subject  were  presented  to 
the  public  just  exactly  as  it  is  and  in  a  comparatively  brief  and 
forceful  manner,  backed  up  by  what  little  authority  there  may  be 
given  to  this  commission  in  the  minds  of  the  public,  do  you  think  it 
would  do  some  good? 

Mr.  DOHERTY.  Oh,  yes;  it  will  do  a  great  deal  of  good,  and  I  do 
not  believe  that  you  men  can  sit  and  listen  and  examine  every  part 
of  this  case  except  when  you  get  through  you  can  honestly  say  that 
it  is  more  greatly  to  the  interest  of  the  public  to  do  this  and  to  do  it 
promptly  than  it  is  to  the  railroads  or  to  the  investors. 

Commissioner  SWEET.  Well,  it  certainly  seems  as  if  the  public 
ought  to  then  be  open-minded  enough  to  realize  that  fact. 

Mr.  DOHERTY.  Well,  it  depends  how  many  newspapers  are  preach- 
ing the  other  side  as  a  pure  matter  of  their  own  selfish  interest  and 
how  many  people  have  already  started  out  to  capitalize  their  own 
political  future  on  this  particular  issue  and  they  can  not  very  well 
back  up. 

Commissioner  SWEET.  Why  should  newspapers  have  any  interest 
in  their  taking  an  opposite  view? 

Mr.  DOHERTY.  Well,  lots  of  newspapers  have  built  up  their  circu- 
lation by  simply  preying  on  the  public  utilities,  thinking  that  that 
would  be  a  matter  of  interest  that  would  sell  their  newspapers. 

I  have  been  in  the  public-utility  business — this  coming  fall,  if  I 
wanted  to,  I  could  celebrate  my  thirty-eighth  year  in  the  public- 
utility  business.  I  have  seen  case  after  case  of  trouble  hatched  up 
between  a  city  and  a  public-utility  company  that  was  done  purely  for 
political  reasons.  Now  I  could  name  you  case  after  case  where  pub- 
lic councilmen  or  people  of  that  sort  would  make  a  demand  on  the 
public  utility  where  they  would  have  been  the  most  disappointed 
people  in  the  world  if  the  company  had  met  the  demand,  and  in 
many  cases  they  were.  And  I  could  cite  you  other  cases  where  the 
public  utility  met  the  demand  for  a  reduction  in  rates  and  they 
immediately  made  some  demand  that  they  knew  the  company  could 
not  meet;  and  then  they  would  have  an  issue  they  could  go  to  the 
people  with  and  promise  them  cheap  gas  or  cheap  current  and  they 
would  get  it  for  them  if  they  would  put  them  in  office. 

Now  you  have  that  to  meet.  An  average  reformer  is  a  man,  to  my 
mind — in  my  time  I  have  met  a  great  many  of  them,  and  I  would 


414       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

describe  him  as  a  rule  as  a  man  who  was  willing  to  take  every  one 
of  the  great  big  human  problems  and  use  them  as  brickbats  and  use 
them  as  a  pedestal"  by  which  he  could  get  his  shoulders  above  the 
balance  of  the  crowd.  Of  course,  many  of  them  are  genuine,  but 
they  are  shallow  thinkers — they  are  always  going  to  tell  you.  I  al- 
ways measure  a  reformer,  as  to  whether  he  is  a  real  reformer  or  not, 
by  whether  he  is  willing  to  give  the  people  something  out  of  his  own 
pocket  or  out  of  somebody  else's  pocket,  and  I  do  not  see  very  many 
that  are.  They  are  generally  looking  for  a  good  fat  job. 

The  CHAIRMAN.  If  your  definition  of  a  reformer  is  accurate,  then 
does  it  not  mean  that  all  .reforms  that  have  -been  accomplished  for 
the  benefit  of  civilization  have  been  made  to  meet  the  selfish  wishes 
of  those  who  advocated  them? 

Mr.  DOHERTY.  Well,  I  will  tell  you.  There  are  a  lot  of  things 
you  would  call  reforms  probably  that  I  would  not. 

Commissioner  SWEET.  The  reformer  you  have  been  talking  about 
is  the  spurious  reformer,  the-  man  who  is  trying  to  trade  on  the 
principles  of  being  a  reformer  and  is  not  really  one. 

Mr.  DOHERTY.  Yes,  but  just  think  how  many  of  those  we  have 
with  us. 

Commissioner  SWEET.  Yes,  I  understand. 

Mr.  DOHERTY.  They  kind  of  crowd  out  all  the  rest. 

Commissioner  SWEET.  For  one  real  reformer  there  are  probably  15 
or  20  or  maybe  50  of  these  so-called  reformers  who  ase  not  in  reality 
such.  Is  that  it? 

Mr.  DOHERTY.  I  think  your  figure  is  a  little  low  there.  I  would 
say  100  or  200. 

Commissioner  SWEET.  Well,  I  presume  we  will  all  of  us  agree  in 
rather  despising  those  who  sail  under  false  colors  of  any  kind. 

Mr.  DOHERTY.  Well,  I  do  not  know  as  I  do.  I  have  a  lot  of  sym- 
pathy with  many  of  these  public  officers.  You  people  know  that  the 
people  right  down  here  in  the  Senate  and  House  can  not  vote  as  they 
really  think.  I  took  lunch  to-day  with  a  Senator  at  the  Senate 
lunch  room.  He  said  of  course  they  can  not  do  it — they  are  such  big 
cowards  they'  can  not  do  it.  If  they  just  did  what  they  thought  was 
really  right  they  would  never  serve  but  one  term,  and  they  would  not 
serve  that  one  term  out,  if  the  article  could  be  sprung  on  them. 

Mr.  WARREX.  I  believe  they  could  vote  what  they  really  believe 
and  stay  there,  but  they  do  not  think  so. 

Mr.  DOHERTY.  I  do  too.  I  think  the  public  admire  bold  people.  I 
think  that  is  the  reason  Theodore  Roosevelt  was  such  a  hero,  because 
he  had  the  nerve  to  tell  the  public  where  they  could  get  off,  and  they 
liked  it,  but  the  average  politician  does  not. 

I  went  to  a  city  official  and  said,  "  Are  you  going  to  allow  a  thing 
like  this  to  be  pulled  ?"  He  said, "  What  can  I  do  ?  If  I  don't  permit 
this  thing  to  go  through,  people  would  say  you  had  bought  me  out." 
It  was  a  case  of  two  opposition  companies  fighting.  There  was  a 
man  as  honest  as  the  day  was  long,  but  he  felt  he  could  not  stand  up 
and  do  what  he  knew  was  right,  because  it  meant  that  sort  of  criti- 
cism. 

Commissioner  SWEET.  I  am  going  to  turn  the  tables  on  you  a 
little  bit. 

Mr.  DOHERTY.  That  is  fair  enough. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      415 

Commissioner  SWEET.  I  know  of  a  case  where  a  public-service 
corporation  attempted  to  induce  the  appointing  authority  of  a  city 
to  appoint  a  man  on  the  board  of  assessors  who  hael  been  a  member 
of  the  common  council  and  had  been  recognized  all  over  the  city  as 
a  very  decided  friend  of  public-service  corporations.  The  appoint- 
ment was  not  made.  I  know  of  another  case  where  a  public-service 
corporation  attempted  to  induce  a  public  official  who  had  the  ap- 
pointive power  to  appoint  as  chairman  of  a  franchise  committee  of 
the  common  council  a  decided  friend  of  such  corporations,  and 
especially  desired  to  have  left  off  from  that  committee  entirely  a 
man  who  had  shown  himself  somewhat  advanced  and  a  little  too 
anxious  to  require  street-railway  companies  to  put  down  what  is 
called  the  Trilby  rail.  And  I  could  name  a  number  of  other  in- 
stances of  that  kind  that  never  got  into  the  newspapers  at  all. 

Mr.  DOHERTY.  Don't  think  that  I  am  sitting  here  and  claiming 
that  the  only  virtue  in  the  world  belongs  to  corporation  men.  I  do 
not.  But  I  do  say  this — that  the  greatest  degree  of  honesty  that 
you  will  find  in  the  United  States  you  will  find  among  the  big 
business  men  of  this  country.  And  there  is  a  reason  for  it,  and  it  is 
a  natural  reason :  Big  business  requires  a  certain  amount  of  mutual 
trust  every  place.  Icon  do  not  advance  men  there  who  are  thieves. 
Thieves  have  to  work  in  squads  of  one;  they  have  to  watch  each 
other.  It  is  natural  that  business  carried  on  with  corporations  should 
bring  about  the  advancement  of  the  men  who  are  honest  and  trust- 
worthy, and  while  I  do  not  say  for  a  moment  but  what — I  am  not 
here  pinning  any  particular  stars  on  them,  that  is,  I  am  not  claim- 
ing that  the  corporation  men  have  done  no  wrong;  but  I  would  say 
there  are  certainly  no  more  honest  men  in  this  country  than  corpora- 
tion men.  Unfortunately,  they  are  badged  wrong.  If  you  go  to 
Europe  you  will  find  everybody  tells  you,  "  Look  out  for  the 
American  business  man."  I  say  to  you  after  doing  business  with 
most  of  the  men  in  the  European  countries,  there  is  no  man  as 
honest  as  the  American  business  man,  and  yet  he  allows  himself  to 
be  badged  as  the  dishonest  business  man,  on  account  of  a  few  of 
our  fakers  who  have  gone  over  there  and  put  things  over  on  them. 
Now  the  corporation  man,  for  not  having  defended  his  reputation, 
has  been  made  to  appear  in  the  eyes  of  a  great  many  people  in 
America  a  little  more  dishonest  than  the  average.  Now  they  view 
something  as  being  unfair  when  we  try  to  get  somebody  put  on  a 
board  who  we  know  will  be  fair.  We  are  not  supposed  to  do 
that.  They  can  go  out  and  preach  that  as  far  as  they  want  to.  But 
the  average  corporation  in  this  country  is  not  looking  for  anything 
but  a  fair  deal  and  the}7  will  be  glad  if  they  get  that.  They  just 
want  the  common,  ordinary  garden  variety  of  fair  play.  They  will 
be  satisfied  with  that,  and  it  is  that  or  ruination  in  some  cases. 

Commissioner  SWEET.  Let  me  say  this,  to  close  the  matter  up,  and 
I  think  you  will  agree  with  me,  that  with  many  business  men,  big 
or  little,  there  are  some  who  are  honest  and  men  that  you  can  admire 
from  every  point  of  view,  and  others  who  are  not.  You  will  find 
the  same  thing  among  newspapers  and  newspaper  men.  I  think  you 
will  find  the  same  thing  among  city  officials;  you  will  find  some  who 
are  strictly  honest  and  square  and  serving  the  city  faithfully  for 
compensation  far  below  what  is  actually  earned.  You  know  that 
is  a  fact  in  many  cases,  do  you  not? 


416       PROCEEDINGS  OF  FEpERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  DOHERTT.  Yes. 

Commissioner  SWEET.  And  there  are  dishonest  ones.  Men  have 
been  shown,  many  city  officials,  to  have  accepted  bribes  and  business 
men  have  been  known  to  give  men  bribes  on  school  boards  and  com- 
mon councils.  Now  these  things  all  occur.  We  have  got  to  admit  it, 
and  it  is  not  fair  nor  is  it  wise  for  us  to  generalize  too  much  and  say 
that  one  type  of  man  or  people  engaged  in  one  kind  of  business  are 
all  right  and  nobody  else  is.  Now  the  facts  do  not  substantiate  or 
sustain  any  such  proposition  as  that.  Now,  then,  when  we  come  right 
down  to  the  point  before  us,  is  not  this  the  situation — that  whatever 
may  be  said  about  public-service  corporations  or  public  officers  or  the 
general  public  or  newspapers,  that  the  points  of  antagonism  that 
existed  a  few  years  ago  have  disappeared  and  that  now  the  interests 
of  the  corporation,  both  public,  private,  and  the  general  public  and 
the  newspapers,  for  that  matter — because  the  newspapers  are  sup- 
ported by  the  general  public  and  ought  to  be1  carried  on  in  the  in- 
terest of  the  general  public,  and  for  that  matter  the  interest  of  the 
politicians  who  used  to  trade  to  some  extent  in  getting  up  on  the 
housetops  and  decrying  the  public-service  corporations — but  the  in- 
terests of  all  if  properly  understood  are  distinctly  in  favor  of  co- 
operation hereafter  instead  of  opposition  and  of  resorting  to  some 
method  by  which  the  general  public  shall  not  be  deprived  of  the 
necessity  of  railroads  and  that  the  holders  of  bonds  and  stock  as  well, 
for  instance,  shall  not  be  deprived  of  a  reasonable  income,  and  that 
some  steps  shall  be  taken  if  it  is  possible  to  find  out  what  ought  to  be 
taken,  to  adjust  this  matter  in  a  proper  cooperative  manner  for  the 
general  benefit  of  all  rather  than  in  a  spirit  of  opposition  such  as  has 
existed  before.  Is  not  that  true? 

Mr.  DOHERTF.  Yes,  sir;  that  is  true. 

Commissioner  SWEET.  Now,  then,  if  that  can  be  brought  about — we 
may  say  that  it  will  be  bringing  about  the  millenium,  but  it  is  not 
absolutely  impossible  that  an  approximation  of  that  may  be  reached, 
is  it? 

Mr.  DOHERTF.  I  do  not  think  it  is  so  difficult  either. 

Commmissioner  SWEET.  It  ought  not  to  be,  because  it  is  a  mere 
question  of  knowledge  and  knowing  what  the  facts  are,  is  it  not? 

Mr.  DOHERTY.  It  seems  to  me  obvious  that  the  relief  must  be  given. 

Commissioner  SWEET.  That  is  all. 

(Witness  excused.) 

The  CHAIRMAN.  We  will  stand  adjourned  until  10  o'clock  Monday 
morning. 

(Whereupon,  at  5.20  p.  m.,  an  adjournment  was  taken  until  Mon- 
day, July  21,  at  10  a.  m.) 

WASHINGTON,  D.  C.,  July  21,  1919. 

Met  pursuant  to  adjournment  at  10  a.  m. 

Present :  Parties  as  before. 

The  CHAIRMAN.  Are-you  ready  to  proceed,  Mr.  Warren? 

Mr.  WARREN.  All  ready;  yes,  sir. 

Mr.  Chairman,  at  this  time  I  should  like  to  put  in  the  statement  of 
Mr.  England,  who  was  here  on  Friday  but  was  not  reached  and 
could  not  well  be  here  to-day. 

The  CHAIRMAN.  Is  that  the  witness  you  spoke  to  me  about? 

Mr.  WARREN.  That  is  the  witness  I  spoke  to  you  about. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      417 


The  CHAIRMAN.  You  may  file  the  statement. 

Mr.  WARREX.  I  will  not  read  it.  I  will  just  read  the  statement 
accompanying  it : 

The  business  of  the  Electric  Service  Supplies  Co.  consists  of  a  varied  line  of 
supplies  and  accessories  for  the  construction  and  maintenance  of  electric  rail- 
ways, taking  in  pretty  nearly  everything  used  in  the  way  of  electrical  and 
mechanical  supplies. 

The  schedules  attached  show  the  actual  selling  prices  of  some  of  the  principal 
lines,  as  well  as  comparative  percentages  of  such  prices,  as  between  prewar 
period  of  1914  and  the  years  following,  up  to  July  1,  1919.  These  figures  have 
been  compiled  from  actual  sales  records  and  therefore  reflect  the  true  condition 
as  to  prices  prevailing  during  the  period  covered. 

We  see  no  indication  of  lower  prices  in  the  near  future;  on  the  contrary, 
there  are  unmistakable  signs  of  a  stiffening  of  prices  in  many  lines.     While 
labor  is  somewhat  easier  to  obtain,  the  rates  remain  on  prearmistice  basis. 
Respectfully, 

A.  H.  ENGLAND, 
Vice  President  and  Treasurer. 

Then  follows  these  schedules  of  materials,  and  taking  1914  as  100 
per  cent,  the  six  months  of  1919  showed  had  an  average  percentage 
of  220  per  cent. 

S-CHEDULE   A. — Overhead   line   material;   relative   selling   prices   during   years 

specified. 

(Prices  of  1914  taken  as  100  per  cent.) 


Cata- 
logue 
No. 

Description. 

Percent. 

1914 

1915 

1916 

1917 

1918 

6  months, 
1919. 

50041 
50089 

31006 
41162 
30987 

30989 

31051 
30995 
31169 
31171 
31173 
31175 
31097 
31107 
41425 
31219 
31225 
31237 
31243 
31274 
31280 
41586 
41600 
41634 
41550 
31290 
41619 
31298 
31322 
31333 
31336 
42104 
31396 
31398 
liv-,s 
41862 
31403 

EG  lightning  arresters,  750  volts,  direct  cur- 
rent   

100 

100 
100 
100 

100 

100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 

jno 

100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 

too 

100 

100 
100 
100 

101 

102 
100 
100 
121 
122 
119 
121 
100 
100 
100 
148 
144 
147 
137 
100 
100 
103 
102 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 

115 

100 
103 
105 

124 

122 
117 
120 
167 
172 
162 
168 
128 
135 
128 
199 
194 
200 
188 
133 
126 
130 
126 
132 
85 
137 
109 
112 
144 
115 
122 
101 
104 
98 
115 
126 
116 

120 

100 
132 
156 

175 

192 

203 
212 
182 
192 
181 
189 
223 
182 
186 
222 
217 
229 
229 
148 
180 
175 
168 
188 
116 
191 
181 
157 
|ss 
176 
187 
159 
179 
161 
217 
236 
159 

127 

123 
183 
191 

248 

255 
264 
277 
198 
202 
196 
206 
307 
234 
238 
234 
235 
235 
235 
205 
203 
200 
188 
201 
140 
210 
216 
167 
189 
226 
225 
201 
231 
214 
278 
301 
205 

138 

130 
189 
207 

257 

265 
273 
286 
188 
187 
181 
191 
353 
240 
245 
224 
228 
224 
224 
194 
193 
190 
179 
194 
147 
207 
231 
158 
175 
232 
267 
212 
237 
220 
294 
319 
210 

CE-2  lightning  arresters,  2,500  volts,  alternat- 
ing current  

Type  K,  round  top  hanger,  |-inch  ... 

Type  K,  round  top  hanger,  |-inch  

Type  single  curve  with  giant  strain  gal- 
vanized           .           

Type  double  curve  with  giant  strain  gal- 
vanized... . 

Type  C,  cap  and  cone,  f-inch  

Tvpe  C,  straight  line,  galvanized  

Bronze  ears,  15-inch,  2/0  

Bronze  ears,  15-inch,  4/0     . 

Bronze  ears,  12-inch,  2/0  

Bronze  ears,  12-inch,  4/0  

Malleable  iron  clamps,  5-inch,  galvanized  
Malleable  iron  clamps,  7-inch,  galvanized  
Malleable  iron  clamps,  9-inch,  galvanized  — 
Copper  sleeves,  2/0,  16-inch  

Copper  sleeves,  4/0,  16-inch  ... 

Brass  sleeves,  2/0,  16-inch  

Bran  slf  ewsj  4/0,  l  ft-inch  

Bronze  frogs,  20°  

Bronze  frogs,  15°  

Malleable  iron  frogs,  20°  

Malleable  iron  frogs,  15°  

Rigid  R.  A.  bronze  crossing.... 

Rigid  R.  A.  malleable  iron  crossing      

Adjustable  bronze  crossing  

Adjustable  malleable  iron  crossing      

Type  K,  section  insulator  2/0,  24-inch  

Type  (J,  section  insulator,  2/0.  .         

Giant  strain  insulator,  2-inch     ..          

Giant  strain  insulator  2i-inch         

Brooklyn  strain,  J  by  4  inches,  galvanized  .  .. 

Wood  strain,  H  by  9  inches,  galvanized  
Pole  brackets,  9  feet  1J  inches,  A  

Pole  brackets,  9fe«t  2  inches,  A  
Feeder  wire  insulator,  500,000  CM  

100 

107 

131 

180 

217 

2-JO 

418        PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 


SCHEDULE  A. — Overhead  line  material;  average  selling  prices  to  electric  rail- 
ways. 


Cata- 
logue 
No. 

Description. 

1914 

1915 

1016 

1917 

1918 

6  months 
1919. 

50041 

EG  lightning  arresters,  750  volts,  direct  cur- 
rent       

$350.00 

$350.00 

$402.  50 

$420.00 

$443.  34 

$476.  CO 

50089 

CE-2  lightning  arresters,  2,500  volts,  altcr- 

440  00 

440.00 

440.00 

440.00 

542.  50 

589.  40 

31006 

Type  K,  round  top  hanger  f  -inch      

36.00 

36.00 

37.00 

47.65 

66.81 

^8.20 

41162 

Type  K,  round  top  hanger,  J-inch  

41.00 

41.00 

43.00 

64.02 

78.14 

85.00 

30987 

Type  K,  single  curve  with  giant  strain,  gal- 

41.50 

42.00- 

51.50 

72.63 

102.80 

106.00 

30989 

Type  K,  double  curve  with  giant  strain,  gal- 

73.00 

74.50 

89.00 

139.85 

186.42 

193.00 

31051 

Tvpe  0,  cap  and  cone,  f  -inch      

17.50 

17.50 

20.50 

35.50 

46.35 

47.00 

30995 

26.  25 

26.25 

31.50 

55.61 

72.77 

75.00 

31169 

Bronze  ear3  15-inch,  2/0     

28.25 

34.10 

47.25 

51.38 

55.96 

52.00 

31171 

33.  50 

40.90 

57.75 

64.48 

67.71 

62.00 

31173 

Bronze  ears,  12-inch  2/0       

25.  50 

30.  25 

41.25 

46.18 

50.00 

46.00 

31175 

28  25 

34.25 

47.50 

53.50 

58.33 

53.  95 

31097 
3107 
41425 
31219 

Malleable  iron  clamps,  5-inch,  galvanized  — 
Malleable  iron  clamps,  7-inch,  galvanized  
Malleable  iron  clamps,  9-inch,  galvanized  
Copper  sleeves,  2/0,  16-inch  

9.00 
13.75 

16.  25 

9.00 
13.75 
16.25 
75.00 

11.50 
18.50 
21.00 
101.00 

20.09 
24.98 
30.21 
112.50 

27.66 
32.14 
38.63 
119.00 

31.76 
32.96 
39.78 
113.85 

31225 

Copper  sleeves,  4/0,  16-inch  

10R.  00 

151.  60 

204.00 

227.50 

246.90 

239.  10 

31237 

Brass  sleeves,  2/0,  16-inch  

44.  25 

65.00 

88.50 

101.46 

104.17 

99.00 

31243 

89  50 

123  40 

168  50 

204.94 

218.  75 

207.  90 

31274 

Bronze  frogs,  20°  

230.00 

230.00 

305.00 

300.54 

470.  41 

445.  50 

31280 

270  00 

270  00 

340  00 

485.17 

546  88 

519  75 

41586 

Malleable  iron  frogs,  20°  

185.00 

190.00 

240.00 

324.  33 

369.  79 

351.  45 

41600 

Malleable  iron  frogs,  15°       

210.  00 

215  00 

265  00 

352  08 

385.83 

376  13 

41634 

Rigid  R  .  A.  bronze  crossing  

280.00 

280.00 

370.00 

520.00 

563.00 

644.50 

41550 

Rigid  R  .  A  malleable  iron  crossing  

240  00 

240  00 

205  00 

277  50 

335  00 

352  75 

31290 
41619 

Adjustable  bronze  crossing  

335.00 
215  00 

335.  00 
215  00 

460.00 
235  00 

638.75 
389  17 

702.  50 
464  17 

693.00 
497  29 

31298 

Type  K  section  insulator  2/0,  2i-inch       

565.00 

565.00 

630.00 

886.08 

944.17 

891  00 

31322 

Type  K  section  insulator,  2/0      

395.00 

395.00 

570.00 

742.  30 

745.00 

693.00 

31333 

Giant  strain  insulator  2-inch      

24  00 

24  00 

27  50 

42  14 

54.30 

55  70 

31336 

Giant  strain  insulator,  2i-inch      

32.00 

32.00 

39.00 

59.75 

72.04 

85.55 

42104 
31396 

Brooklyn  strain  f  by  4  inches,  galvanized  
Wood  strain,  1  by  9  inches,  galvanized    

67.50 
18  00 

67.50 
18  00 

68.00 
18  75 

107.  40 
32  38 

135.42 
41.56 

143.08 
42.63 

31398 
41858 

Wood  strain,  1J  by  9  inches,  galvanized  
Pole  brackets,  9  feet  1J  inches,  A     

22.00 
135.00 

22.00 
135  00 

21.50 
155  00 

35.39 

292  67 

47.10 
375  59 

48.32 
397  63 

41862 

Pole  brackets,  9  feet  2  inches,  A     

155.00 

155.00 

195.00 

365.25 

466.63 

494.  45 

31403 

Feeder  wire  insulator,  500  000  

32.50 

32  50 

37  75 

51  60 

66.50 

68  20 

31406 

Feeder  wire  insulator,  500,000  

29.50 

29.50 

33.50 

45.70 

77.58 

79.57 

SCHEDULE  B. — High  tension  transmission  material;  average  selling  prices  to 

electric  railways. 
(Prices  of  1914  taken  as  100  per  cent). 


Cata- 
logue 
No. 

Description. 

Per  cent. 

1«4 

1915 

1916 

1917 

1918 

1919 

360 
315 
3-3/4 
42375 
298 
42394 
42397 
2335A 

19420 
46008 

31644 
31684 
31769 
31763 
31449 

Porcelain  insulator,  pin  type,  66,000  volts  
Porcelain  insulator,  pin  type,  40,000  volts  
Porcelain  insulator,  pin  type,  23,000  volts  
Porcelain  insulator  No.  3,  pin  type,  20,000  volts. 
Porcelain  insulator,  pin  type,  13,000  volts  
Porcelain  insulator  No.  12,  pin  type,  8,000  volts 
Porcelain  insulator  No.  44,  pin  type,  6,600  volts 
Porcelain  insulator  suspension,  16,000  volts  . 
Cross-arm  truss  pin  (Pat.  269),  galvanized  
Cross-arm  truss  pin  (Pat.  269),  japanned 

100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 
100 

100 
100 
100 
100 
100 
100 
92 
100 
100 
100 
100 
100 
123 
119 
100 
91 
135 
136 
136 
153 
122 

122 
112 
148 
185 
109 
130 
113 
127 
129 
120 
111 
100 
167 
191 
133 
86 
205 
215 
234 
265 
199 

182 
183 
244 
272 
166 
190 
165 
201 
187 
198 
137 
132 
167 
208 
150 
111 
245 
260 
269 
309 
240 

252 

266 
328 
363 
211 
228 
194 
262 
203 
219 
151 
150 
194 
224 
198 
145 
256 
274 
286 
328 
254 

263 
295 
328 
263 
211 
231 
194 
262 
203 
219 
151 
150 
200 
225 
204 
150 
240 
256 
265 
306 
238 

Cross  arm  truss  pin  (Pat.  185)'.  galvanized  
Cross-arm  truss  pin  (Pat.  185),  japanned  

Metal  cross  arm,  30  inches  (Keystone  triangle). 
Metal  cross  arm,  36  Inches  (Keystone  triangle). 
Wood  cross  arm,  fir,  3i  by  4}  inches,  cubic  foot  . 
Wood  cross  arm,  fir,  4  oy  5  inches  

24-inch  galvanized  cross-arm  braces  

f  x  12  inches  galvanized  bolts  

|  by  4^  inches  galvanized  carriage  bolts  

i  by  4  niches  galvanized  lags 

|  by  12  inches"gal  vanized  eye  bolts  

Average  percentages  

100 

110 

152 

201 

237 

236 

PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      419 

SCHEDULE  B. — High  tension   transmission   material;  average  selling   prices  to 

electric  railirays. 


Cata- 
logue 
No. 

Description. 

1014 

1915 

1916 

1917 

1918 

1919 

380 

$224.00 

$224.00 

$272.60 

$408.  10 

$563.75 

$590.00 

315 

P.  rc°lain  insulator,  pin  type,  40,000  volts. 

57.60 

57.60 

64.38 

105.20 

153.10 

170.00 

3-3/4 

Porcelain  insulator  pin  type  23  000  volts. 

19.20 

19.20 

28.39 

46.80 

63.00 

63.00 

42375 
298 
42394 
4i:i97 
2335A 

Porcelain  insulator  No.  3,  pin  type,  20,000  volts. 
Porcelain  insulator,  pin  type,  13,000  volts  
Porcelain  insulator  No.  12,  pin  type,  8,000  volts. 
Porce'ain  insulat-r  No.  44,  pin  type,  6,600  rolts. 
Porcelain  insulator,  suspension,  16,000  volts  — 
Cross-arm  truss  pin  (Pat.  269),  galvanized  
Cross-arm  truss  pin  (Pat.  269),  japanned  

12.40 
12.80 
5.20 
4.64 
84.00 
52.50 
41.50 

12.40 
12.80 
5.20 
4.25 
84.00 
52.50 
41.50 

23.00 
13.96 
6.75 
5.25 
106.40 
67.50 
50.00 

33.79 
21.19 
9.87 
7.66 
168.90 
98.00 
82.25 

45.00 
27.00 
11.83 
9.00 
220.00 
108.50 
91.00 

45.00 
27.00 
12.00 
9.00 
220.00 
100.50 
91.00 

Cross-arm  truss  pin  (Pat  185),  galvanized.... 

36.50 

36.50 

40.50 

50.17 

55.00 

55.00 

Cross-arm  truss  pin  (Pat.  185),  japanned  

32.00 

32.00 

31.50 

42.17 

48.00 

48.00 

19420 
46008 

Metal  cross  arm^SO-inch  (keystone  triangle).  .  . 
Metal  cross  arm,  36-inch  (Keystone  triangle)..  . 
Wood  cross  arm,  fir,  3}  by  4J  cubic  feet  

1.05 
1.18 
6.60 

1.29 
1.40 
6.58 

1.75 
2.25 
8.75 

1.75 
2.46 
9.90 

2.04 
2.64 
13.06 

2.10 
2.65 
13.48 

Wood  cross  arm,  fir,  4  oy  5  

12.33 

11.28 

10.63 

13.64 

17.88 

18.47 

31644 

24-inch  galvanized  cross-arm  braces  

10.90 

14.80 

22.30 

26.69 

27.90 

2P.  13 

31C84 

5.8  by  12  inch  galvanized  bolts.  .'  

5.14 

6.97 

11.05 

13.25 

14.10 

13.18 

317G9 

f  by  4  J  inch  galvanized  carriage  bolts    

1.00 

1.3G 

2.34 

2.69 

2.86 

2.65 

3)783 

j  by  4  inch  galvanized  lags  

1.52 

2.33 

4.03 

4.69 

4.98 

4.65 

314 

|  by  12  inch  galvanized  eye  bolts  

9.71 

11.87 

19.35 

23.34 

24.65 

23.08 

SCHEDULE  C. — Copper  rail  bonds;  relative  average  net  selling  prices   during 

years  specified. 

(Price  of  1914  taken  as  100  per  cent.) 


/            Standard  sizes  of  rail  bonds. 

1914 

1915 

1916 

1917 

1918 

6  months, 
1919. 

4/0  by  7/0  by  10  inches  

$41.63 

$45.88 

$63.75 

$70.00 

$64.51 

$59.13 

4/0  by  j  by  12  inches  

45.07 

50.  75 

69.02 

76.73 

69  95 

64  02 

4/0  biT  |  by  36  inches  

83.03 

93.50 

127.  16 

141.37 

128.88 

177.94 

500M-CM~by  1  by  15  inches  

104.06 

117.19 

159.38 

177.  19 

161.53 

147.83 

50014-CM  by  1  by  20  inches  

124.  32 

140.00 

190.40 

211.68 

192.98 

176  CO 

Percentages  

100 

112.6 

153 

170 

155 

142 

(Price  of  1914  taken  as  100  per  cent.) 


1914 

1915 

1910 

1917 

1918 

1919 

Steel  gear  cases  

100 

105 

126 

211 

238 

239 

Incandescent  headlights  

100 

112 

142 

155 

155 

Tr  nl  lev  c  -ateliers  

100 

100 

111 

139 

16S 

200 

Curtain  signs  

100 

110 

165 

175 

200 

213 

Light  ing  fixtures  

100 

100 

100 

110 

115 

120 

fixture  shades  

100 

100 

104 

121 

132 

166 

Trolley  poles  

100 

100 

123 

181 

230 

2«5 

Trolley  cordage  

100 

106 

122 

161 

221 

250 

V  are  registers  

100 

106 

126 

139 

139 

139 

Motor  gears; 
Westinghouse  101  sol.,  cast  steel  

100 

106 

119 

206 

224 

224 

Westinghouso  101  sol.,  forged  steel    ..  ..    

100 

115 

146 

1SU 

210 

245 

Motor  pinions,  17  teeth,  5-inch  face  

100 

116 

167 

244 

200 

208 

Average  percentages  

100 

105 

127 

168 

194 

H7 

Per  cent. 


420       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 


SCHEDULE  D. — Car  equipment   specialties;   average   selling   prices   to   electric- 
railways. 


Item. 

1914 

1915 

1916 

1917 

1918 

1919 

Steel  gear  cases  

$11.40 

$12.00 

$14.  40 

$24  00 

$27  12 

$27  20 

Incandescent  headlights  

8.50 

9.50 

12.01 

13  20 

13  20 

Trollev  catchers  

4.50 

4.50 

5  00 

C  25 

7  53 

9  00 

Curtain  signs  

10  00 

11.00 

16.50 

17  50 

20  00 

21  25 

Lighting  fixtyres  

1.25 

1.25 

1.25 

1.38 

1.44 

1  50 

3.80 

3.80 

3.95 

4  CO 

5  02 

6  30 

Trolley  poles  

1.03 

1.03 

1.27 

1.86 

2.37 

2.73 

Trolley  cordage  

.36 

.38 

•    .44 

.58 

.795 

.90 

18.00 

19.00 

22.50 

25.00 

25.00 

25.00 

Motor  gears: 
Westinghouse  101  sol    cast  steel    

14.90 

15.75 

17.80 

30.75 

33.40 

33.40 

Westinghouse  101  sol.,  forged  s,teel  

13.88 

15.94 

20.25 

26.25 

33.25 

34.00 

3.05 

3.55 

5.10 

7.45 

7.94 

8.18 

Mr.  WARREN.  Then,  if  I  may,  I  should  like  to  put  in  a  similar  state- 
ment of  Mr.  James  S.  Thompson,  who  was  here  also,  as  a  part  of  our 
cost-of-material  witnesses,  who  is  vice  president  of  the  American 
Brake  Shoe  &  Foundry  Co.  It  is  accompanied  with  blue  prints  and 
charts  and  relates  principally  to  brake  shoes  and  things  of  that  sort. 
I  suppose  I  had  better  not  take  time  to  read  that,  but  I  will  file  that 
also. 

The  CHAIRMAN.  You  may  file  it. 

The  statement  is  as  follows : 

My  name  is  James  S.  Thompson ;  I  reside  at  Pelham,  N.  Y. ;  I  am  a  vice 
president  of  the  American  Brake  Shoe  &  Foundry  Co.,  whose  plants  for  the 
manufacture  of  brake  shoes  and  cast-iron  products  are  at  Norwood,  Mass. ; 
Buffalo, 'N.  Y. ;  Burnside,  111.;  Chicago,  111.;  Melrose  Park,  111.;  Cincinnati, 
Ohio ;  Mahwah,  N.  J. ;  Baltimore,  Md. ;  Minneapolis,  Minn. ;  Chattanooga,  Tenn. ; 
South  San  Francisco,  Calif. ;  Los  Angeles,  Calif. 

My  connection  with  this  company  has  covered  a  period  of  17  years,  during  a 
part  of  that  time  as  assistant  chief  engineer  in  charge  of  service  performance  of 
brake  shoes  used  on  steam  and  electric  railways.  For  a  considerable  portion  of 
time  I  have  had  some  supervision  over  sales,  and  for  the  last  three  years  as 
vice  president  in  charge  of  engineering  matters  of  all  characters,  particularly 
those  pertaining  to  the  service  of  brake  shoes  used  on  the  railroads.  Through- 
out the  period  of  my  connection  with  this  company  I  have  kept  myself  familiar 
with  the  selling  prices  of  our  finished  product  and  generally  with  the  cost  of 
production. 

The  principal  product  of  our  company  is  brake  shoes  for  electric  railroads, 
for  which  many  types  and  patterns  are  used,  and  steam  railroads,  for  which 
the  types  and  patterns  are  generally  the  same. 

I  have  prepared  and  annexed  hereto  and  made  a  part  of  this  statement  a 
blue-print  curve  entitled  "American  Brake  Shoe  &  Foundry  Co. ;  change  in  cost 
of  raw  materials  from  1912  expressed  in  per  cent."  This  chart  bears  the  identi- 
fication mark  No.  1,  and  shows,  in  effect,  that  I  have  taken  the  prices  per  net 
or  gross  ton,  as  the  case  may  be,  as  of  July  1,  1912,  as  100  per  cent,  the  prices 
at  that  time  presenting  within  a  slight  variation  the  average  costs  during  the 
10  years  preceding.  The  chart  shows  changes  in  percentages  of  cost  from  July 
1,  1912,  at  yearly  intervals  to  July  1,  1918.  Percentages  of  costs  are  also  shown 
as  of  November  1,  1918,  and  monthly  changes  thereafter  to  and  including  July 
1,  1919.  The  advances  in  per  cent  in  the  prices  of  these  raw  materials  which 
we  have  been  obliged  to  purchase  are  correctly  shown  and  set  forth  on  said 
blue  print. 

This  chart  shows  generally  that  from  July  1,  1912,  to  July,  1915,  there  had 
been  slight  reductions  in  the  costs  of  materials.  From  that  date,  however,  up 
to  and  including  July  1,  1917,  the  costs  increased  rapidly,  and  the  peak  of  all 
raw  material  prices  was  reached  upon  that  date  or  within  a  few  months  there- 
after, at  which  time  the  Government  established  maximum  prices  for  the  mate- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      421 

rials  we  use,  and  the  chart  therefore  shows  declines  to  the  Government  prices. 
From  the  date  of  establishment  of  the  Government  prices  in  September  and 
October,  1917,  until  the  signing  of  the  armistice  in  November,  1918,  the  prices 
remained  the  same  or  increased  slightly,  due  to  additional  charges  for  trans- 
portation and,  in  the  instance  of  coke,  to  increase  in  the  Government  price. 

After  the  signing  of  the  armistice  prices  remained  comparatively  steady  for 
a  brief  period,  excepting  for  scrap  iron,  and  then  declines  occurred  in  all 
materials  until  June  of  1919,  at  which  time  the  prices  of  scrap  iron  and  coke 
increased,  so  that  on  July  1,  1919,  there  had  been  an  increase  of  12  per  cent 
in  scrap  iron  over  the  June  1  purchases  and  10  per  cent  in  coke.  The  chart 
shows  that  the  increases  in  the  prices  of  raw  materials  on  July  1,  1919,  over 
those  of  July  1,  1912,  were  as  follows : 

Per  cent. 

Steel   plate 136 

Pig  iron 108 

Scrap    iron 86 

Coke 84 

It  may  be  added  that  since  July  1,  1919,  until  this  date,  July  18,  there  has 
been  further  increase  in  the  price  of  scrap  iron,  amounting  to  about  7  per  cent, 
and  it  is  expected  that  additional  advances  in  steel  plate,  pig  iron,  scrap  iron, 
and  coke  are  imminent. 

I  have  prepared  and  annexed  hereto  and  made  a  part  of  this  statement 
a  blue-print  curve  entitled  "American  Brake  Shoe  &  Foundry  Co.,  average  daily 
wage  expressed  in  per  cent  from  July  1,  1919."  This  chart  bears  the  identifica- 
tion mark  No.  2.  The  percentages  as  shown  upon  said  blue  print  are  correct 
and  in  accordance  with  the  books  of  our  corporation.  This  shows  in  effect 
that  I  have  taken  the  labor  cost  as  of  July  1,  1916,  as  100  per  cent,  the  rate  at 
that  time  representing,  with  slight  variation,  the  average  covering  the  10  years 
preceding.  This  curve  shows  a  constantly  increasing  scale,  the  most  rapid 
increase  occurring  from  July  1,  1918,  to  January,  1919,  during  which  period  the 
increase  was  41  per  cent.  It  will  be  noted  from  the  chart  that  from  July  1, 
1916,  to  April  1,  1919,  the  daily  wage  scale  increased  106  per  cent. 

For  many  years  preceding  July  1,  1915,  the  cost  per  ton  of  materials  enter- 
ing into  the  manufacture  of  our  product,  together  with,  the  labor  costs,  re- 
mained practically  uniform,  and  there  had  been  no  advance  in  the  selling  prices 
to  the  electric  railroads.  However,  the  selling  prices  were  increased  from 
July  1,  1915,  from  time  to  time,  until  a  maximum  increase  of  108  per  cent 
had  been  reached.  The  present  selling  prices  are  83  per  cent  in  excess  of  those 
of  July  1,  1915. 

The  company  with  which  I  am  connected  are  not  producers  of  the  raw  ma- 
terials used  in  the  manufacture  of  brakeshoes.  These  materials  are  secured 
by  purchase,  and  in  reaching  a  conclusion  relative  to  the  costs  of  materials  in 
the  immediate  future  it  may  be  well  to  state  that  such  materials  are  the  prod- 
uct, in  a  great  measure,  of  accumulated  labor,  and  we  do  not  see  the  possibility 
of  a  reduction  in  the  cost  of  material  and,  consequently,  the  selling  prices  of 
our  product,  unless  there  is  a  decrease  in  the  labor  rates. 

Mr.  WARREN.  There  is  one  other  statement  of  a  witness,  Mr.  Ren- 
shaw?  an  engineer  who  was  with  the  Fuel  Administration  during  its 
activities  and  took  great  interest  and  did  a  great  deal  to  introduce 
various  economies  in  connection  with  the  conservation  of  fuel,  such 
as  the  skip-stop  and  matters  of  that  sort.  He  was  here  all  day  Fri- 
day and  I  think  Thursday,  also,  but  could  not  be  here  this  week;  and 
he  had  prepared  a  statement  from  which  he  was  going  to  testify, 
which  is  at  our  office,  and  I  should  like  to  file  that,  if  I  may,  as  soon 
as  it  comes  down. 

The  CHAIRMAN.  May  his  statement  and  the  other  two  which  you 
have  just  filed  be  subject  to  the  provision  that  if  the  commission  at 
any  tune  desires  to  cross-examine  these  witnesses  with  reference  to 
any  matters  in  those  statements,  they  may  be  called  ? 

lilr.  WARREN.  Yes ;  exactly.  I  should  like  also  to  put  in,  if  I  may, 
a  communication  from  the  actuary  of  the  Association  of  Life  Insur- 


422       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

ance  Presidents,  which  is  a  rather  short  one,  and  I  will  read  it.  It 
relates  merely  to  the  distribution  of  securities  as  regards  the  life 
insurance  companies.  It  is  addressed  to  the  statistician  of  the  asso- 
ciation, dated  July  16: 

Responsive  to  your  inquiry  of  recent  date  regarding  the  investments  of  life- 
insurance  companies  of  the  United  States  in  electric-railway  bonds  and  stocks, 
we  are  very  glad  to  give  you  the  following  information,  which  you  are  at  liberty 
to  use  in  any  way  which  you  may  deem  wise: 

The  investments  of  26  life  insurance  companies  in  electric-railway  bonds  and 
stocks — these  26  companies  representing  every  company  in  this  country  having 
$500,000  or  more  invested  in  public  utilities— amount  in  bonds  to  $109,624,550.77 
and  in  stocks  to  $6,968,120.17.  This  large  investment  represents  policyholders' 
money  held  in  trust  and  is  the  property  of  individual  policyholders,  numbering 
over  34,000,000,  scattered  all  over  the  United  States.  With  this  in  view,  it 
would  seem  wise  to  emphasize,  particularly,  that  it  is  to  the  individuals'  interest 
to  have  such  investments  protected,  as  any  depreciation  in  these  funds,  due  to  a 
decrease  in  the  value  of  such  investments,  reverts  at  once,  in  a  detrimental 
way,  to  the  interest  of  each  individual. 

1  have  asked  your  office  in  New  York  to  convey  this  information  to  you  by 
wire,  and  this  letter  is  to  confirm  my  telephone  message.     If  we  can  be  of 
service  in  preparing  additional  facts  to  present  before  committees,  we  shall 
be  only  too  glad  to  place  our  facilities  at  your  disposal. 
Yours,  very  truly, 

GEORGE  W.  SMITH,  Actuary. 

The  CHAIRMAN.  Is  there  evidence  within  your  possession  which 
shows  the  amount  of  stocks  and  bonds  of  these  utilities  that  is  in  -the 
possession  of  life-insurance  companies? 

Mr.  WARREN.  Nothing  other  than  that.  That  covers  26  companies — 
it  covers  all  the  companies^  Mr.  Smith  says,  holding  severally  more 
than  $500,000  of  the  securities,  and  the  total  which  he  gives  is 
one  hundred  and  nine  million  and  odd  dollars  for  bonds  and  nearly 
$7,000,000  of  stocks. 

The  CHAIRMAN.  Would  it  not  be  well  to  develop  for  the  record 
some  evidence  to  show  where  utilities  must  go  for  money  to  use  for 
new  construction  or  for  the  refunding  of  bonds  and  things  of  that 
kind?  Now,  my  thought  is  that  it  might  be  shown  that  a  street- 
car company  is  something  other  than  esesntially  a  local  institution. 
Where  it  needs  money  perhaps  it  can  not  secure  it  in  its  own  locality ; 
thus  it  may  have  to  go  to  the  market  centers  for  that  money.  When 
it  presents  its  application  to  the  bankers  or  others,  it  must  be  able 
to  establish  its  credit,  and  that  credit  can  only  be  established  by 
showing  that  the  business  is  upon  a  sound  basis.  I  think  it  would  be 
well  if  you  could  develop  something  along  those  lines. 

Mr.  WARREN.  Yes ;  we  will  endeavor  to  do  that,  Mr.  Chairman.  I 
expect  to-day  to  introduce  witnesses  chiefly  on  the  subject  of  cost  of 
service,  but  before  I  do  that  I  should  like  to  call  one  witness,  Mr. 
Lucius  S.  Storrs,  president  of  the  Connecticut  Co.,  which  operates  a 
very  large  portion  of  all  the  street-railway  mileage  in  the  State  of 
Connecticut. 

Mr.  Storrs,  will  you  take  the  stand  ? 

STATEMENT  OF  MR.  LUCIUS  S.  STORES. 

Mr.  WARREN.  Your  full  name. 
Mr.  STORRS.  Lucius  S.  Storrs. 

Mr.  WARREN.  I  have  already  stated  that  you  are  the  president  of 
the  Connecticut  Co. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      423 

Mr.  STORKS.  President  of  the  Connecticut  Co. 

Mr.  WARREN.  And  have  been  president  for  how  long? 

Mr.  STORKS.  Nine  years. 

Mr.  WARREN.  And  I  think  you  are  an  engineer  by  profession? 

Mr.  STORRS.  Yes,  sir. 

The  CHAIRMAN.  Where  does  that  company  operate? 

Mr.  WARREN.  In  the  State  of  Connecticut,  almost  exclusively,  does 
it  not? 

Mr.  STORRS.  Yes;  exclusively  and  entirely  within  the  State  of 
Connecticut. 

Mr.  WARREN.  You  also,  I  think,  are  vice  president  and  in  charge 
and  control  of  the  Berkshire  Street  Railway  Co.  ? 

Mr.  STORKS.  Yes. 

Mr.  WARREN.  Which  operates  in  the  western  part  of  Massachu- 
setts? 

Mr.  STORRS,  In  the  western  part  of  Massachusetts  and  southwest- 
ern Vermont,  and  over  the  line  into  New  York. 

Mr.  WARREN.  So  it  crosses  the  western  end  of  Massachusetts  and 
goes  through  a  corner  of  Vermont  into  New  York  ? 

Mr.  STORRS.  The  total  mileage  I  can  give  you  in  detail  if  you 
wish. 

Mr.  WARREN.  Yes. 

Mr.  STORRS.  The  Connecticut  Co.  operates  696  miles  of  electric- 
railway  trackage  in  Connecticut  and  the  Berkshire  Street  Railway 
164  miles  of  electric-railway  trackage  in  the  States  of  Massachusetts, 
Vermont,  and  New  York. 

Mr.  WARREN.  You  have  given  special  attention  among  other  sub- 
jects relating  to  the  operation  of  street  railways  to  the  effect  of  the 
automobile  business,  have  you  not? 

Mr.  STORRS.  Yes,  sir. 

Mr.  WARREN.  And  the  jitney  competition? 

Mr.  STORRS.  Yes,  sir. 

Mr.  WARREN.  And  you  have  encountered  a  good  deal  of  jitney 
competition  to  vour  lines  at  various  points  in  Connecticut  ? 

Mr.  STORRS.  Yes;  very  largely  throughout  Connecticut. 

Mr.  WARREN.  Are  you  prepared  to  go  on  without  my  questioning 
you  and  describe  to  the  commission  what  you  have  found  about  the 
jitney  and  automobile,  the  effect  of  each  upon  the  street  railways 
and  statistics  relating  thereto? 

Mr.  STORRS.  I  am.  I  have  some  statistics  here  as  well  as  a  general 
statement  in  connection  with  it,  and  if  I  may  be  allowed  I  will  pre- 
sent it  in  that  way,  if  Mr.  Warren  wishes. 

Mr.  WARREN.  Yes. 

Mr.  STORRS.  In  order  to  carry  the  statistics  through,  if  I  may,  I 
will  sketch  it  over.  The  rapid  development  of  the  automobile  busi- 
ness has  had  a  tremendous  effect  upon  the  earnings  of  electric  rail- 
roads throughout  the  country;  that,  attendant  with  the  very  great 
development  of  the  perfected  highway  and  the  permanent  paving 
of  city  streets. 

I  have  a  tabulation  here  prepared  as  the  most  detailed  study  of  tho 
automobile  which  has  been  prepared  in  any  Commonwealth,  which 
is  that  of  the  Special  Commission  on  Motor  Vehicles  of  the  Com- 


424       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

monwealth  of  Massachusetts,  and  as  it  is  rather  a  lengthy  table  I 
will  merely  sketch  a  few  of  the  heads. 

Beginning  in  1903,  at  the  time  they  began  to  register  the  auto- 
mobile under  the  present  act  there  was  a  total  of  3,241  automobiles 
registered  within  the  Commonwealth  of  Massachusetts.  Fifteen 
years  later,  in  1918,  there  were  160,000  pleasure  automobiles,  private 
cars  and  with  motor  trucks  and  motorcycles  sufficient  to  bring  that 
total  up  to  193,000.  That  is,  in  15  years,  from  3,200  to  193,497.  Dur- 
ing that  period  the  history  of  the  electric  railroads  in  Massachusetts 
is  one  of  rapidly  approaching  insolvency.  Two  hundred  and  fifteen 
miles  of  electric-railroad  tracks  within  that  State  have  been  aban- 
doned. The  fares  in  the  city  of  Boston  have  been  raised  to  10  cents 
with  an  attendant  deficit  to  be  met  from  the  State  treasury  under 
their  plan  of  operation  of  over  $2,000,000,  and  throughout  the  State 
the  fares  have  been  gradually  increased,  but  with  the  rapid  increase 
in  the  cost  of  producing  transportation  they  have  not  been  able  to 
make  the  income  and  the  outgo  quite  equal. 

Report  of  Special  Commission  on  Motor  Vehicles  in  Massachusetts. 


Year. 

Auto- 
mobiles. 

Trucks. 

Total 
auto- 
mobiles 
and 
trucks. 

Motor 
cycles. 

1903                        

3,241 

3,241 

502 

1904      

3,772 

3,772 

489 

1^05  

4,889 

4,889 

533 

1906  

6,572 

6,572 

665 

1907  

7,733 

7,733 

832 

1938                            

18,066 

18,066 

1  922 

1909  

23,971 

23,971 

2,394 

1910                            .          

31,360 

31  360 

3  358 

1911              

38,907 

;1S  <)07 

3  C58 

1912                                          

50,  132 

50  132 

5  034 

1913  

62,660 

62,660 

7.127 

1914      

77,246 

77,246 

8,161 

19151                      .              

90,580 

12,  053 

102  633 

9  520 

1916                 

118,615 

18,194 

136,  809 

10  713 

1917                                       

147,  310 

26,964 

174  275 

11  065 

1918                

160,  486 

33,011 

193,  497 

12  862 

i  This  is  the  first  year  trucks  were  registered  separately  from  pleasure  cars. 

As  far  as  the  United  States  is  concerned,  a  tabulation  has  been 
prepared  through  the  Census  Department  and  others  for  the  last 
four  years  for  which  the  accurate  figures  are  available,  showing  the 
motor-vehicle  registration  in  every  State  in  the  Union.  In  1914  there 
were  a  total  of  passenger  cars  and  commercial  cars,  the  passenger  cars 
being  very  greatly  preponderant,  of  1,711,000.  On  the  basis  of  the 
then  population,  that  was  1  car  for  every  64  people,  or  assuming 
4  members  to  a  family,  1  car  for  every  19  families.  In  1918,  these 
figures  had  reached  a  maximum  of  6,140,000  automobiles  or  1  for 
every  19  of  the  then  population,  or  1  for  every  5  families. 

Now,  during  the  first  six  months  of  .1919  the  records  which  we  have 
been  able  to  obtain  in  but  few  States  show  there  is  an  alarming 
further  increase  in  the  use  of  the  automobile. 


•    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      425 
Total  number  of  vehicles  in  the  United  States. 


Passenger 
cars. 

Com- 
mercial 
cars. 

Total 
motor 
vehicles. 

Population. 

Number 
of 
persons 
per 
pleasure 
car. 

Number 
of 
families 
p2r 
pleasure 
car. 

Dec.  31,  1914  

1,574,431 

130,  907 

1,711,338 

98,781  324 

62 

16 

Dec.  31,  1915  
Dec.  31,  1910  

2,240,229 
3,  243,  031 

205,435 
301,321 

2,445,6(54 
3,  544,  952 

100,399,318 
102,017,312 

44 

31 

11 

3 

Dec.  31,  1917  

4,643,481 

442,478 

5,085,959 

163,635,300 

22 

(j 

Dec.  1,  1918  

5,352,350 

593,092 

5,945,442 

105,253,300 

19 

5 

Dec.  31,  1918  

6,146,617 

Remarks:  Figures  based  on  separate  registrations  of  commercial  cars  in  10  States  and  estimates  of  number 
of  commercial  cars  by  secretaries  of  state  in  5  States. 

It  is  interesting  to  note  that  during  that  period  the  amount  avail- 
able for  city  paving  and  highway  betterment  throughout  the  country 
reached  in  1917-18  a  gross  of  $255,000,000,  or  an  appropriation  from 
the  taxpayers  toward  highway  betterment  for  the  benefit  of  the  auto- 
mobile users  of  slightly  under  $2  per  capita  of  the  population.  The 
only  study  that  has  been  made  that  I  know  of  of  the  electric-railway 
situation  is  that  in  Massachusetts,  in  which  an  attempt  was  made  to 
show  the  amount  of  tax  which  would  have  to  be  assessed  against  the 
population  of  the  various  communities  in  order  to  keep  the  electric 
railways  of  the  State  as  a  whole  solvent,  which  brought  about  the 
figures  of  a  tax  ranging  from  $2  per  capita  in  the  small  villages  to 
slightly  under  $1  per  capita  in  the  larger  cities. 

Of  the  amount  of  contribution  to  the  paving  program  and  the 
betterment  program  of  the  streets  throughout  the  country,  so  far  as 
we  can  differentiate  that  impost  from  general  imposts  made  upon 
the  electric  railwaj's,  it  would  indicate  an  appropriation  in  the  neigh- 
borhood of  $16.000,000  per  year  required  of  the  electric  railways  to 
conform  to  the  requirements  of  the  communities  in  the  State  in  the 
street  and  road  betterment  program — all  that,  of  course,  in  the  ulti- 
mate analysis  being  a  tax  upon  the  car  rider  for  the  benefit  of  the 
more  fortunate  member  of  the  community  who  has  an  automobile. 
At  the  present  time  the  automoble  industry,  in  its  efforts  to  expand 
the  use  of  the  cheaper  car,  has  adopted  as  a  slogan  for  future  pub- 
licity, "  The  world  owes  you  a  car,"  with  the  idea  of  developing  with 
that  as  a  slogan  a  certain  amount  of  unrest  and  dissatisfaction  in  the 
mind  of  the  individual  who  does  not  already  own  an  automobile. 

In  parts  of  the  Commonwealth  of  Massachusetts,  and  doubtless  it 
is  true  in  other  parts  of  the  United  States,  while  electric  lines  were 
built  through  strictly  summer-resort  territory,  such  as  the  Berkshire 
Hills,  which  has  been  a  very  popular  summer  trip,  some  years  ago 
the  tourists  came  in  and  spent  a  week  or  a  month  in  some  favorite 
inn  with  an  accasional  trolley  trip  through  the  hills.  Xow  the  tourist 
comes  in  in  his  automobile,  and  depending  upon  his  standing,  a  very 
elaborate  one  or  a  very  simple  one,  stays  a  day  or  two  and  passes  on 
to  some  other  part  of  the  country.  That  has  had  a  most  disastrous 
effect  upon  the  revenue  of  the  electric  lines  in  the  territory,  necessi- 
tating a  very  material  decrease  in  the  service  rendered — that  decrease 

100043°— 20 28 


426       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

now  running  as  high  as  two-thirds— that  is,  one-third  of  the  service 
which  was  originally  rendered  on  those  lines  which  are  still  in  opera- 
tion  only  is  given.  Some  lines  were  abandoned,  some  of  them  entirely 
junked,  the  tracks  torn  up  and  the  wires  torn  down,  and  on  other 
lines  the  service  discontinued  entirely,  and  on  other  lines  a  measure 
of  local  relief  or  aid  given  to  the  corporation  for  continued  service 
of  one  or  two  cars  to  serve  the  little  village  and  the  small  communi- 
ties around. 

With  the  cheap  automobile  and  the  even  cheaper  second-hand 
car  there  has  sprung  up  a  measure  of  competition  with  the  electric 
railroad  which,  when  not  recognized  as  competition,  has  been  very 
serious  upon  the  revenues  of  the  transportation  utility.  That  is  the 
jitney.  And  there  is  the  development  of  the  small  second-hand  and 
jitney-bus  automobile  carrying  20  passengers.  In  those  communities 
where  the  essential  need  of  transportation  has  been  thoroughly  recog- 
nized and  the  responsibility  of  the  transportation  utility  to  the  com- 
munity expressed  in  form  of  statute — that  is,  the  requiring  of  the 
jitney  bus  a  regularity  of  service  during  all  periods  of  the  day,  a 
certainty  of  service  over  particular  routes,  a  responsibility  in  case 
of  accident  hazard,  and  also  a  measure  of  tax  to  compensate  for  the 
pavement  and  other  facilities  offered  by  the  city — that  has  placed 
that  competitor  upon  what  might  be  considered  a  legitimate  basis. 

In  other  communities,  however,  as  yet  there  has  been  no  regulation 
•which  has  been  effective  .from  the  standpoint  of  the  community  in 
giving  essential  means  of  .service,  and  in  those  parts  of  the  country 
the  jitney  operates  in  casual  service  over  certain  routes  or  as  far  as 
the  individual  may  have  passengers,  turning  back  into  the  center 
and  picking  up  another  load,  and  if  by  any  chance  a  number  of 
people  are  waiting  to  go  into  other  portions  of  the  city,  going  on 
other  routes.  They  are  irresponsible,  the  title  to  the  car  remaining 
frequently  in  the  hands  of  the  manufacturer  or  in  the  name  of  the 
wife  of  .the  driver ;  and  the  .only  property  which  can  be  attached 
from  .the  standpoint  of  those  who  might  be  injured  by  accident 
being  that  of  the  deteriorated  automobile,  of  little  or  no  value. 

I  have  some  interesting  statistics  in  connection  with  that.  New 
Jersey  is  one  of  the  States  in  which  the  laws  have  not  been  effective 
from  the  regulatory  standpoint.  I  am  speaking  now  always  from 
the  standpoint  of  the  regulations  required  by  the  community  itself 
to  give  a  measure  of  service  which  might  be  of  value.  There  the  in- 
crease in  competition  has  been  directly  attendant  upon  an  effort  of 
the  electric-railway  utility -to  obtain  increases  in  revenue  through 
changes  in  its  rates  of  fare.  From  a  total  of  120  jitneys  operating 
in  1914,  carrying  a  total  of  1,000,000  passengers,  to  August,  1918,  a 
total  of  232  jitneys  and  carrying  a  total  of  1,400,000 — that  is.  the  in- 
crease under  the  straight  rate  of  fare,  without  any  increase  on  the 
part  of  the  electric  railway — to  an  increase  of  601  cars  immediately 
after  the  increase  of  1  cent  for  a  transfer,  to  the  period  of  a  7-cent 
fare  and  1  cent  for  transfer,  a  total  of  1,040  cars  with  estimated 
earnings  as  estimated  from  the  returns  of  the  jitneys  for  tax  pur- 
poses of  over  $3,000,000  a  year;  and  all  of  that  entirely  irresponsible 
and  a  service  which  would  not  meet  the  requirements  of  the  com- 


PROCEEDINGS  OF  FEI>ERAL  ELECTRIC  RAILWAYS  COMMISSION.      .427 

munity  by  any  stretch  of  the  imagination,  were  it  not  for  the  excel- 
lent service  given  by  these  public  utilities. 

Connecticut  also  lias  no  effective  jitney  regulation;  in  fact,  no 
statute  at  all  up  until  very  recently  from  which  any  basis  of  regula- 
tion might  be  determined.  A  very  careful  analysis  of  the  service 
in  the  city  of  Bridgeport,  which  is  more  largely  overrun  with  that 
type  of  competition  than  any  other,  shows  that  jitney  routes  par- 
allel practically  all  of  the  city  streets  on  which  service  by  the  utility 
is  rendered,  those  jitneys  running  from  a  terminal  convenient  to 
their  service  1  mile  to  2  miles  from  the  city  center,  into  the  city  cen- 
ter and  returning,  one  fare  in,  but  not  across  the  city  center,  a  short- 
line  car  with  occasional  cars  running  from  a  short  distance  out  from 
the  center  on  one  side  to  a  short  distance  out  from  the  center  on 
the  other  side,  50  per  cent  of  the  total  passengers  riding  011  electric 
railroads  and  jitneys  carried  by  the  jitnej'S  within  the  area  of  1J 
miles  of  the  center  of  the  city ;  a  total  of  68  per  cent  carried  by  the 
jitneys  within  If  miles;  that  is,  including  the  1£  miles;  44  per  cent 
of  the  total  passengers  riding  within  the  area  of  2  miles,  showing 
the  rapid  decrease  in  jitney  business  beyond  the  If  to  2^  miles,  and 
on  only  56  per  cent  of  the  total  of  the  entire  city  area  did  the  electric 
railway  have  the  opportunity  of  giving  a  service  similar  to  the 
jitney  service. 

There  is  no  question  but  that  the  electric  railway  could  not 
compete  with  its  competitor,  could  not  produce  a  satisfactoiy  service, 
if  the  jitney  service  is  by  any  means  at  all  satisfactory,  and  it  must 
be  if  they  carry  such  large  numbers,  to  make  a  very  handsome  profit, 
and  because  the  jitney  is  confined  solely  to  the  area  of  short  riders 
in  the  densely  settled  portion  of  the  community.  The  electric-rail- 
way service,  on  the  other  hand,  extends  miles  beyond  the  densely 
M-ttlcd  portion  of  the  community  into  the  rural  districts,  the  coun- 
try di.-tricts,  the  nonreveiuie-producing  area,  that  area  in  which,  by 
the  very  enthusiasm  and  supreme  optimism  of  the  original  promoters 
of  the  electric  railroad,  these  lines  were  pushed  from  the  city  center, 
by  reason  of  the  fact  that  an  electric  car  could  run  so  much  more 
rapidly  than  a  horse-car. 

Mr.  WARBEN.  I  did  not  catch  the  per  cents  you  gave  the  jitneys 
in  the  whole  city  area. 

Mr.  STOKKS.  Fifty-six.  That  takes  in,  by  the  way,  an  area  of 
44  mUes  in  radius  from  the  center  of  the  city,  over  two-thirds  of 
the  total  business  being  done  within  an  area  of  2  miles  from  the 
«  i'y  renter  and  50  per  cent,  only  half  "of  it,  being  done  in  the  area 
of  \  mile-.  leaving  to  the  transportation  utility  the  unprofitable 
long-haul  business  and  taking  the  only  profitable  business  there  is 
in  the  community. 

That  is  occasioned  very  largely  by  reason  of  the  very  narrow 
New  England  streets,  congested  to  such  an  extent  that  it  tak'cs  a 
very  great  length  of  time  for  even  the  most  rapidly  moving  electric 
car  to  pass  through  the  city  business  area. 


428       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Comparison  of  number  of  passengers  carried  &y  street  railway  and  jitneys, 
classified  by  length  of  ride. 


In  both  directions. 

On  the 
railway. 

On  the 

jitney. 

Total. 

Per  cent 
taking 
jitney. 

Riding  within  1J  miles  radius  of  center  of  pitv 

5  432  947 

5  561  451 

10  994  398 

50  5S 

Riding  more  than  1J  miles,  but  less  than  2  miles  from 
center  of  city  

4,805  761 

10  620  347 

15  426  10S 

68  85 

Riding  more  than  2  miles  but  less  than  2J  miles  from 
center  of  city  .      .  .                      

3,395  431 

2  758  041 

6  153,472 

44.82 

Riding  more  than  2J  miles  but  less  than  3J  miles  from 
center  of  city  .  . 

239  724 

239,  724 

Riding  more  than  3J  miles  but  less  than  4i  miles  from 
center  of  city  

860,048 

880,  048 

Total  

14,733,911 

18,  939,  839 

33,673,750 

56,245 

The  matter  of  the  jitney  and  general  electric-railway  conditions 
was  studied  in  the  State  of  Connecticut  by  a  commission  appointed 
last  winter — a  commission  made  up  by  members  of  the  legislature 
and  also  representatives  appointed  by  the  governor,  and  they  summed 
up  their  consideration  of  the  jitney  competition,  I  think,  in  a  very 
admirable  way,  and  I  would  like  to  quote  from  that : 

Originally  the  street-railway  companies  obtained  a  franchise  and  charter 
granting  them  exclusive  transportation  rights  over  certain  specified  lines, 
and  in  consideration  of  such  exclusive  rights  they  were  and  are  called  upon  to 
pay  an  annual  tax  to  the  State  of  4}  per  cent  on  their  gross  revenue. 

That  is,  that  happens  to  be  the  State  law  in  Connecticut. 

Instead  of  being  protected  in  the  holding  of  a  privilege  which  was  practically 
a  monopoly,  changed  conditions  have  developed  a  new  type  of  transportation 
service  along  the  highways  over  which  the  trolleys  run  which  has  resulted  in- 
serious  inroads  in  their  revenues.  There  seems  to  be  no  question  of  the  right 
of  this  new  and  needed  supplement  to  the  trolley  service  to  serve  the  public. 
The  commission  believes,  however,  that  this  jitney  service  should  be  governed 
and  regulated  and  be  subject  to  the  same  control  as  is  placed  over  other  classes 
of  common  carriers,  and  it  believes  that  the  patrons  and  the  public  should  be 
guaranteed  redress  for  loss  of  life  or  personal  injury  in  the  same  degree  and 
manner  that  other  common  carriers  are  required  to  provide.  We  believe  that 
the  jitneys  should  be  regulated  as  to  schedules,  routes,  and  rates  in  the  same 
manner  as  the  street-railway  companies. 

It  is  useless  to  assume  that  the  jitney  can  by  any  manner  of  means; 
take  over  the  transportation  within  the  city  area.  It  seems  to  me 
that  the  best  answer  to  that  is  a  very  careful  study  which  we  have 
made  of  the  possibility  of  something  of  that  kind  in  connection  with 
one  of  the  large  cities,  a  congested  type  of  old  New  England  street, 
with  a  population  of  180,000.  It  would  be  necessary  for  jitney  buses 
of  a  capacity  of  20  passengers,  loaded  to  full  capacity,  to  come  into 
the  central  business  loading  zone,  and  as  in  the  case  of  all  the  New 
England  type  of  city  and  a  great  many  other  cities  throughout  the 
country,  business  originates  or  centers  around  the  central  green  or 
square  or  business  area  of  but  relatively  a  few  blocks — it  v\oiild  be 
necessary,  as  I  say,  for  6|  of  such  type  of  buses  to  enter  and  leave 
the  central  business  loading  zone  loaded  to  the  full  capacity  every 
minute  during  the  rush  hours  each  day ;  that  is,  for  a  period  of  some- 
thing like  6  hours,  morning  and  night  rush  hours,  an  absolutely  im- 
possible condition  imposed  upon  city  streets,  together  with  the  use  of 
the  privately  owned  automobile  and  the  truck  and  pedestrian  and, 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      42  9» 

whatever  other  vehicular  or  other  traffic  there  might  be  through  tlio 
city  area. 

The  development  of  the  motor  truck  has  also  had  a  serious  effect 
upon  the  revenues  of  the  electric  lines.  That  is  now  becoming  more 
and  more  apparent  as  we  see  makeshift  seats  placed  upon  the  motor 
trucks  or  trucks  loaded  to  full  carrying  capacity  in  space,  if  not  in 
tonnage,  of  those  bound  out  for  picnics  or  to  other  places  of  resort. 

A  case  in  point  that  will  be  of  interest  is  this:  Some  time  ago 
in  one  of  the  New  England  cities  there  sprung  up  unexpectedly 
to  the  transportation  utility  a  very  large  business  in  shore  bathing 
by  the  foreign  element  entirely — Russian  Jews,  Lithuanians,  Italians,, 
and  Greeks — which  required  an  immediate  increase  of  transportation 
during  the  hotter  summer  days,  and  especially  Saturdays  and  Sun- 
days, of  some  20  to  30  extra  cars  of  full  carrying  capacity — that  is,  a 
carrying  capacity  of  75  to  100  passengers,  dependng  upon  the  num- 
ber that  might  stand.  That  ran  over  a  period  of  three  or  four  years,, 
arid  as  there  was  a  great  deal  of  difficulty  to  get  the  fares  from  all 
the  mothers  of  the  small  foreigners — they  would  not  all  of  them  ac- 
knowledge the  individual  children — the  traction  utility  put  in  a  pre- 
payment inclosure  through  which  they  all  had  to  pass  and  pay  their 
fare  going  in.  That  was  very  effective  in  getting  the  electric-rail- 
road fares,  but,  unfortunately,  the  fathers  in  a  great  many  cases 
were  vegetable  vendors,  or  ice  vendors,  or  something  of  that  kind, 
and  they  all  of  them  use  their  motor  trucks,  which  were  normally 
used  for  their  business,  by  putting  in  extra  seats  and  taking  down 
all  these  hordes  of  people  to  the  shore,  with  the  result  to-day  that, 
there  is  no  demand  whatever  for  transportation  by  the  utility. 

Commissioner  SWEET.  Are  you  speaking  now  of  Bridgeport? 

Mr.  STORKS.  No;  I  am  not  speaking  of  Bridgeport  at  the  present 
time.  I  am  speaking  of  Xew  Haven,  sir. 

One  of  the  very  profitable  by-products  of  the  electric-railway 
business  has  been  the  carriage  of  goods  in  small  packages  or  in  larger 
quantities.  That  has  been  developed  very  largely  through  our  com- 
munities, and  the  total  revenue  is  relatively  small — about  8  per  cent 
of  the  total  coming  from  the  carriage  of  goods  of  various  kinds — 
but  with  the  excellence  of  the  highways  throughout  New  England 
the  motor  truck  bids  fair  to  absorb  almost  entirely,  or  very  largely, 
the  short-haul  high-rate  express  business — that  which  is  the  most. 
profitable. 

Commissioner  WEHLE.  That  affects  your  interurban  lines? 

Mr.  STORKS.  Entirely;  yes,  sir. 

Commissioner  WEHLE.  But  what  per  cent,  speaking  in  terms  of' 
percentage,  has  the  package  service  of  the  interurban  increased  in( 
the  past  five  years  in  your  district? 

Mr.  STORKS.  It  has  decreased  in  the  last — well,  I  want  to  put  that 
with  a  qualification. 

Commissioner  WEHLE.  Yes? 

Mr.  STORKS.  In  the  last  three  years  it  has  decreased  by  reason  of 
the  motor-truck  competition. 

Commissioner  WEIILE.  It  does  not  show  any  increase  then  in  the 
past  five  years? 

Mr.  STORKS.  I  think  it  would  in  the  last  five  years.  I  would  want 
to  qualify  that,  but  I  think  that  in  three  years  it  has  shown  a  de- 
crease. 


430       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  WEHLE.  Do  you  have  through  billing  arrangements 
on  less  than  carload  shipments  through  New  England? 

Mr.  STORKS.  Not  outsiole  of  the  State  of  Connecticut.  We  have 
those  billing  arrangements  there. 

Commissioner  WEHLE.  You  do  an  interline  billing  in  the  State 
of  Connecticut,  but  not  in  the  other  States? 

Mr.  STORKS.  We  control  about  85  per  cent  of  the  total  mileage  in 
the  State  of  Connecticut.  We  do  have  interline  billing  though, 
however. 

Commissioner  WEHLE.  A  shipper  can  not  effect  interline  billing 
from  a  point  in  Connecticut  to  a  point,  say,  in  New  York  or  Massa- 
chusetts ? 

Mr.  STORRS.  There  has  been  no  demand  for  that  type  of  service. 
That  has  been  very  carefully  watched,  but  there  has  been  no  demand 
for  it;  and  when  occasion  arises,  if  there  are  individual  shipments 
and  that  occasion  arises  that  convenience  is  afforded,  particularly 
during  the  congestion  of  war-time  transportation. 

Commissioner  WEHLE.  But  there  has  been  no  attempt,  has  there, 
on  the  part  of  any  urban  electric  company  in  Connecticut  to  carry 
packages  within  the  city? 

Mr.  STORKS.  Oh,  yes. 

Commissioner  WEHLE.  From  one  point  within  the  city  to  another 
point  within  the  same  city? 

Mr.  STORKS.  Well,  we  have  various  express  terminals  within  the 
city.  We  do  have  a  measure  of  carrying  packages  by  tickets  on  the 
passenger  cars  themselves  which  is  availed  of  to  a  certain  extent, 
although  none  of  that  is  within  the  city  areas.  There  has  been  no 
attempt  on  the  part  of  the  public  to  avail  themselves  of  the  service 
which  can  be  rendered,  except  occasionally  as  between  two  industries 
where  there  is  a  large  shipment,  we  have  a  great  deal  of  that  in- 
dustrial movement. 

Commissioner  WEHLE.  Has  there  ever  been  any  test  of  any  fran- 
chise in  Connecticut  with  reference  to  the  authority  or  power  of  a 
street-railway  company  to  carry  packages  within  the  limits  of  a 
city? 

Mr.  STORKS.  No  serious  attempt.  There  has  been  some  question  as 
to  that. 

Commissioner  WEHLE.  The  exercise  of  that  right  has  never  been 
resisted  by  anybody? 

Mr.  STORRS.  No.  Well,  some  years  ago  there  was;  it  was  not  a 
serious  resistance,  but  there  was  a  little  objection  to  it. 

Commissioner  WEHLE.  When  the  passenger  himself  carries  the 
package  did  I  understand  you  to  say  that  the  regulations  of  the 
company  provide  that  an  additional  compensation  be  paid  the  car- 
riers ? 

Mr.  STORRS.  No;  that  was  in  case  a  package  is  sent  from — well, 
particularly  from  some  drug  store  to  some  home ;  it  can  be  sent  that 
way  on  a  trolley  car  -by  a  tag;  that  is  put  on  it.  When  the  passenger 
carries  his  own  package  it  is  carried  free. 

Commissioner  WEHLE.  Take  some  city.  New  Haven,  for  instance. 
On  what  basis  do  you  render  that  service  ? 

Mr.  STORKS.  By  .a  tag — an  express  tag  which  is  put  on  the  pack- 
age, and  the  package  is  taken  on  the  car  and  delivered  to  the  motor- 
man  and  he  in  turn  delivers  it  to  whoever  calls  for  it  at  the  other  end. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      431 

We  do  not  make  any  deliver}-,  of  course,  in  a  case  of  that  kind  ex- 
cept from  the  individual  to  the  car  crew  and  back. 

Commissioner  WEHLE.  What  is  the  compensation  that  the  com- 
pany receives  for  that  service? 

Mr.  STORKS.  I  am  trying  to  refresh  my  mind,  as  we  have  made 
some  changes  in  those  things.  There  is  a  minimum  of  25  cents. 

Commissioner  WEHLE.  Does  it  amount  to  anything  at  all  in  reve- 
nue? 

Mr.  STORRS.  Very  little;  not  enough  to  notice. 

Commissioner  WEHLE.  These  companies  carry  newspapers  for  dis- 
tribution ;  do  they  not  ? 

Mr.  STORRS.  Yes. 

Commissioner  WEHLE.  To  distributing  points  within  the  city? 

Mr.  STORRS.  Yes. 

Commissioner  WEHLE.  Does  that  amount  to  anything  in  revenue, 
say,  in  New  Haven? 

Mr.  STORRS.  Very  immaterial.  I  will  be  very  glad  to  give  you 
those  in  detail.  I  would  rather  have  them  that  way  than  give  them 
from  recollection.  I  will  be  very  glad  to  supply  that  information. 

Commissioner  WEHLE.  Mr.  Chairman,  would  you  suggest  that  the 
witness  put  that  in  the  record — his  revenue  from  the  carriage  of 
papers? 

Mr.  STORRS.  I  can  easily  get  our  statistical  office  to  draw  that  up  in 
detail  and  send  it  down  for  filing  in  the  record. 

The  CHAIRMAN.  You  can  file  with  us  a  statement  showing  the 
gross  revenue  secured  from  the  handling  of  the  mail  and  express  and 
freight  and  at  the  same  time  your  passenger  revenue. 

Mr.  STORRS.  We  have  no  mail. 

The  CHAIRMAN.  You  have  no  mail? 

Mr.  STORRS.  Xo.  The  compensation  given  by  the  Post  Office  De- 
partment was  so  immaterial  that  we  declined  to  carry  the  mail  any 
further  some  years  ago. 

The  CHAIRMAN.  Will  you  file  a  statement  showing  your  gross 
revenue  divided  into  the  different  classes? 

Mr.  STORRS.  I  will  be  very  glad  to  do  that. 

Mr.  WARREN.  I  can  give  you  those  figures  for  Massachusetts,  Mr. 
Wehle,  I  think — for  the  whole  State,  if  you  care  to  hear  them. 

Commissioner  WEHLE.  I. think  it  would  be  very  interesting. 

Mr.  WARREN.  The  passenger  revenue  (this  was  for  the  last  year — 
J  have  .not  filed  this  yet,  but  I  mean  to) — this  is  a  certified  compila- 
tion of  the  figures  for  all  Massachusetts,  which  I  got  from  our  pub- 
lic-service commission  before  coming  down  here.  The  passenger 
revenue  was  forty-three  million  ninety-two  thousand  odd  dollars 
for  the  year;  special-car  revenue,  seventy-five  thousand  odd  dollars; 
mail  revenue,  $41,852;  express  and  baggage  revenue,  $175,025;  milk 
revenue,  $15,437;  freight  revenue,  $1,072,320;  miscellaneous  trans- 
portation revenue,  $20,811.  So  from  all  of  those  sources  the  revenue 
was  increased  from  ^3,092.000  to  $44,493,000,  or  about  $1,400,000. 

In  your  investigation  of  the  automobile  and  jitney  question,  did 
you  find  any  States  or  localities  where  either  the  privately  owned  au- 
tomobile or  the  jitney  paid  any  tax  for  the  use  of  the  highway  other 
.than  such  registration  fee  as  might  be  required  under  the  laws? 

Mr.  STORRS.  I  believe  there  are  some  States  in  which  a  gross  reve- 
nue tax  is  fixed  also. 


432        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Is  that  true  in  Connecticut? 

Mr.  STORKS.  It  is  not  true  in  Connecticut. 

Mr.  WARREN.  And  not  in  Massachusetts? 

Mr.  STORRS.  No ;  not  in  New  England  at  all. 

Mr.  WARREN.  You  spoke  of  a  Massachusetts  investigation  of  the 
amount  necessary  to  maintain  the  electric  railwa}~s  generally  on  a 
solvent  basis  as  regards  income  and  outgo.  I  think  you  spoke  of 
$2  per  capita  of  population :  was  is  not  $2  per  thousand  of  valuation  ? 

Mr.  STORRS.  Yes;  I  meant  to  correct  that  later  on.  Instead  of 
being  a  per  capita  tax  it  was  $1,000  of  assessed  valuation. 

Mr.  WARREN.  And  that  was  in  this  special  report  of  the  public- 
service  commission  this  last  year? 

Mr.  STORRS.  Yes.  I  assume  that  report  will  be  at  your  service 
anyway. 

Commissioner  MEEKER.  Could  you  put  those  figures  on  a  com- 
parable basis  ?  The  figures  regarding  the  tax  necessary  to  keep  up 
the  highways  is  on  a  per  capita  basis,  and  it  would  be  more  useful  for 
me  if  you  had  the  other  figures  on  the  same  basis. 

Mr.  STORRS.  I  can  easily  do  that.  We  could  easily  determine  from 
these  figures  that  amount.  The  statistician  could  easily  determine  it 
and  file  it  here  as  a  part  of  the  record. 

Mr.  WARREN.  I  do  not  think  it  would  vary  very  much  as  between 
the  per  capita  and  per  $1,000  of  valuation. 

Mr.  STORRS.  No. 

Mr.  WARREN.  I  notice  the  assessed  value  of  the  Berkshire  County 
district  is  $104,000,000 ;  and  I  think  the  population  is  about  8,000,  is 
it  not  ? 

Mr.  STORRS.  Yes.  There  \vould  be  very  little  difference,  as  I  have 
it  in  mind  at  the  time,  but  it  can  be  easily  done. 

Mr.  WARREN.  There  was  testimony  last  week — I  do  not  think  you 
were  here  last  week 

Mr.  STORRS.  No. 

Mr.  WARREN.  From  various  street-railway  representatives  to  the 
effect  that  increasing  the  rates  produced  a  substantial  increase  in 
revenue,  as  bearing  on  the  point  whether  it  was  possible  to  get  in- 
creased revenue  by  increase  in  rates.  Have  you  had  experience  in 
increasing  rates  on  any  of  your  lines? 

Mr.  STORRS.  I  have.  In  Connecticut  we  are  on  a  6-cent  basis,  hav- 
ing been  taking  6  cents  since  October,  1917.  The  first  12-month 
period  after  that  was  the  time  during  which  we  were  in  the  war, 
and  all  industries  throughout  Connecticut  were  most  intensely  en- 
gaged in  the  production  of  the  essentials  of  war.  With  the  taking 
out  of  the  population  the  younger  men  for  serious  Avar  duties  on 
this  side  and  also  abroad  and  also  the  young  women  for  loyal  work 
who  did  not  need  the  income,  to  relieve  men  for  other  more  serious 
places  in  the  industries  and  offices,  the  result  was  a  very  great  drop- 
ping off  in  the  use  of  the  electric-railway  car.  The  additional  carry- 
ing of  operatives  to  and  from  the  plants  in  which  they  \vere  engaged 
did  not  nearly  compensate  for  the  loss  of  riding  during  the  normal 
hours  of  the  day  and  during  the  pleasure-riding  hours  of  the  day, 
the  evening.  The  result  was  that  for  the  first  year  after  the  instal- 
lation of  the  6-cent  fare  our  revenue  was  practically  identical,  that 
is,  there  was  an  increase  of  0.9  of  1  per  cent  in  the  gross  revenue. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      433 

That  could  not,  of  course,  be  entirely  attributed  to  the  increase  in 
the  rate  of  fare,  and  it  would  be*  impossible  to  determine  what  por- 
tion of  that  loss  in  passenger  riding  should  be  attributed  to  the  in- 
crease of  rate  of  fare. 

Mr.  WARREX.  What  period  was  that? 

Mr.  STORRS.  October  1,  1917,  to  October  1,  1918. 

Mr.  WARREX.  Do  you  happen  to  know  from  the  returns  of  other 
companies  in  Xew  England  which  were  operating  at  the  old  rates 
during  that  same  period  whether  or  not  there  was  a  large  loss  of 
traffic  on  those  companies? 

.  Mr.  STORRS.  I  will  amplify  that  a  little  bit  in  connection  with  the 
Connecticut  Co.  We  made  a  very  careful  survey  of  that  and  came 
to  the  definite  conclusion  that  we  had  lost  10  per  cent  of  the  in- 
crease; that  is,  that  the  increase  from  5  to  6  cents  resulted  in  a 
decrease  of  10  per  cent  in  revenue;  that,  had  we  remained  on  the 
5- cent  basis  during  those  serious  days  of  1917  and  1918,  we  would 
have  lost  10  per  cent  of  our  revenue.  And  we  were  borne  out  by 
some  of  the  records  of  other  electric  railways  who,  during  that 
time,  went  from  5  to  6  cents,  practically  a  10  per  cent  increase 
in  the  rate  of  fare. 

The  most  effective  increase  is  a  decrease  in  the  service  offered, 
effective  in  the  increase  of  gross  revenue,  decreasing  the  area  for 
which  the  5-cent  coin  will  buy  transportation. 

Mr.  WARREX.  How  has  the  increase  operated  since  the  termina- 
tion of  the  war? 

Mr.  STORRS.  With  the  reversion  to  more  normal  conditions  through- 
out New  England  and  throughout  those  dense  industrial  communi- 
ties, there  has  been,  of  course,  a  very  great  increase  in  revenue ;  that 
is,  a  comparatively  great  increase,  not  large  enough  to  offset  the 
increase  in  cost  of  operation,  but  an  increase  over  the  1918  figures, 
which  is  readily  to  be  seen.  People  are  bock  to  a  more  normal  basis 
and  the  relief  from  the  strain  of  war-time  conditions  has  brought 
back  a  desire  for  pleasure  riding  in  the  off-peak  hours  of  the  day 
and  during  the  evening. 

The  CHAIRMAX.  Have  you  the  per  cent  of  increase? 

Mr.  STORRS.  It  would  run — starting  about  April,  it  has  been  run- 
ning at  an  average  of  14  per  cent  since  Aoril,  mid-April  that  was, 
Mr.  Chairman. 

Mr.  WARREN.  So,  from  your  experience,  have  you  any  doubt 
about  the  efficacy  of  rates  to  produce  an  increase  in  revenue? 

Mr.  STORRS.  I  have  a  very  grave  doubt  as  to  any  ability  on  the- 
part  of  the  utility  to  estimate  within  any  kind  of  reason  what  the 
result  of  an  increase  in  rate  might  be  upon  the  gross  revenue.  And, 
of  course,  there  is  a  point  with  the  increase  above  6  cents  at  which 
you  will  have  a  declining  gross  revenue.  An  increase  to  7,  8,  or 
10  cents  would  result  in  a  declining  gross. 

Mr.  WARREN.  On  some  lines. 

Mr.  STORRS.  On  some  lines,  at  least.  There  is  a  very  great  un- 
certainty. 

Mr.  WARREN.  Now,  have  you  made  an  investigation  and  are  you 
prepared  to  express  to  the  commission  some  views  on  the  effect  of 
extension  of  lines  and  complying  with  various  requests  of  tho 
communities  for  additional  service? 


434       PROCEEDINGS  OF  FEDERAL.  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  STORKS.  Yes. 

Mr.  WARREN.  Can  you  go  on  with  that,  without  my  questioning 
you  '£ 

Mr.  STORKS.  In  this  case  it  is  rather  hard  to  treat  it  in  a  broad 
way,  and  I  may  divert  occasionally  to  the  particular  instance. 

In  the  early  days  of  the  electric-railway  industry  the  optimism 
of  the  promoter  and  the  willingness  of  the  investor  ito  be  convinced 
led  to  a  very  great  expansion,  primarily  due.  to  the  fact  that  the 
electric  service  could  be  performed  at  so  much  greater  speed  than 
the  old  horse-car  service.  The  electric  car  could  cover  in  15  minutes 
:practically  three  times  the  distance  that  the  liorse-car  could.  Aiter 
it  was  considered  desirable  to  develop  this  speed  to  the  maximum 
of  lines  to  be  served,  the  lines  were  extended  out  to  the  outlying 
edges  of  the  cities  and  towns  and  even  out  in  the  rural  and  suburban 
.communities — all  of  it  to  the  advantage  to  the  communities  served 
and  the  patrons  of  the  line — and  it  was  always  at  a  fixed  rate  of 
fare,  during  the  horse-car  days — a  6  and  7-cent  fare,  possibly,  ulti- 
mately reverting  to  the  standard  -nickel. 

One  little  line  of  New  England  of  interest  in  a  small  village  was 
a  stage  running  from  the  railroad  station  up  into  the  village,  as  so 
many  of  these  villages  were  founded  away  back  from  what  was  ulti- 
mately the  line  of  transportation,  or  on  the  line  of  transportation  of 
those  days,  the  stage;  and  when  the  steam  railroads  came  through 
the  lines  of  transportation  changed.  The  stage  was  operating  from 
this  small  station  to  the  little  rural  community,  an  attractive  little 
New  .England  village.  Some  mill  owner  who  had  made  a  lot  of 
;money  up  there  perhaps  thought  it  would  be  a  good  idea  to  put  a 
;horse-car  line,  and  he  put  in  a  horse-car  line  2^  miles  long. 

It  was  very  profitable  and  ran  along.  The  car  ran  on  rails  instead 
.of  the  stage  on  the  road.  .It  was  a  typical  old  corduroy  road.  If 
a  man  had  a  house  a  little  bit  beyond  the  center  of  the  town,  distant 
from  the  railroad  station,  he  thought  it  would  be  a  good  idea  to  ex- 
tend it  out  there,  and  he  extended  it  out  there.  A  mile  or  two  beyond 
that  was  a  cemetery  and  lots  of  people  wanted  to  go  out  to  the  ceme- 
tery, and  they  extended  it  out  there.  A  little  beyond  that  was  a 
waterworks  plant,  and  ultimately  they  extended  it  out  there  because 
a  few  people  worked  out  there  and  they  wanted  to  ride.  In  the  mean- 
time, it  had  been  developed  from  the  horse-car  to  ;the  trolley  car. 
iThere  was  a  beautiful  hill  a  little  farther  away  W7ith  a  lot  of  chest- 
nut trees  on  the  side,  and  a  lot  of  people  wanted  to  go  out  there; 
and  so  they  built  a  line  out  there  to  accommodate  the  people  who 
wanted  to  go  out  to  gather  the  chestnuts.  We  became  responsible  for 
that  line. 

The  CHAIRMAN.  Were  these  extensions  voluntary? 

Mr.  STORRS.  Some  of  them  were  at  the  request  of  the  community 
and  some  of  them  were  voluntary.  Most  of  them  were  at  the  urgent 
request  of  the  community.  I  am  not  sure  but  what  the  chairman  of 
the  board  of  selectmen  had  some  interest  in  the  chestnut  grove  and 
wanted  to  get  the  people  out  there  to  see  it. 

The  result  has  been  that  during  the  last  year  that  line  with  only 
:One  car,  a  single-truck  car,  took  in  $2,000,  and  it  cost  $8,000  to  oper- 
ate the  car,  that  is,  out-of-pocket  cost ;  I  do  not  mean  to  say  the  de- 
.preciation  and  fixed  charges,  but  the  actual  dollars  of  outgo  to  pay 
for  the  construction  and  the  maintenance,  to  maintain  that  indi- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      435 

vidual  car,  together  with  the  actual  cost  of  the  power,  the  power  at 
that  point  being  brought  on  the  kilowatt  basis. 

This  was  frequently  the  case  throughout  the  communities,  a  grad- 
ual development  of  inconsistent  demands.  Of  course,  it  has  been 
rather  inconsistent  or  rather  inconceivable  that  the  owners  of  the 
utility  would  seriously  oppose  the  insistent  demand  of  the  com- 
munity, which  itself  gave  the  franchises  essential  to  the  life  of  the 
corporation,  and  where  that  became  a  serious  pressure  frequently  ifc 
was  granted, 

Commissioner  MEEKER.  In  the  end  do  you  think  that  such  exten- 
sion should  be  passed  upon  by  a  State  commission  rather  than  by 
local  authority  ? 

Mr.  STORKS.  Those  in  New  England  are  passed  upon  so.  And  in 
connection  with  that  there  is  now  unanswered  an  order  of  the  public- 
utilities  commission  in  one  of  the  New  England  States  directing 
the  electric  railway  to  build  an  extension,  in  this  case  only  about  4 
miles  long,  to  serve  a  little  community,  that  community  having  a 
double-track  line  between  the  center  and  the  large  city  adjacent, 
but  the  town  hall  happened  to  be  in  one  part  of  the  community  and 
a  large  part  of  the  inhabitants  in  that  village  off  from  the  main 
line  of  transportation,  and  the  people  wanting  to  attend  town  meet- 
ings had  to  take  the  trolley  into  the  center  some  4  miles  and  back 
out  to  the  town  hall  some  (>  miles.  The  people  in  that  community, 
rather  important  politically  and  otherwise,  pressed  successfully  their 
case  before  the  commission,  and  an  order  was  issued  directing  the 
electric  railroad  to  build  a  line  something  between  3  and  4  miles,  as 
I  recall,  to  connect  that  little  portion  of  the  isolated  community 
with  the  town  hall.  That  is  practically  what  it  was,  the  larger  por- 
tion of  the  community  having  already  a  double-track  line  and  prac- 
tically two  connecting  with  the  main  civic  center.  There  was  a  case 
in  which  the  commission  itself  had  ruled  upon  it,  and,  needless  to  say, 
the  corporation  has  not  been  able  to  obey  the  order  of  the  commission. 

The  CHAIRMAN.  That  is  the  street-railway  corporation? 

Mr.  STORRS.  The  street-railway  corporation  has  not  been  able  to 
do  it.  The  authority  was  issued  two  or  three  years  ago ;  and  we  came 
upon  the  rocks  at  about  that  time  and  have  not  been  able  to  finance 
orders  of  that  sort,  and  the  commission  itself  has  not  pressed  its 
demands  to  the  court  nor  has  the  community  pressed  its  demands  to 
the  court  and  through  mandamus  forced  the  company  into  the  con- 
struction of  the  line. 

Commissioner  WEHLE.  Is  that  in  Connecticut? 

Mr.  STORRS.  Yes;  adjacent  to  New  Haven. 

The  CHAIRMAN.  Have  you  taken  any  steps  to  abandon  that  track 
which  cost  $8,000  to  operate  with  $2,000  revenue? 

Mr.  STORRS.  We  have  now  a  little  publicity  going  forward  to  an 
immediate  cessation  of  service  on  that  line. 

The  CHAIRMAN.  So  there  is  a  remedy  for  the  company? 

Mr.  STORRS.  There  is.  What  the  local  remedy  is  we  do  not  know, 
but  the  practical  remedy  must  be  that. 

Commissioner  WEHLK.  AVhat  is  the  name  of  that  point? 

Mr.  STOKRS.  That  is  up  to  West  port,  from  the  railroad  station 
below  Saugatuck.  You  will  recognize  that  going  up  above  West- 
port  and  on  up  to  the  waterworks. 


436       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSIONS 

Mr.  WARREN.  I  suppose  that  cost  of  $8,000  is  a  good  deal  more  than 
the  cost  was? 

Mr.  STORRS.  Decidedly  more  than  the  cost  was  in  horse-car  clays. 

Mr.  WARREN.  Yes ;  or  in  the  early  electric  days. 

Mr.  STORRS.  Yes.  A  little  tabulation  which  might  be  of  interest 
in  connection  with  that  as  showing  the  difference  between  the  com- 
munities in  this  country  and  in  the  old  world,  where  the  funda- 
mental theory  of  the  electric  railroad  has  been  so  different — the 
theory  being  over  there  that  the  electric  railway  must  serve  the 
densely  settled  part  of  the  community;  it  was  established  for  that 
purpose,  and  that  any  line  built  must  be  a  line  which  would  pro- 
duce transportation  which  would  serve  to  pay  for  the  investment. 

If  I  may,  I  will  read  a  little  bit  here.  Figures  have  been  prepared 
and  a  great  deal  of  publicity  giATen  it  in  the  past  showing  that  had 
the  utility  in  this  country  developed  along  the  line  of  the  same  utility 
in  European  countries  or  in  England,  the  city  of  Columbus,  Ohio, 
if  it  had  the  same  facilities  as  Glasgow,  Scotland,  would  have  at- 
tained but  about  15  per  cent  of  its  present  area.  Or  the  city  of 
Bridgeport,  Conn.,  would  have  less  than  one-fourth  of  the  street- 
railway  trackage  which  it  actually  has  if  it  had  the  facilities  of 
Aberdeen,  Scotland,  cities  of  the  same  type  and  character. 

Commissioner  WEHLE.  What  facilities? 

Mr.  STORRS.  The  lines  of  track,  I  had  in  mind  in  that  case. 

Commissioner  WEHLE.  Have  you  in  mind  the  system  of  charging 
fares  when  you  speak  of  the  facilities? 

Mr.  STORRS.  Xo ;  only  the  physical  facilities. 

As  showing  the  difference  in  the  facilities  afforded  to  American 
and  European  cities  by  electric  railways,  the  following  tabulation 
of  statistics  for  cities  in  Great  Britain  having  a  total  population 
of  965.000  and  cities  in  Xew  England  having  a  total  population  of 
1,085,000,  the  same  number  of  cities  in  both  cases,  and  practically  the 
eame  population,  shows: 


Item. 

Great 
Britain. 

New 
England. 

Population  

985,000 

1,085,000- 

Miles  of  track  

156 

695 

Population  per  mile  of  track  

6,187 

1,560 

Re  venue  per  mile  of  track  

$16  767 

$13  31* 

The  most  significant  part  of  that  comparison  is  the  fact  of  the 
population  per  mile  of  track.  It  is  a  picture  of  the  whole  British 
tramway  conditions,  slender  accommodations,  dense  congestion,  slow 
service,  low  fares,  and  high  earnings  per  mile. 

Commissioner  WEHLE.  Have  there  been  any  developments  in  inter- 
urban  business  in  Great  Britain? 

Mr.  STORRS.  Relatively  small,  I  think.  I  am  not  qualified  to 
testify. 

Commissioner  WEHLE.  The  interurban  business  in  this  country 
where  the  general  communities  are  fairly  closely  united  together  has, 
grown  considerably,  has  it  not  ? 

Mr.  STORRS.  It  has  been  very  largely  overdeveloped. 

Commissioner  WEHLE.  It  has  been  overdeveloped  ? 

Mr.  STORRS.  In  this  country,  you  are  speaking  of  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION      437 

Commissioner  WEHLE.  Yes. 

Mr.  STORKS.  Yes;  that  is,  throughout  the  densely  settled  portions 
of  the  community,  throughout  New  England  and  portions  of  New 
York  State. 

Commissioner  WEHLE.  Taking  the  railway  system  in  Illinois-^ 
would  you  say  that  was  an  overdeveloped  interurban  system  ? 

Mr.  STORKS.  I  am  hardly  competent  to  testify. 

Commissioner  WEHLE.  How  about  Indiana  and  Ohio  ?  Would  you 
say  those  are  overdeveloped? 

Mr.  STORKS.  I  do  not  know  as  to  that  either.  My  detailed  experi- 
ence is  in  connection  with  New  England  properties,  although  I  have 
been  over  some  of  these  other  lines,  of  course,  but  I  am  net  familiar 
with  their  revenues  and  finances  generally. 

Commissioner  WEHLE.  I  mention  this  at  this  point  simply  because- 
I  think  that  we  may  find  that  the  interurban  development  which 
would  have  to  be  taken  into  consideration  in  connection  with  the 
comparison  in  population  per  mile,  as  it  has  occurred  in  this  country,, 
might  from  an  earning  point  of  view  affect  considerably  the  sparse 
business  in  the  cities  themselves. 

Mr.  STORKS.  For  that  reason  I  took  New  England,  where  the  de- 
velopment there,  as  you  know,  is  between  the  small  village  and  small 
town  into  a  larger  city  where  they  are  relatively  dense  and  nearer 
together,  and  there  I  think  those  figures  would  be  more  comparable 
than  they  would  in  any  other  portion  of  our  country. 

Commissioner  WEHLE.  And  the  English  have  nothing,  as  I  under- 
stand, to  compare  with  that  sort  of  development. 

Mr.  STORKS.  No;  that  is  true.  And  I  was  trying  to  bring  out 
that  very  point,  that  had  we  not  developed  beyond  the  area  of  dense 
population,  we  would  have  not  reached  the  difficulties  we  have,  but 
it  was  in  the  effort  to  serve  the  large  community  interest  rather  than, 
the  local  civic  interest  that  we  have  come  upon  these  rocks,  and  that 
by  a  system  of  abandonment  of  lines  and  discontinuance  of  service  we 
can  find  that  measure  of  supplying  the  pedestrians  which  we  can 
meet. 

Mr.  WEHLE.  The  point  is  that  the  electric-railway  systems  in  New 
England  by  reason  of  their  initiative  have  contributed  a  real  social 
service  to  the  cities  by  preventing  congestion  ? 

Mr.  STORKS.  Yes.  Take  a  great  many  small  country  communities. 
They  are  made  up  entirely  of  operatives  in  the  mills  in  the  larger 
cities  and  they  are  given  that  opportunity  for  a  free  life  and  the 
owning  of  little  homes  and  going  out  into  the  country  which  would 
not  have  been  possible  if  there  had  been  no  transportation  facility  of 
this  kind. 

Commissioner  WEHLE.  Has  there  been  any  indication  that  popular- 
sentiment  would  permit  of  the  discontinuance  of  the  service? 

Mr.  STORKS.  I  am  afraid  it  is  a  question  of  necessity  rather  than 
popular  sentiment  when  we  get  down  to  the  point  of  income  and 
outgo  not  meeting. 

Commissioner  WEHLE.  Has  the  legal  question  been  tested  in  New 
England  as  to  whether  there  can  be  a  discontinuance  of  the  service? 

Mr.  STORKS.  Only  in  the  case  perhaps  of  a  receivership  has  it  been 
questioned. 

Mr.  WARREN.  How  has  it  resulted  ? 

Mr.  STOKRS.  That  the  utility  could  be  abandoned. 


438       PROCEEDINGS  OF  FEDERAL.  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  WARREN.  The  same  as  in  Massachusetts  ? 

Mr.  STORES.  The  same  as  in  Massachusetts. 

Commissioner  WEHLE.  Would  you  be  willing  to  put  the  case  in 
the  record  for  reference? 

Mr.  STOBRS.  The  case  of  a  receiver  of  the  Danbury  &  Bethel  Street 
Railway  ?  I  COB  not  give  you  the  citation,  but  it  can  be  readily 
found. 

Commissioner  WEIJLE.  Will  you  do  that,  Mr.  Warren? 

Mr.  WARREN.  I  have  not  it  here. 

Mr.  STORES.  I  will  ask  the  receiver  to  let  you  have  a  copy  of  it. 
He  can  send  the  citation  to  you  readily. 

Commissioner  WEIULE.  What  is  your  idea  as  to  the  remedy  that 
could  be  found  if,  as  you  say,  a  decline  in  gross  revenue  is  apt  to 
follow  any  increase  in  fare  beyond  6  cents  and  if,  as  you  further  say, 
even  an  increase  beyond  C  cents  might  not  produce  a  sufficient  revenue 
to  make  the  industry  self-supporting? 

Mr.  STORES.  A  recognition  on  the  part  of  the  communities  served 
of  the  essential  need  for  transportation,  if  that  need  is  as  it  is  to-day 
throughout  the  sparsely  settled  districts,  and  a  continuance  of  that, 
we  will  say,  with  community  assistance. 

The  CHAIRMAN.  You  may  proceed  with  your  statement. 

Mr.  STOEES.  There  is  no  question  but  what  the  development  of 
these  lines  through  the  rural  districts  has  been  to  the  welfare  of  the 
State  as  a  whole.  It  lias  made  it  possible  for  the  small  villages  to 
keep  in  touch  with  the  larger  cities  and  towns,  and  it  is  doubtful  if 
those  towns  now  served  would  care  to  go  back  to  the  days  before 
trolleys. 

It  has  been  possible  for  the  cities  to  develop  rapidly  because 
the  street  railways  have  been  built  in  the  suburban  territory  and 
in  many  cases  have  preceded  the  coming  of  the  householder.  Were 
it  not  for  this  development  the  growth  of  industry,  business,  and 
commerce  in  large  cities  would  have  been  much  slower.  Everybody 
knows  that  in  days  gone  by  the  development  of  a  suburban  real-estate 
tract  quickly  followed  the  construction  of  a  trolley  line.  These  rail- 
ways have  also  made  possible  the  location  of  industrial  plants  at 
advantageous  sites  remote  from  the  city  proper.  The  new  construc- 
tion created  as  a  result  of  trolley  lines  being  built  to  the  outskirts  of 
large  cities  and  towns  has  a  value  of  many  millions  of  dollars,  the 
taxes  on  which  have  made  possible  the  improvement  of  the  cities 
and  towns  themselves.  The  investors  in  electric  railways  built  these 
lines  in  the  hope  that  eventually  -there  would  be  a  fair  return  upon 
their  investment.  It  was  the  investment  in  these  lines  that  created 
in  a  large  measure  the  increased  valuation  of  the  cities  and  towns. 
Therefore,  should  there  be  a  reduction  in  service  or  a  further  destruc- 
tion of  incentive  to  invest  in  electric-railway  securities,  there  would 
naturally  follow  a  slackening  of  community  and  industrial  develop- 
ment. 

Without  question,  unless  a  resolution  is  found  whereby  the  integ- 
rity of  the  electric  lines  can  be  assured,  mile  upon  mile  of  unprofit- 
able extensions  will  have  to  be  abandoned  with  a  resulting  loss  to  the 
communities  in  declining  real  estate  values  and  general  destruction 
of  the  existing  social  conditions  which  have  been  based  upon  this 
convenient  method  of  intercourse. 

Shall  I  go  forward?    Are  there  any  other  points,  Mr.  Warren? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      439 

Mr.  WARIIKS.  Is  there  anything  further  you  have  to  offer  ? 

Mr.  STORKS.  The  question  is  also  presented  in  connection  with  the 
tranfers  .which  are  now  given  so  generally  and  freely  by  the  electric 
railways  without  any  recognition  of  the  value  which  is  given  by  tha.t 
transportation  service.  Developed  originally  in  all  the  cities  of  any 
size  there  were  a  number  of  independent  electric-railway  corpora- 
tions serving  the  community  as  a  whole,  without  any  interchange 
whatever  of  service  or  exchange  of  patrons.  These  properties  were 
gradually  consolidated  and,  in  the  process,  there  was  either  imposed 
upon  the  electric  railway,  or  there  was  offered  as  a  sop  for  favor  of 
the  consolidation,  a  larger  extended  area  for  one  fare  coming  through 
the  transfer.  That  has  developed  now  until — there  is  a  case  in  point 
as  being  the  most  extreme  case  of  which  we  know  and  perhaps  also 
the  most  absurd  case,  which  was  at  the  time  ex-President  Brush,  of 
the  Boston  .Elevated,  gave  a  man  a  5-cent  piece  and  told  him  to  go  out 
and  ride  as  far  as  he  could.  I  will  have  to  refer  to  the  figure  to  get 
the  exact  distance,  but  I  think  he  rode  54  miles  before  he  had  ex- 
hausted the  possible  extent  of  the  5-cent  fare  and  stopped  then,  not 
because  the  o  cents  was  exhausted  but  because  he  was  exhausted. 
That  is  a  very  extreme  and  absurd  case,  but  it  is  noted  throughout  all 
the  country  that  more  transportation  is  given  for  the  original  fare, 
whatever  that  may  be,  than  the  utility  can  afford  to  supply. 

They  come  into  the  center  of  the  city  from  one  end;  that  line  may 
be  5  or  6  or  7  miles  long;  they  transfer  freely  to  another  line  going 
out  5  or  6  or  7  miles  to  the  other  side  of  the  city. 

That  has  gradually  come  up  with  the  extension  of  the  lines,  the 
f>  cents  for  the  unit  fare  covering  the  entire  city  and  has  been  a  free 
gift  originally,  and  a  part  of  the  franchise  ultimately,  in  very  many 
cases,  but  a  right  of  the  community  without  question  in  the  minds 
of  the  individuals  of  that  community;  but  it  is  always  at  an  addi- 
tional cost  to  the  utility  in  the  additional  accident  hazard  by  carrying 
more  units  of  passenger's  on  and  off  the  cars  and  also  by  reason  of  an 
additional  cost  necessitated  to  take  care  of  the  additional  riding  and 
supplying  additional  passenger  carrying  capacity  to  take  care  of 
those  transferred  passengers. 

Another  reason  for  the  installation  of  the  transfer  was  originally 
the  desire  on  the  part  of  the  utility  to  economize  by  not  running 
through-route  cars  from  one  side  of  the  center  of  the  city  to  another 
or  by  changing  that  route,  and  in  order  to  placate  the  public  a  trans- 
fer was  given  between  the  two  new  routes  obtained  by  the  change 
in  routing  the  cars. 

The  additional  value  g^iven  by  the  utility  to  its  patrons  is  nowhere 
more  exemplified  than  in  connection  with  the  construction  of  the 
property  to-day  as  compared  with  the  construction  of  the  property 
in  the  early  days  of  the  horse  car,  and  since  the  early  days  of  elec- 
trification. 

We  have  made  a  very  careful  study — we  have  a  great  many 
throughout  New  Englancl;  practically  on  the  great  portion  of  those 
lines,  the  fundamental  basis  was  the  electrification  of  the  horse- 
car  lines — and  we  have  drawn  out  some  interesting  figures  in  connc  •- 
tion  with  that.  The  old  horse  car,  in  the  first  place,  cost  from  $800 
to  $1,000.  It  was  heated  by  straw  and,  as  someone  has  so  well  put 
it,  the  animal  heat  of  passengers,  lighted  by  kerosene,  and  propelled 
by  a  horse  at  a  pace  not  much  faster  than  a  walk.  It  was  hardly 


440       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

more  than  a  good-sized  box  on  four  wheels.  The  first  electric  cars 
cost  about  $4,000,  some  heated  by  stoves  and  some  by  electricity. 
They  were. not  as  large  nor  as  convenient  as  the  public  ultimately 
or  gradually  demanded,  so  that  there  has  come  about  an  evolution 
in  the  equipment  of  electric  railways ;  and  to-day  the  people  are  not 
satisfied  with  anything  less  than  the  very  finest  product  of  the  car- 
builder's  art.  The  difference  between  the  first  electric  cars  and  the 
modern  street-railway  car,  costing  $17.000,  is  indicative  of  the  in- 
creased value  of  the  service  given  to  the  public. 

Of  course,  attendant  with  the  increase  in  the  size  and  weight  of 
cars  has  come  a  corresponding  increase  in  the  track  construction.  In 
the  old  horse-car  track  carrying  the  light  car,  all  that  was  necessary 
was  a  strip  of  steel  on  a  wooden  stringer  and  the  stringers  held  to- 
gether at  occasional  intervals  and  costing  approximately  $10,000  per 
mile  of  city  street.  We  have  come  through  the  development  to  the 
first  electric  railway  rail  of  48  pounds  per  yard,  with  occasional  ties, 
to  rail  to-day  weighting  from  91  to  125  pounds  per  yard  and  ties 
more  frequently  spaced  than  on  any  steam  railroad  and  rail  as 
heavy  as  the  best  steam  railroads  and  heavier  than  90  per  cent  of. 
the  steam  railroads  of  the  United  States. 

Starting  out  with  the  horse-car  days  there  was  a  demand  and  ne- 
cessity for  paving  the  streets  between  the  rails,  and  gradually  we 
worked  into  the  high-type  paving  of  to-day,  which  requires  a  still 
further  cost  of  concrete  base  for  the  rail  for  the  ties  and  a  thoroughly 
ballasted  roadbed;  all  of  it,  the  whole  development,  from  the  track 
costing  originally  $10,000  per  mile  to  a  track  costing  to-day  $85,000 
per  mile,  both  being  miles  of  single  track,  entirely  for  the  benefit  of 
the  public;  an  additional  service  rendered  and  additional  facilities 
offered ;  but  the  return  to  the  individual  is  in  dollars  and  cents  the 
same  figure.  Of  course,  to  the  corporation,  in  figures  of  value,  it 
is  practically  half. 

Along  with  that  development  which  I  have  indicated  was  the  im- 
post laid  upon  the  electric  railway  for  paving  the  street;  perhaps 
logical  in  its  original  imposition  by  reason  of  the  fact  that  the  horses 
used  for  propelling  the  cars  did  destroy  the  pavement.  But  to-day 
this  creates  an  attack  upon  the  revenue  of  the  company  which,  of 
course,  must  be  passed  on  to  the  car  rider,  whereby  competitive  serv- 
ice may  be  profitably  operated  as  well  as  rendering  it  more  attractive 
for  the  private  automobile,  thus  passing  the  burden  from  the  resident 
who  can  afford  his  own  private  means  of  transportation  to  the  one 
who  has  not  sufficient  income  and  must  utilize  the  trolley. 

It  also  works  a  hardship  on  the  rural  territory,  for  under  the 
present  method  of  fare  regulation  this  large  annual  burden  must  be 
borne  equally  by  all  the  patrons  of  the  company  and,  of  course,  only 
a  very  small  amount  of  this  expenditure  benefits  the  country  terri- 
tory, as  a  very  small  portion  of  the  expense  for  paving  and  street 
betterment  is  spent  in  the  rural  areas. 

Furthermore,  under  the  present  situation,  this  large  annual  con- 
tribution, estimated  to  amount  to  approximately  $16.000.000.  made 
by  the  electric  railways  is  actually  made  for  the  benefit  of  the  resi- 
dents and  users  of  those  particular  streets  through  which  tracks  are 
located,  thus  reducing  the  cost  of  municipal  betterments  to  one  group 
of  inhabitants,  while  others  are  charged  the  full  cost  of  such  better- 
ments. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      441 

Of  course,  the  railways  feel  that  it  is  a  perfectly  proper  charge, 
if  they  destroy  the  pavement — the  same  as  any  other  utility  in  me 
use  of  the  street — to  have  that  replaced  and  put  in  repair ;  but  the 
idea  of  passing  on  a  burden  amounting  to  such  large  figures — in 
Connecticut  alone  in  the  last  eight  years  our  properties,  representing 
85  per  cent  of  the  track  of  the  State,  has  expended  solely  for  pave- 
ment over  $2,000,000,  and  it  is  of  record  that  in  Portland,  Oreg.,  in 
the  valuation  of  the  public-utility  commission  they  found  an  actual 
expenditure  by  the  public  utility  in  Portland,  Oreg.,  of  $2,000,000 ; 
and  we  have  been  spending  right  along  in  Connecticut  at  a  rate  of 
$310,000  a  year  solely  for  the  permanent  pavement.  To  which  must 
be  added  a  very  large  expenditure  to  prepare  the  rails  for  pavement 
laying,  the  older  rail  of  the  standard  types  running  up  as  high  ag 
even  80  pounds  per  yard — and.  a  very  good  rail,  but  which  was  a 
low  rail,  and  the  change  in  the  type  of  pavement  required  the  use 
of  a  higher  rail  in  order  to  accommodate  the  concrete  base  and  the 
concrete  subbase  and  wood-block  surface  cover;  and  we  have  had  to 
put  in  rails  up  to  91  pounds  per  yard  and  destroy  physical  value 
of  the  rails  and  the  roadway  which  had,  at  least  in  many  instances, 
10  or  15  years  more  life,  and  in  practically  all  instances  5  or  6 
years  more  life.  It  had  to  be  done  in  order  to  accommodate  the 
requirement  for  pavement  on  the  part  of  the  public.  That  item 
alone,  in  connection  with  one  which' has  been  running — but  not  at 
the  present  time  because  there  is  no  revenue  to  supply  it,  but  the 
demands  are  there  just  the  same,  and  in  the  past  they  have  been  met — 
totals  a  cost  of  over  half  a  million  dollars  a  year  for  the  one  item 
of  pavement  and  the  incidental  betterment  of  the  roadway  necessi- 
tated by  that  pavement.  That  is  just  in  one  small  community,  to 
bring  it  down  to  a  concrete  case. 

The  trolley  car  is  the  only  user  of  the  street  that  does  not  destroy 
the  pavement.  The  automobile,  the  large  truck,  the  horse  and 
wagon,  even  the  motorcycle  it  is  conceivable  might  possibly  damage 
it,  but  the  trolley  car  is  the  only  one  that  does  not  destroy  the  sur- 
face of  the  street.  In  fact,  it  takes  off  from  that  surface  a  Large 
amount  of  what  otherwise  might  be  vehicular  traffic;  and  yet  it  is 
the  only  utility,  the  only  individual,  that  is  charged  for  that  better- 
ment. It  is  probably  logical,  because  the  easiest  thing  to  do  is  to 
soak  the  utility. 

Another  impost  is  that  of  the  requirement  for  bridges,  and  with 
the  gradual  development  and  civic  betterment  and  improvement,  a 
new  and  more  ornamental  bridge  is  frequently  required,  or  with  the 
gradual  increase  in  the  vehicular  use  of  the  highway,  particularly 
the  use  by  trucks  carrying  as  high  as  25,000  pounds  at  times,  a  new 
bridge  over  a  large  waterway  is  required.  That  is  recognized  in 
various  cities  by  varying  imposts  upon  the  utility,  because  it  hap- 
pened to  be  the  easiest  thing  to  reach  out  and  pass  the  burden  of 
the  public  onto,  in  the  minds  of  the  average  legislator.  Of  course, 
that  burden  is  not  passed  on;  it  ultimately  rests  on  the  taxpayer 
and  the  individual  user  of  the  utility,  but  it  was  a  popular  thing 
to  pass  it  on.  It  worked  out  in  some  cases  to  an  imposition  of  over 
one-third  of  the  total  cost.  Right  here  let  me  say,  where  the  utilities 
are  recognized  in  their  mutuality  of  relation  between  the  community 
served  and  the  utility,  these  imposts  are  not  made  on  the  utility; 
they  are,  rather,  made  entirely  from  the  tax. 

160643°— 20 29 


442       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

Now  in  Connecticut,  revelling  again  to  the  case  of  my  particular 
property,  there  are  many  large  bridges  spanning  navigable  streams. 
Some  of  those  were  built  years  ago  when  the  farmers'  wagons  and 
the  drays  were  the  only  known  means  of  carrying  heavy  loads  and 
the  electric-railway  service  given  was  in  light-weight  cars.  The 
electric  railway  was  ordered  or  directed,  in  case  of  a  change  of  equip- 
ment or  in  use  of  that  highway  bridge  over  which  it  was  given  a 
right  to  operate — if  by  reason  of  its  own  service  it  increased  the 
demands  upon  that  bridge  and  rendered  necessary  an  increase  in 
construction  from  the  standpoint  of  safety,  the  electric  railway  must 
care  for  that  increase.  There  was  also  some  little  suggestion  as  to 
the  necessity  to  pay  for  the  additional  cost  occasioned  by  widening 
if  widening  were  necessary. 

Discussions  came  up  from  time  to  time  as  to  how  much  of  a 
contribution  was  necessary  from  the  standpoint  of  the  electric 
railway  for  the  increased  strength  of  the  bridge  or  the  increased 
widening,  becoming  almost  vitriolic  at  times.  It  resulted  in  an  ap- 
peal to  the  legislature  by  a  single  community  in  which  there  was 
involved  at  that  time  a  small-bridge  construction  and  ultimately 
the  enacting  of  a  statute  by  the  State  requiring  the  payment  by  the 
electric  railroads  of  one-third  of  the  total  cost  of  all  bridges  where 
built  between  towns  of  10,000  population,  the  extreme  usually  be- 
ing the  town  line;  another  third  being  assesed  against  the  towns 
and  another  third  against  the  State. 

There  happens  to  be  one  bridge  in  Connecticut  at  the  present  time 
which  is  perfectly  good  from  the  standpoint  of  strength  but  which 
is  not  architecturally  or  structually  beautiful.  It  is  across  a  beautiful 
stream  and  is  very  largely  used  by  the  automobile  visitors  from 
foreign  states  and  by  the  trucks  of  New  England  industries  rush- 
ing goods  down  to  the  New  York  market.  That  bridge  is  now  being 
contracted  for  reconstruction  and  the  contract  is  in  the  neighbor- 
hood of  $900,000  and  its  cost  will  probably  be  about  $1,200,000.  The 
utility  will  be  required  under  the  State  law  to  pay  $400,000.  On 
the  basis  of  ^  6-cent  fare,  that  is  over  6,000,000  passengers — the 
total  contribution  by  6,000,000  passengers.  We  carry  over  that 
area  in  the  neighborhood  of  1.000,000  to  1,250,000  per  year.  There 
is  not  enough  profit  on  the  million  and  a  quarter  to  pay  the  carry- 
ing charges  on  the  $400,000  spent  on  the  bridge,  and  it  is  absolutely 
of  no  value  to  the  corporation  and  is  absolutely  no  improved  service 
to  the  community..  It  is  merely  because  the  community  and  the 
State  need  the  bridge  and  some  one  happened  to  pass  on  to  the 
poor  utility  a  payment  of  one-third  of  the  total  cost  of  construc- 
tion. 

Mr.  WARREN.  Have  you  anything  more,  Mr.  Storrs? 

Mr.  STORKS.  I  would  like  to  emphasize,  if  I  may,  this  point,  the 
one  phase  of  the  combination  of  competition  and  imposts  which  is 
so  hard  upon  us,  and  that  is  that  of  the  motor  truck.  I  think  we 
will  all  acknowledge  that  the  one  thing  that  wears  out  the  city  pave- 
ment most  is  the  highly  developed  motor  truck.  I  happen  to  recall 
now,  passing  in  front  of  my  house,  which  is  on  one  of  the  principal 
city  streets  leading  through  the  city  of  New  Haven,  frequent  fleets  of 
trucks  which  pass  by  there,  going  at  as  high  a  rate  of  speed  as  they 
can  and  escape  on,  and  at  nighttime,  unfortunately,  there  are  no 
traffic  policemen  out  there'  to  stop  them-  The  result  is  that  the  pave- 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION".      443 

ment  through  there  is  being  torn  up.  The  wooden  blocks  are  being 
torn  out  of  the  pavement.  When  it  rains,  the  wooden  blocks  are 
soaked  out  of  the  pavement  by  these  trucks,  and,  unfortunately,  the 
poor  electric-railway  company  has  paid  for  19  feet  out  of  a  total 
of  40  feet  of  the  pavement. 

Mr.  WARREN.  The  street-railway  company  has  paid  for  19  out  of 
a  total  of  40  feet  of  the  pavement? 

Mr.  STORRS.  Yes,  sir;  and  that  is  true  throughout  the  country, 
wherever  the  right  of  way  has  been  given  to  that  competitor.  Of 
course,  in  this  case,  a  long-distance  motor  truck  would  not  be  a  par- 
ticular competitor.  The  right  of  way  has  been  provided  very  largely 
at  the  expense  of  the  ridel's  on  the  cars,  and  that  is  being  torn  up 
and  destroyed  by  a  form  of  transportation  that  pays  nothing  what- 
ever toward  the  maintenance  and  upkeep  of  that  highway.  I  can 
not  think  of  anything  more  particularly,  Mr.  Warren. 

Mr.  WARREN.  I  would  like  to  ask  you  one  question,  Mr.  Storrs. 
You  spoke  of  the  annual  expenditure  over  the  country  of  something 
like  $200,000,000  on  highways  largely  for  the  improved  operation  of 
automobiles.  Have  you  in  mind,  and  can  you  tell  the  commission 
what  the  aggregate  amount  paid  by  automobiles  in  registration 
fees  is? 

Mr.  STORES.  I  have  that  in  figures.  This  is  a  tabulation  that  I 
overlooked,  but  I  meant  to  get  it  in  in  connection  with  my  testimony 
as  to  the  automobile  portion  of  it.  I  have  the  tabulation,  if  I  may 
put  it  into  the  record. 

The  CHAIRMAN.  Very  well. 

The  tabulation  referred  to  is  as  follows: 
Comparison  of  automobile  and  of  electric-railieaij  induxtrir  as  of  J.9/8. 


Automobile. 

Electric 
railway. 

Total  number  of  cars  

6,146,617 

102  379 

Number  of  passenger  cars  

5,352,350 

£3  SS3 

Capital  investment  

»  $1,297  000  000 

Jo  3.r>f>  304  t>10 

Number  passengers  carried  per  year  

'3,000,000,000 

14  243  415  S30 

3  4o,  000  000  000 

42  730  247  4*10 

;••  i  -.it  i  :  i  •-'  capacity  of  all  passeiiper  cars  

25,000,000 

2  93"'  90"> 

Number  01  employees  

830  000 

293  39'' 

Gross  revenue  from  license  or  taxes  

$51,477,416 

$49  4%  334 

Cost  of  maintenance  of  wav  and  structures...     .           ..     ..        ... 

4  4,s  joe  ;ttO 

Amount  for  paving  and  other  imposts  

16  06.">  000 

1  Exclusive  of  cars. 
1  Based  on  t*-o  passeneers  per  car. 

1  Based  on  three  passenr ors  per  car  and  3,000  miles  per  vear. 

4  Estimated  as  same  percentage  of  total  cost  of  way  and  structures  as  in  1917,  using  191S  estimate  based 
on  115  companies,  American  Electric  Railway  Aowetotion. 

Mr.  STORRS.  That  tabulation  shows  the  total  number  of  cars  and 
tbe  investment.  The  taxes  received  from  the  automobiles  were  $51,- 
000,000. 

Mr.  WARRKN.  That  is  all  that  comes  in  a>s  against  the  $'_>00,000.000  ? 

Mr.  STOHRS.  The  $256,000,000  put  in  by  States  and  communities 
as  a  whole  for  that  pavement. 

Commissioner  MEKKER.  Just  what  does  that  $256,000,000  repre- 
sent? Does  it  represent  new  construction? 

Mr.  STORRH.  And  renewals,  so  I  understand.  That  was  obtained 
from  the  statistical  department  of  the  Bureau  of  Census. 


444       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Do  you  happen  to  know  the  mileage  of  the  tracks? 

Mr.  STORRS.  I  have  not  that. 

Mr.  WARREN.  Did  you  not  have  that  in  your  statement? 

Mr.  STORRS.  Well,  the  statement  that  I  had  there  was  the  total. 

Mr.  WARREN.  As  between  Columbus  and  Glasgow? 

Mr.  STORRS.  I  am  not  at  all  sure  that  I  had  that  in  the  statement, 
and,  unfortunately,  that  statement  is  not  here  just  at  the  present 
moment.  I  have  an  extra  copy  of  it,  and  I  will  look  at  it.  [After 
referring  to  papers.]  No ;  I  do  not  have  that  mileage.  My  compar- 
ison as  to  mileage  is  entirely  between  the  six  large  cities,  as  totals. 

Mr.  WARREN.  Yes. 

Mr.  STORRS.  I  can  easily  supply  that  figure,  if  necessary. 

Mr.  WARREN.  These  imposts  which  you  have  described,  such  as 
paving,  bridges,  street  widening,  street  cleaning,  and  other  require- 
ments of  that  sort  through  the  street  railways  on  the  car  riders, 
really  all  analyze  down,  do  they  not,  to  a  question  of  the  expediency 
of  relieving  the  general  taxpayer  through  an  indirect  tax  upon  the 
car  rider? 

Mr.  STORRS.  Absolutely ;  there  is  no  question  about  that.  That  has 
to  be  recognized  either  in  an  increasing  rate  of  fare  or  a  decreasing 
facility,  or  deteriorating  facility. 

Mr /WARREN.  And  while  the  street  railway  was  supposedly  pros- 
perous, it  seemed  an  easy  way  to  increase  municipal  revenue? 

Mr.  STORRS.  Yes,  sir. 

Mr.  WARREN.  But  now  it  becomes  a  very  acute  question  as  to 
whether  the  people  who  have  the  property  shall  pay  for  these  various 
burdens,  or  whether  the  people  whose  interests  force  them  to  ride  on 
the  street-cars  shall  pay? 

Mr.  STORKS.  Yes,  sir. 

Mr.  WARREN.  That  is  all  there  is  to  the  question,  is  it  not '( 

Mr.  STORRS.  Absolutely,  as  far  as  those  imposts  are  concerned. 

Mr.  WARREN.  That  is  all  I  want  to  ask  Mr.  Storrs,  gentlemen. 

Commissioner  MEEKER.  Mr.  Storrs,  it  is  true,  is  it  not,  that  the 
street  railways  do  wear  out  the  surface  of  the  street,  to  a  limited  ex- 
tent, next  to  the  rail? 

Mr.  STORRS.  Next  to  the  rail  for  a  distance  of  5  or  6  inches. 

Commissioner  MEEKER.  Would  you  advocate  the  exempting  of  the 
street  railways  entirely  from  any  charge  for  paving  the  streets  be- 
cause of  the  insignificance  of  the  area  that  the  street-railway  traffic 
actually  affects? 

Mr.  STORRS.  I  think  not,  particularly  on  that  basis,  but  upon  the 
theory  that  communities  are  giving  to  other  means  of  transportation 
a  thoroughly  improved  highway,  and  they  certainly  should  be  willing 
to  take  up  the  relatively  insignificant  burden  that  that  might  be,  but 
which  is  a  very  large  burden,  of  course,  in  the  total  paving  costs. 

Commissioner  MEEKER.  I  take  it  that  you  advocate  the  regulation 
of  the  jitney  and  the  motor-truck  traffic  and  control  of  such  traffic 
by  the  public,  in  order  to  put  those  services  on  the  same  footing  as 
the  services  rendered  by  the  street-railway  companies?" 

Mr.  STORRS.  Absolutely.  It  seems  to  me  essential  from  the  stand- 
point of  the  communities  and  the  Commonwealths  in  the  large  com- 
munities to  have  that  character  of  transportation  thoroughly  regu- 
lated, the  same  as  the  other  means  of  transportation  are  regulated. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      445 

Commissioner  MEEKER.  And  if  those  means  of  traffic  are  able  to 
beat  the  street  railways  out,  if  they  were  all  subjected  to  the  same 
regulation,' the  same  measure  of  control,  then  the  street-railway  com- 
panies would  have  to  take  a  licking;  but  it  is  wholly  unfair,  I  gather 
from  your  testimony,  to  have  these  services  rendered  on  an  unfair 
basis. 

Mr.  STORKS.  Yes.  sir. 

Commissioner  MEEKER.  Which  is  really  service  rendered  to  the 
public  at  less  than  cost  ? 

Mr.  STORRS.  Without  doubt. 

Commissioner  MEEKER.  And  at  the  expense  of  the  established 
service  rendered  by  th  street-railway  companies  ? 

Mr.  STORRS.  The  communities  and  the  States  have  invited  in- 
vestors to  come  in  and  provide  the  essential  transportation  need  of 
the  communities  and  have  in  the  past  guaranteed,  through  their 
statutes,  a  transportation  monopoly.  In  this  case,  this  other  public 
utility  would  come  in;  and  for  the  community  and  the  Common- 
wealth to  allow  unregulated  competition  is  inconceivable.  It  should 
not  be  allowed  to  go  on. 

Commissioner  MEEKER.  May  I  ask  you  a  hypothetical  question 
there?  If,  however,  some  improved  means  of  transportation  of 
traffic  shall  be  hit  upon  in  the  future,  you  would  not  urge  the  mo- 
nopolistic character  of  the  charters  granted  for  the  protection  of 
the  street-railway  companies? 

Mr.  STORRS.  I  think  that  is  so  largely  a  hypothetical  question  that 
it  is  easy  to  answer.  I  can  not  see  that  it  would  be  possible.  The 
originally  chartered  companies  have  gone  through  a  very  great  de- 
velopment by  a  change  in  the  art,  and  it  is  inconceivable,  at  least 
to  my  mind,  that  a  further  change  wrill  come  in  the  transportation 
field  without  the  experts  and  those  interested  in  the  present  utility 
availing  of  the  change. 

Commissioner  MEEKER.  So  many  wonderful  things  have  happened, 
even  in  my  lifetime,  that  I  do  not  like  to  predict  the  impossibility 
of  anything.  I  just  want  to  get  your  views  on  the  subject.  I  think 
I  have  stated  your  views  correctly,  have  I  not,  that  all  you  want  is 
the  same  measure  and  kind  of  regulation  and  control  over  jitney  and 
motor-truck  traffic  that  is  exercised  over  street  railways  and  public 
utilities,  and  then  they  can  fight  it  out  ? 

Mr.  STORRS.  Absolutely. 

Commissioner  MEEKER.  And  possibly  in  some  lines  the  jitneys  and 
motor  buses  and  motor  trucks  will  remain,  even  under  those  condi- 
tions? 

Mr.  STORRS.  That  is  absolutely  all  that  the  utility  is  asking  at  the 
present  time,  so  far  as  I  understand  it. 

Commissioner  MEEKER.  Now,  you  gave  us  some  very  interesting 
facts  regarding  the  developments  and  extensions.  Do  you  think  it 
would  be  advisable  because  of  the  public  service  rendered  by  street- 
railway  companies  in  distributing  population  over  wider  areas,  re- 
lieving the  congestion,  or  preventing  congestion,  if  you  please,  do 
you  think  it  would  be  advisable  to  maintain  services  that  were  not 
paying  for  the  services  at  the  expense  of  general  taxation? 

Mr.  STORRS.  Without  question,  in  my  mind,  it  would  be  very  de- 
sirable. There  are  certain  specific  cases  in  which  that  is  now  being 
done  in  Massachusetts.  On  one  of  our  own  properties  we  aban- 


446       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

cloned  entirely  some  5  miles  of  trackage,  and  we  discontinued  the 
service  on  21  miles  more  and  proposed  the  discontinuance  of  service 
on  9  miles  farther.  In  that  case,  the  communities  served  came  for- 
ward with  a  sufficient  annual  fund  to  meet  the  actual  cost  of  opera- 
tion of  that  line,  giving  us  all  the  revenues. 

Commissioner  MEEKER.  Well,  is  it  a  foregone  conclusion  that  the 
9  miles  which  you  propose  to  abandon  could  not  be  put  upon  a  pay- 
ing basis  if  you  were  given  sufficient  elasticity  of  fares? 

Mr.  STORRS.  Well,  I  think  it  was  in  that  case,  because  it  was  a  very 
sparsely  settled  community,  and  the  costs  were  going  up  so  rapidly 
that  it*  would  be  almost  impossible  to  get  enough  people  to  travel 
to  meet  the  costs  of  to-day.  The  costs  of  years  ago  were  a  different 
matter,  at  tire  time  that  they  built. 

Commissioner  MEEKER.  Did  the  community  pass  judgment  upon 
this,  or  did  the  State  public-utility  commission  pass  upon  it? 

Mr.  STORRS.  The  appropriation  was  voted  on  in  open  town  meeting, 
largely  called  for  that  purpose. 

Commissioner  MEEKER.  And  the  deficit  was  made  up  out  of  taxa- 
tion in  the  community  affected? 

Mr.  STORRS.  Yes,  sir. 

Commissioner  MEEKER.  Is  it  the  thought  of  the  people  of  the  com- 
munity that  they  are  going  to  grow  big  enough  so  that  eventually 
the  street-car  riders  will  pay  for  the  service? 

Mr.  STORRS.  They  temporized  with  that  question  and  made  the  vote 
only  for  one  year.  What  the  next  year  will  show  will  be  perhaps 
going  over  it  again.  I  don't  know. 

Commissioner  MEEKER.  There  is  just  one  further  question  that  I 
want  to  ask :  With  reference  to  the  amount  of  the  automobile  license 
fees  and  the  amount  expended  on  building  new  roads  and  the  up- 
keep of  the  roads  built,  of  course,  those  roads  are  not  built  entirely 
for  the  automobile  owners,  and  they  are  not  worn  out  entirely  by 
automobiles.  What  is  the  amount  in  license  fees  collected  annually  ? 

Mr.  STORRS.  $56,000,000,  I  think,  was  the  figure. 

Commissioner  MEEKER,  Does  that  represent  only  the  revenue  that 
the  public  collects  from  the  automobiles? 

Mr.  STORRS.  I  understand  that  is  it.  This  tabulation  of  statis- 
tics was  obtained  from  various  motor  vehicle  associations  throughout 
the  country. 

Commissioner  MEEKER.  But  that  would  not  include  the  personal- 
property  tax? 

Mr.  STORRS.  No;  I  understand  that.    This  is  license  fees. 

Commissioner  MEEKER.  I  wonder  if  you  should  not  give  to  the 
commission  your  best  estimate  of  the  total  revenue  paid  by  automo- 
biles. As  long  as  the  question  has  come  up,  it  would  seem  to  me 
that  that  would  be  the  fair  way  of  presenting  the  facts. 

Mr.  STORRS.  This  was  prepared  by  our  statistical  department,  and 
I  would  have  to  find  out.  I  would  perhaps  have  to  amplify  that. 

Commissioner  MEEKER.  If  you  asked  my  personal  opinion,  I  would 
not  attach  very  much  importance  to  those  figures.  That  is  all,  Mr. 
Storrs. 

Mr.  WAKBEN.  Mr.  Storrs,  in  the  matter  of  that  track  which  the 
community  made  a  contribution  to  support,  had  not  the  matter 
been  before  the  Public  Service  Commission  of  Massachusetts? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      447 

Mr.  STORKS.  Yes;  the  matter  had  been  before  that  commission. 
The  question  of  the  discontinuance  of  the  service  over  this  portion 
of  9  miles  of  track  had  been  before  the  Public  Service  Commission 
of  Massachusetts,  and  they  directed  the  communities  and  the  public 
utility  to  get  together,  if  possible,  on  the  basis  of  seeing  whether 
the  communities  required  transportation  to  an  extent  sufficient  to 
make  an  appropriation. 

Mr.  WARREN.  And  that  they  did,  instead  of  passing  on  the  aban- 
donment formally? 

Mr.  STORRS.  Instead  of  passing  on  the  abandonment  formally. 
The  petition  for  abandonment  was  then  pending  before  the  public- 
service  commission. 

Mr.  WARREN.  You  spoke  of  the  car  cost  being  $17,000,  with  full 
equipment.  I  think  the  testimony  of  Mr.  Heulings,  of  the  Brill  Co., 
on  Friday,  was  something  like  $10,000  a  car. 

Mr.  STORRS.  In  connection  with  that,  I  am  giving  the  figures  that 
we  paid  the  Brill  Co.  for  some  cars  recently  purchased.  They  were 
purchased  during  war  days,  the  delivery  having  just  been  completed, 
but  the  orders  were  placed  in  August,  a  year  ago,  1918,  for  those  cars, 
complete  with  all  the  equipment,  $17,000. 

Commissioner  GADSDEN.  Did  not  Mr.  Heuling  give  the  price  of  a 
specific  car  to  show  the  difference  between  the  prewar  prices  and  the 
ordinary  prices?  He  did  not  claim  that  that  was  the  highest  price 
of  a  car. 

Mr  WARREN.  No;  but  I  just  wanted  to  bring  out  the  explanation 
of  it. 

Mr  STORRS.  Yes. 

Mr.  WARREN.  You  think  then,  Mr.  Storrs,  that  the  question  of 
convenience  and  necessity  of  the  extension  of  the  street  railways 
should  be  passed  upon  by  the  State  commission,  if  there  is  one? 

Mr.  STORRS.  Oh,  absolutely. 

Mr.  WARREN.  You  believe  also  in  connection  with  that,  that  it 
should  pass  upon  the  question  of  whether  it  should  be  self-sustain- 
ing, if  built? 

Mr.  STORRS.  There  is  no  question  about  it. 

Mr.  WARREN.  That  is  all. 

Commissioner  SWEET.  How  is  the  State  Commission  of  Connecticut 
appointed  ? 

Mr.  STORRS.  It  is  appointed  by  the  governor,  sir. 

Commissioner  SWEET.  How  many  members  are  there? 

Mr.  STORRS.  Three. 

Commissioner  SWEET.  Is  there  any  politics  in  it? 

Mr.  STORKS.  Not  that  I  know  of.  It  is  extremely  clear  from  any- 
thing of  that  sort.  There  never  was  any  accusation  of  such. 

Commissioner  SWEET.  What  authority  is  given  to  the  State  com- 
mission in  Connecticut  now? 

Mr.  STORKS.  Very  broad  powers  in  connection  with  the  method  and 
manner  of  the  construction  of  the  property,  the  service  to  be  ren- 
dered, and  the  reasonableness  of  the  rates  of  fare  which  have  been 
established. 

Commissioner  SWEET.  Do  you  think  this  subject  can  be  referred 
to  State  commissions,  or  should  l>e  referred  to  State  commissions 
rather  than  to  municipalities? 

Mr.  STORRS.  Without  question,  sir. 


448       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  If  your  figures  are  correct — and  I  have  no 
reason  to  doubt  their  correctness — you  have  made  out  a  very  strong 
case  tending  to  show  that  present  conditions  are  wrong  in  many  re- 
spects and  need  readjustment,  have  you  not? 

Mr.  STORKS.  I  hope  so. 

Commissioner  SWEET.  The  basis  upon  which  we  are  now  pro- 
ceeding with  regard  to  transportation  such  as  we  are  digcussing  is 
all  obsolete;  that  is  to  say,  our  present  system  w.as  adopted  when 
things  were  entirely  different  from  what  they  are  now,  and  in  order 
to  reach  a  proper  readjustment,  a  great  many  things  have  to  be 
changed;  is  not  that  so? 

Mr.  STORKS.  Doubtlessly. 

Commissioner  SWEET.  That  would  take  a  great  deal  of  time,  would 
it  not? 

Mr.  STORKS.  The  change  would  be  more  particularly  one  in  the 
public  mind. 

Commissioner  SWEET.  Certainly,  but  the  public  mind  has  to  be 
changed  before  the  other  changes,  the  real  changes,  can  be  made; 
but  that  would  take  a  great  deal  of  time,  would  it  not  ? 

Mr.  STORKS.  Doubtlessly. 

Commissioner  SWEET.  Would  it  be  possible  to  give  to  the  electric 
railways  of  the  United  States  the  relief  demanded  from  the  present 
conditions  that  exist  within  the  time  that  would  be  required  to  make 
these  readjustments? 

Mr.  STORRS.  That  is  a  rather  broad  problem. 

Commissioner  SWEET.  Well,  do  you  think  it  would?  In  your 
judgment,  would  it  be  possible  to  make  these  readjustments  soon 
enough  to  relieve  the  situation? 

Mr.  WARREN.  These  fundamental  readjustments,  the  franchises, 
etc.? 

Commissioner  SWEET.  Certainly. 

Mr.  STORRS.  Oh,  it  would  be  impossible  to  do  that,  but  in  the 
meantime,  a  step  in  advance  could  be  taken  by  an  assurance  of  the 
adjustment  of  the  fundamentals  which  would  give  to  the  public 
utility  an  opportunity  of  so  conducting  its  business  within  areas, 
by  discontinuing  service,  by  temporarily  abandoning  lines  that  are 
unprofitable,  until  the  fundamental  adjustments  were  brought  about, 
and  which  might  give  the  utility  an  opportunity  to  continue  its  life. 

Mr.  WARREN.  Or  by  temporarily  increasing  the  rates? 

Mr.  STORRS.  Yes;  or  by  increasing  temporarily  the  rates. 

Commissioner  SWEET.  Well,  it  would  follow  that  if  the  readjust- 
ments that  are  necessary  to  put  things  on  a  proper  basis  can  not 
be  made  within  a  reasonable  time,  then  we  must  look  for  some  tem- 
porary measures? 

Mr.  STORRS.  Yes. 

Commissioner  SWEET.  Now,  the  question  that  I  would  like  to  have 
you  answer,  if  you  feel  disposed  to  dp  so,  and  can,  is  to  tell  the  com- 
mission what  temporary  measures,  in  your  judgment,  ought  to  be 
adopted,  pending  a  general  readjustment  in  regard  to  the  whole 
subject? 

Mr.  STORKS.  That  is  very  broad,  and  I  would  not  like  to  pass 
judgment  for  the  entire  industry,  Mr.  Commissioner  Sweet. 

Commissioner  SWEET.  Well,  is  not  that  the  problem  before  us  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      449 

Mr.  STORKS.  It  is  the  problem  that  is  before  you ;  yes,  sir.  With- 
out any  question,  relief  from  the  imposts  that  are  made  upon  the 
public  utility,  the  regulation  of  competition  to  the  point  that  we 
know  what  that  competition  may  amount  to.  the  granting  of  the  right 
to  discontinue,  either  temporarily  or  for  a  long  time,  the  essentially 
unprofitable  lines,  the  giving  to  the  utility  by  the  public  of  a  sub- 
sidy to  enable  them  to  continue  operation  of  those  unprofitable  lines, 
thereby  bridging  over  the  period  of  reconstruction,  and  a  recognition, 
always,  of  course,  going  with  that,  by  the  public  of  the  essential 
need  of  the  change,  and  a  willingness  to  pay  the  increased  rates  of 
fare — an  increased  rate  of  return,  relief  from  imposts,  regulation  of 
competition,  and  the  privilege  of  discontinuing  service  that  is  so  un- 
profitable as  to  be-really  a  nonessential  service. 

Commissioner  SWEET.  If  I  understand  you  correctly,  the  mere 
increasing  of  rates  at  the  present  time  would  not  be  even  a  tem- 
porary remedy  ? 

Mr.  STORKS.  In  my  opinion,  no. 

Commissioner  SWEET.  In  that  respect,  you  differ  from  some  other 
witnesses  who  have  appeared  before  this  commission. 

Mr.  STORKS.  Well,  the  effect  of  an  increase  in  rates  in  various 
communities  is  different.  It  differs  all  over  the  country.  It  so  hap- 
pens that  in  parts  of  Connecticut,  doubtless  by  reason  of  the  fact 
that  the  distances  are  so  relatively  short,  there  is  a  greater  falling 
off  in  traffic  than  there  would  be  at  other  points  where  the  ride  is, 
of  necessity,  longer  and  the  need  for  the  service  more  acute;  but 
that  has  been  our  experience  in  parts,  at  least,  of  the  New  England 
territory. 

Commissioner  GADSDEN.  You  have  had  your  increase  already? 

Mr.  STORRS.  Yes;  we  have  had  our  increase  already. 

Commissioner  GADSDEN.  And  you  are  talking  about  a  further 
increase  ? 

Mr.  STORRS.  I  am  talking  about  a  further  increase. 

Commissioner  GADSDEN.  You  are  operating  on  at  least  a  6-cent 
fare? 

Mr.  STORRS.  We  are  operating  on  at  least  a  6-cent  fare. 

Commissioner  GADSDEN.  And  Commissioner  Sweet  has  been  ask- 
ing you  about  a  situation  where  they  were  still  operating  at  5  cents. 

Mr.  STORRS.  Well,  you  have  to  keep  on  going  and  going  and  going. 
The  6-cent  fare  is  not  sufficient  to  meet  the  needs  of  the  corporation. 

Commissioner  SWEET.  My  understanding  of  your  testimony  has 
been  that  the  companies  under  your  control  are  losing  money  to-day? 

Mr.  STORRS.  Yes,  sir. 

Commissioner  SWEET.  I  do  not  think  you  have  put  in  evidence  as 
to  just  exactly  what  that  situation  is  regarding  these  companies. 

Mr.  STORRS.  I  will  be  very  glad  to  do  that.  I  will  have  to  have 
some  little  time  to  get  that  tabulation  together. 

Commissioner  SWEET.  But,  broadly  speaking,  are  you  paying 
operating  expenses? 

Mr.  STORRS.  Some  of  the  companies  are  paying  operating  ex- 
penses, and  some  of  them  are  not  paying  operating  expenses. 

Commissioner  SWEET.  Taking  it  as  a  whole,  you  are  losing  money; 
you  are  not  paying  operating  expenses  I 

Mr.  STORRS.  Yes,  sir. 


450       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

Commissioner  SWEET.  I  assumed  that  that  is  the  case  in  the  ques- 
tion I  asked  you  with  regard  to  the  remedy. 

Mr.  STORKS.  Yes. 

Commissioner  SWEET.  Because  that  is  substantially  the  case  all 
over  the  United  States. 

Mr.  STORKS.  Yes,  sir. 

Commissioner  SWEET.  Undoubtedly,  there  are  some  parts  of  the 
different  railway  systems  that  pay,  but  that  is  more  than  offset  in 
almost  every  case  by  other  parts  of  the  systems  that  are  losing 
money  ? 

Mr.  STORKS.  Yes. 

Commissioner  SWEET.  The  idea  that  seemed  to  prevail  in  the  early 
days  was  that  the  community  ought  to  get  everything  it  could  out 
of  these  public-service  corporations. 

Mr.  STORKS.  Yes. 

Commissioner  SWEET.  And  the  general  taxpayer  seems  to  have 
consulted  his  own  supposed  interest  at  that  time  in  shifting  burdens 
to  the  street-railway  companies  and  other  corporations  of  that  char- 
acter, wherever  they  could  do  so. 

Mr.  STORKS.  Yes,  sir. 

Commissioner  SWEET.  The  public-service  corporations,  I  think  you 
will  admit,  used  means  in  connection  with  the  public  that  were 
sometimes  dishonest  and  dishonorable,  in  the  way  of  bribing,  di- 
rectly and  indirectly,  public  officials,  seeking  to  get  men  who  were 
particularly  favorable  to  their  interests  on  common  councils,  boards 
of  assessors,  etc.,  and  there  was  a  prejudice  created  in  the  public 
mind  against  these  corporations  to  some  extent  which  was  just. 
Was  not  that  true  in  the  old  days? 

Mr.  STORRS.  It  is  so  rumored  to  be,  at  least. 

Commissioner  SWEET.  When  did  your  connection  with  this  busi- 
ness commence? 

Mr.  STORRS.  Not  until  1906. 

Commissioner  SWEET.  Have  you  ever  seen  anything  of  that  kind 
since  1906? 

Mr.  STORRS.  No,  indeed ;  no,  sir — nothing  of  that  kind. 

Commissioner  SWEET.  I  am  not  asking  you  now  to  incriminate 
yourself. 

Mr.  STORKS.  The  days  of  the  optimist  had  almost  passed  when  I 
came  into  the  business,  sir. 

Commissioner  SWEET.  Do  you  call  those  days  that  I  have  referred 
to  as  the  days  of  the  optimist  ? 

Mr.  STORRS.  Well,  those  matters  of  rumor  and  gossip  that  came 
on  down  are  pretty  hard  to  trace  with  any  particular  accuracy. 

Commissioner  SWEET.  In  your  mind,  you  have  no  doubt  that  those 
things  did  exist  and  that  they  were  responsible  for  a  portion,  at 
least,  of  the  prejudice  in  the  public  mind  against  these  utilities. 

Mr.  STORRS.  That  is  possible. 

Commissioner  SWEET.  Is  not  that  true? 

Mr.  STORKS.  That  is  possible. 

Commissioner  SWEET.  Well,  is  it  not  more  than  possible;  is  it 
not  probable? 

Mr.  STORRS.  In  fact,  it  is  probable.  In  the  early  days,  there  may 
have  been  something  of  that  kind,  but  that  was  away  back  in  the 
earliest  days — away  back  in  the  ancient  history. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      451 

Commissioner  SWEET.  But  the  developments  of  the  last  decade,  or 
perhaps  the  last  two  decades — the  internal-combustion  engine,  the 
automobile,  the  jitney,  the  autotruck,  the  motorcycle — all  of  these 
changes  have  revolutionized  the  whole  situation  with  regard  to  tho 
business  performed  by  the  electric  railways;  it  not  that  true? 

Mr.  STORKS.  Yea 

Commissioner  SWEET.  And  the  competition  that  they  have  to 
meet? 

Mr.  STORKS.  Yes,  of  course. 

Commissioner  SWEET.  And  the  justice,  if  there  was  any,  in  con- 
nection with  the  paving,  their  bridge  repairs,  and  all  that  sort  of 
thing,  is  all  changed,  is  it  not? 

Mr.  STORES.  Absolutely. 

Commissioner  SWEET.  And  that  is  the  reason  why  a  general  re- 
adjustment, according  to  conditions  as  they  now  exist,  ought  to  be 
made;  is  not  that  true? 

Mr.  STORKS.  The  imposts,  with  the  greatly  increasing  costs  of  pro- 
ducing transportation. 

Commissioner  SWEET.  Certainly. 

Mr.  STOKRS.  Labor  and  material  costs. 

Commissioner  SWEET.  That  comes  in,  of  course. 

Mr.  STOKRS.  Yes. 

Commissioner  SWEET.  Have  you  any  suggestion  to  make  to  the 
commission  as  to  what  benefit  would  be  received  by  the  roads  under 
your  control  if  the  State  commission  would  permit  you  to  make  a 
further  increase  in  your  rates  of  fare? 

Mr.  STORKS.  In  Connecticut,  the  origination  of  the  increase  in  rat« 
comes  from  the  directors  of  the  corporation,  and  the  commission's 
control  conies  through  a  review  of  the  rates  as  established  by  the 
corporation. 

Commissioner  SWEET.  Well,  the  commission,  of  course,  would 
really  have  the  final  report? 

Mr.  STORKS.  They  have  the  final  review  after  a  rate  has  been  hi 
effect. 

Commissioner  SWKET.  Very  well.  Now,  suppose  further  increases 
were  made;  would  that  materially  increase  the  gross  income  of  the 
company? 

Mr.  STOCKS.  1  had  felt  in  our  company  that  it  would  not  have  a 
material  effect  upon  our  gross  revenue. 

Commissioner  SWEET.  That  is  because  your  distances  are  not  as 
great,  and  you  think  the  people  would  walk  or  find  some  other  means 
of  transportation? 

Mr.  STOUKS.  Yes.  You  see,  the  perfected  highway  has  been  devel- 
oped to  a  veiy  great  degree  throughout  that  portion  of  New  England. 

Commissioner  SWEET.  It  is  your  thought  that  any  further  increase 
of  rates  would  stimulate  and  bring  about  a  greater  use  of  the  jitneys? 

Mr.  STOKRS.  Yes;  decidedly. 

Commissioner  SWKET.  So  that,  from  that  point  of  view,  you  could 
not  expect  relief  unless  the  regulatory  laws  that  you  have  spoken  of, 
in  regard  to  jitneys  and  autotrucks,  perhaps,  were  enacted  at  the  sumo 
time? 

Mr.  STORKS.  Yes,  sir. 


452       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  You  have  mentioned  the  abandonment  of 
some  parts  of  roads  that  have  already  occurred  and  others  that  would 
be  necessary  in  order  to  bring  about  a  real  condition  of  economy  ? 

Mr.  STORKS.  Yes,  sir. 

Commissioner  SWEET.  What  has  been  the  effect  of  the  abandonment 
you  have  made?  Tell  us  a  little  more  about  that;  what  they  have 
been  and  how  they  have  been  received  and  what  has  been  the  effect  of 
them  upon  those  who  were  previously  using  this  service. 

Mr.  STORKS.  Well,  all  of  them,  of  course,  naturally  resulted  in 
appeals  to  the  commission. 

Commissioner  SWEET.  Can  you  name  sonte  of  the  specific  cases 
where  abandonments  have  been  made  ? 

Mr.  STORKS.  Yes.  In  Berkshire  County,  Mass.,  the  line  was  aban- 
doned from  Cheshire  to  Lanesboro,  5  miles.  There  are  relatively  few 
houses,  and  there  was  an  alternate  route  that  served  the  terminals  of 
the  line,  but  not  the  intermediate  area. 

Commissioner  SWEET.  What  was  this  other  road — electric  ? 

Mr.  STORKS.  Both  electric. 

Commissioner  SWEET.  Both  electric  ? 

Mr.  STORKS.  We  own  them  both. 

Commissioner  SWEET.  Yes. 

Mr.  STORRS.  That  was  abandoned  and  the  service  discontinued  with- 
out any  serious  complaint — the  line  between  the  towns  of  Huntington 
and  Lee  in  Berkshire.  The  service  was  discontinued  last  winter,  with 
no  opposition  during  the  wintertime.  In  the  spring  a  complaint  was 
laid  with  the  commission  and  a  hearing  held  on  that  relative  to  the 
request  of  the  petition  for  an  order  from  the  commission  ordering  us 
to  resume  the  service.  That  was  heard  some  time  ago — a  month  and 
a  half  ago — and  no  order  has  yet  been  found.  In  connection  with  the 
other  case  that  I  have  spoken  of,  the  proposed  discontinuance  of 
9  miles  of  track  resulted  in  the  suggestion  by  the  commission  that  we 
get  together,  and  that  resulted  in  an  appropriation  being  given  by 
the  town. 

Commissioner  SWEET.  In  Connecticut  is  the  increase  of  a  rate  that 
might  be  made  by  a  street-railway  corporation  effective  until  it  has 
been  passed  upon  by  the  public-utilities  commission  ? 

Mr.  STORRS.  Yes,  sir. 

Commissioner  SWEET.  While  the  subject  is  before  the  commission, 
while  it  is  pending,  which  rate  prevails? 

Mr.  STORRS.  The  increased  rate. 

Commissioner  SWEET.  The  increased  rate? 

Mr.  STORRS.  We  increased  our  rates  on  October  1,  1917,  and  we 
serve  the  cities  of  Hartford,  New  Haven,  Waterbury,  Bridgeport, 
Stamford,  Norwalk,  and  all  of  the  intermediate  smaller  towns.  The 
only  community  that  petitioned  the  commission  for  a  review  was 
that  of  Hartford,  and  it  was  heard  in  connection  with  the  Hartford 
complaint— — 

Commissioner  SWEET.  If  the  State  commission  should  refuse  the 
increase,  would  the  street  railways  have  to  refund  anything  ? 

Mr.  STORRS.  No. 

Commissioner  SWEET.  To  the  users  in  the  meantime? 

Mr.  STORRS.  No,  sir. 

Commissioner  SWEET.  Do  you  think  that  the  people  who  reside 
upon  the  portions  of  the  roads  that  have  been  abandoned — take  the 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      453 

case  that  you  just  spoke  of,  intermediate  between  the  terminals — 
have  suffered  materially,  and  have  they  exhibited  any  particular 
feeling  on  the  subject — any  serious  feeling? 

Mr.  STORKS.  Well,  they  have  been  seriously  discommoded,  and 
suffered  more  prospectively  than  immediately.  Most  of  the  people 
served  throughout  there  are  farmers — the  land  is  farming  land,  and 
of  course  the  value  of  the  property  has  declined  materially  since 
the  abandonment  of  that  service. 

Mr.  WARREN.  Has  that  line  been  dismantled? 

Mr.  STORKS.  That  line  has  been  dismantled  and  the  track  taken  up 
and  taken  away — completely  abandoned. 

Commissioner  SWEET.  If  all  of  the  electric  railways  of  the  United 
States  that  are  not  profitable,  or  portions  of  the  electric  lines  that 
are  not  profitable,  or  did  not  pay  their  own  expenses,  should  be 
abandoned,  the  result  would  certainly  be  very  disastrous  to  a  very 
great  number  of  people,  would  it  not? 

Mr.  STORK.  It  would  be  presumptuous,  of  course,  on  my  pail,  to 
speak  for  the  other  portions  of  the  country,  but  throughout  New 
England,  in  general,  there  would  be  about  a  30  per  cent  abandon- 
ment of  property. 
.    Commissioner  SWEET.  What  percentage? 

Mr.  STORKS."  Thirty. 

Commissioner  SWEET.  Without  going  into  the  actual  percentage 
throughout  the  country  as  a  whole,  there  could  not  be  any  question 
but  what  a  very  large  number  of  people  would  be  seriously  discom- 
moded, at  least? 

Mr.  STORKS.  Very  disastrously  so. 

Commissioner  SWEET.  The  losses,  the  loss  of  time,  the  deprecia- 
tion of  real  estate,  and  the  general  injury  to  the  communities  of  the 
United  States  would  be  very  material,  beyond  any  doubt? 

Mr.  STORRS.  Beyond  any  doubt  at  all. 

Commissioner  SWEET.  Do  you  think  that,  if  the  people  of  the 
country  were  made  to  fully  understand  that  abandonment  would  be 
necessary  unless  relief  were  given  to  the  electric-railway  companies, 
the  element  of  personal  interest  would  come  in  to  an  extent  that 
would  bring  support  to  the  companies  and  to  the  position  that  they 
are  taking? 

Mr.  STORRS.  I  can  not  help  but  believe  that  that  would  be  the 
fact,  sir. 

Commissioner  SWEET.  In  other  words,  there  would  be  an  element 
in  the  community  that  would  be  militant  or  quite  active  in  helping  to 
bring  about  a  reformation  in  the  general  situation? 

Mr.  STORRS.  Yes,  sir. 

Commissioner  SWEET.  Then  what  have  you  to  say  with  regard  to 
the  proper  means  of  getting  before  the  public  the  sort  of  education 
that  is  necessary  in  order  that  the  real  situation  may  be  understood? 
You  do  not  think  it  is  now,  do  you  ? 

Mr.  STORRS.  Far  from  it.  but  I  believe  that  through  the  medium  of 
such  commissions  as  your  honorable  body  we  can  get  to  the  public 
the  story  so  thoroughly  analyzed  that  they  can  not  help  but  believe 
that  the  conditions  as  they  have  been  represented  by  the  utilities' 
managers  are  true;  and  there  is  a  growing  tendency  without  any 
question,  on  the  part  of  the  public,  to  recognize  these  things  and  to 
recognize  the  conditions  as  they  are.  It  seems  to  me  it  would  be 


454       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

but  a  very  short  time  before  an  actual  thorough  knowledge  of  the 
needs  can  be  made  public. 

Commissioner  SWEET.  You  have  spoken  about  the  patrons  of  the 
railway  companies,  those  who  ride  on  their  cars,  both  in  the  cities 
and  in  the  rural  districts  particularly,  having  to  pay  for  this  pav- 
ing between  the  tracks? 

Mr.  STORKS  Yes,  sir. 

Commissioner  SWEET.  And  for  the  bridge  construction  and  re- 
pairs? 

Mr.  STORKS.  Yes,  sir. 

Commissioner  SWEET.  And  cleaning,  perhaps? 

Mr.  STORKS.  Yes,  sir. 

Commissioner  SWEET.  And  you  have  alluded  to  that  as  an  unjust 
discrimination  between  that  part  of  the  community  and  the  balance 
of  the  community? 

Mr.  STORRS.  Yes,  sir. 

Commissioner  SWEET.  And  especially  that  part  that  owns  automo- 
biles? 

Mr.  STORRS.  Yes,  sir. 

Commissioner  SWEET.  There  is  no  question  about  whether  your 
position  is  right  with  regard  to  that,  is  there  ? 

Mr.  STORRS.  I  do  not  see  any  question  about  it;  and  so  far  we 
have  always  been  able  to  convince  the  commissions  or  others. 

Commissioner  SWEET.  Yes;  you  probably  could  convince  commis- 
sions. Do  you  think  the  general  public  understands  it  that  way  ? 

Mr.  STORKS.  They  can  not  help — they  do  not  now,  but  they  can 
not  help  but  recognize  that  as  we  convince  an  ever  increasing  num- 
ber of  people  of  the  serious  condition  of  things  and  the  solution 
for  it. 

Commissioner  SWEET.  Do  you  think  that  is  a  part  of  the  educa- 
tional work  that  should  be  carried  on  now  ? 

Mr.  STORRS.  Absolutely.     There  is  no  question  about  that. 

Commissioner  SWEET.  If  I  understand  you  right,'  you  think  that 
jitneys,  autotrucks,  and  any  conveyance  that  carries  people  for 
hire,  ought  to  be  regulated  and  controlled  on  the  same  equitable 
principles,  with  a  view  to  the  general  interest  of  the  public,  as 
well  as  the  electric  railways? 

Mr.  STORRS.  Absolutely. 

Commissioner  SWEET.  You  would  recognize,  then,  the  right  of  jit- 
neys to  exist  ? 

Mr.  STORKS.  Without  question. 

Commissioner  SWEET.  But  I  dare  say  that  you  think  if  they  were 
properly  regulated  there  would  not  be  so  many  of  them? 

Mr.  STORKS.  The  weather  regulates  them  automatically  at  times. 
During  periods  of  severe  rains,  they  get  off  of  the  streets,  and  dur- 
ing periods  of  snowstorms  the  service  is  entirely  discontinued,  or 
continued,  perhaps,  through  that  portion  of  the  street  that  is  cleared 
of  snow  by  the  railway  for  its  own  needs. 

Commissioner  SWEET.  If  the  same  rule  were  applied  to  these 
methods  of  conveyance  as  is  applied  to  electric  railways,  do  you 
think  it  would  make  a  very  material  difference  in  the  number  of 
jitneys  that  would  be  used? 

Mr.  STORKS.  Oh,  without  doubt. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      455 

Commissioner  GADSDEN.  As  a  matter  of  fact,  has  not  that  been  the 
history  throughout  the  United  States  already,  Mr.  Storrs? 

Mr.  STORRS.  That  has  been  the  history7. 

Commissioner  SWEET.  Have  you  figures  that  would  show  that? 

Mr.  STORKS.  They  can  be  prepared.  We  have  no  figures  of  that 
particular  kind,  because  in  our  country  there  has  been  no  regulation. 

Commissioner  SWEET.  But  it  would  seem  reasonable  that  they 
should  be  regulated  on  the  same  general  principles  as  the  electric 
railways. 

Mr.  STORKS.  Yes ;  that  is  true. 

Commissioner  SWEET.  Can  you  think  of  any  reason  that  would  be 
given  why  they  should  not  be  so  regulated? 

Mr.  STORRS.  It  is  inconceivable  to  me  that  there  would  be  any 
reason. 

Commissioner  SWEET.  You  spoke  about  autotrucks  carrying  peo- 
ple in  cities,  in  New  Haven,  for  instance,  or  from  inland  to  some 
bathing  point? 

Mr.  STORRS.  Yes. 

Commissioner  SWEET.  Where  was  that—down  to  Savin  Rock  ? 

Mr.  STORRS.  No;  this  is  on  the  other  side  of  the  shore,  down  to- 
ward Lighthouse  Point;  but  that  is  immaterial,  of  course,  although 
it  is  indicative. 

Commissioner  SWEET.  Down  to  Fair  Haven? 

Mr.  STORRS.  Down  to  Fair  Haven ;  yes. 

Commissioner  SWEET.  Is  there  no  regulation  whatever  in  New 
Haven;  is  there  no  restriction  upon  what  they  can  do  in  that  re- 
spect ? 

Mr.  STORRS.  The  State  did  pass,  at  the  last  session  of  the  assembly, 
a  law  requiring  them  to  file  a  bond  for  security  beginning  next 
January. 

Commissioner  SWEET.  Do  you  mean  to  protect  the  users  against 
accidents? 

Mr.  STORRS.  Accidents;  that  is  all.  Of  course,  there  is  the  usual 
regulation  relative  to  obtaining  licenses,  but  nothing  in  the  way  of 
regulation  at  all. 

Commissioner  SWEET.  Is  a  license  fee  of  any  material  size  re- 
quired? 

Mr.  STORKS.  Not  much — very  small. 

Commissioner  SWEET.  Is  there  a  larger  license  fee  for  those  carry- 
ing passengers  than  for  those  who  do  not? 

Mr.  STORKS.  Yes;  there  is  an  additional  fee  required  of  $25  or  $30. 

Commissioner  SWEET.  You  spoke  about  transfers  and  the  great 
number  of  miles  passengers  are  often  carried  for  the  initial  expense 
of  a  nickel,  or  G  cents,  or  whatever  the  fare  may  be? 

Mr.  STORKS.  Yes,  sir. 

Commissioner  SWEET.  Have  any  changes  taken  place  since  in  that 
regard? 

Mr.  STORKS.  Not  on  our  property.  There  have  been  some  changes 
made  on  some  of  the  other  smaller  properties  around,  in  restricting 
the  transfer  use,  or  making  a  charge  of  the  issuance  of  a  transfer. 

Commissioner  SWEET.  None  of  your  passengers,  I  infer,  could  ride 
54  miles  for  a  nickel  ? 

Mr.  STORKS.  Hardly. 

Commissioner  SWEET.  Or  G  cents? 


456       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  STORRS.  Hardly.    That  would  be  merely  an  absurd  case. 

Commissioner  SWEET.  What  is  the  farthest  they  can  ride  on  your 
system  for  6  cents? 

Mr.  STORRS.  About  13  miles,  an  extreme  case.  Nobody  would  avail 
themselves  of  that  service. 

Commissioner  SWEET.  That  would  be  less  than  half  a  cent  a  mile? 

Mr.  STORRS.  Yes. 

Commissioner  SWEET.  Do  you  think  that  the  fares  charged  ought 
to  be  in  proportion  to  the  distance? 

Mr.  STORRS.  You  are  getting  down  to  the  fundamental  theory  there 
on  which  the  American  city  has  been  developed.  That  is  the  uni- 
versal fare  throughout  an  entire  area.  Now,  we  are  coming  down 
to  fundamentals. 

Commissioner  SWEET.  Well,  on  the  steam  railroads,  from  city  to 
city,  the  custom,  of  course,  throughout  the  country  is  to  charge  ac- 
cording to  the  number  of  miles,  at  so  much  a  mile? 

Mr.  STORRS.  Yes. 

Commissioner  SWEET.  Is  that  feasible  on  the  electric  railways  ? 

Mr.  STORRS.  Yes;  unquestionably  it  can  be  made  feasible,  and 
should  be  made  so. 

Commissioner  SAVEET.  It  can  be  made  so? 

Mr.  STORRS.  Yes. 

Commissioner  SWEET.  Well,  what  would  the  effect  of  it  be  ? 

Mr.  STORRS.  Well,  we  would  naturally  hope  for  improvement 
before  we  would  ask  to  put  it  into  effect. 

Commissioner  SAVEET.  From  the  standpoint  of  the  railway  do  you 
think  it  would  result  in  a  remedy? 

Mr.  STORRS.  Yes. 

Commissioner  SWEET.  And  it  would  help  them  out  of  their  present 
situation  to  a  very  considerable  extent? 

Mr.  STORRS.  We  hope  so. 

Commissioner  SWEET.  That  is,  assuming  that  people  paid  the  fare, 
and  that  they  did  not  lose  any  traffic  to  a  large  extent? 

Mr.  STORRS.  Yes. 

Commissioner  SWEET.  What  would  be  the  effect,  based  upon  the 
general  community? 

Mr.  STORRS.  It  can  not  help  but  have  the  effect  of  gradually  draw- 
ing in  all  of  the  tenement  districts  to  the  inner  zone  of  the  city. 

Commissioner  SWEET.  In  European  cities  has  it  actually  worked 
in  that  way? 

Mr.  STORRS.  I  understand  so  as  to  the  condition  of  the  inner  area 
of  the  city.  That  is  the  only  portion  that  is  served,  and  conversely, 
the  fact  that  it  is  congested  must  be  to  a  certain  extent  due  to  the 
fact  that  it  is  the  only  part  served. 

Commissioner  SWEET.  Well,  in  reasoning  on  the  subject,  is  not  that 
the  natural  conclusion  to  come  to? 

Mr.  STORRS.  Yes,  sir;  I  have  always  drawn  that  conclusion. 

Commissioner  SWEET.  Then,  in  this  regard,  there  seems  to  be  a  di- 
rect conflict  of  interests  between  the  general  community  and  the 
railway  companies.  It  would  be  to  the  interest  of  the  railway  com- 
panies to  adopt  the  system  that  prevails  on  the  steam  railroads, 
would  it  not,  and  that  would  be  inherently  just,  would  it  not  ? 

Mr.  STORRS.  It  would  seem  to  be  inherently  just  and  much  more 
reasonable. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      457 

Commissioner  SWEET.  And  then  the  people  would  pay  for  just 
what  they  get? 

Mr.  STORKS.  Yes. 

Commissioner  SWEET.  But  in  the  interest  of  the  proper  distribu- 
tion of  the  population  and  to  prevent  the  congestion  in  the  centers 
of  population,  the  other  system  has  been  adopted  throughout  the 
United  States? 

Mr.  STORKS.  Yes,  sir;  the  fundamental  theory. 

Commissioner  SWEET.  And  it  has  worked,  as  you  no  doubt  would 
expect  it  to  work,  and  has  produced  the  distribution  that  has  de- 
cided advantages  from  many  standpoints? 

Mr.  STORKS.  Yes,  sir. 

Commissioner  SWEET.  Xow,  let  me  ask  you  this  question:  If  that 
antagonism  of  interest  is  recognized  between  the  general  interests 
of  the  community  in  that  particular  and  the  interest  of  the  com- 
panies, what  remedy,  what  meeting  ground,  what  sort  of  compromise 
do  you  think  should  be  made  so  as  to  get  the  best  results  from  the 
standpoint  of  both  the  companies  and  the  general  public? 

Mr.  STORKS.  I  can  not  see  that  there  is  any  happy  medium  between 
the  two  theories  of  a  flat  rate  of  fare  and  a  distance  tariff.  It  seems 
to  me  we  must  either  have  one  or  the  other. 

Commissioner  SWEET.  Well,  would  not  a  flat  rate  such  as  gener- 
ally prevails  regardless  of  distance,  unless  the  distance  becomes 
very  considerable,  carry  out  the  desire  of  the  public  with  regard  to 
distribution  ? 

Mr.  STORRS.  Yes. 

Commissioner  SWEET.  And  would  not  the  same  flat  rate,  if  it  was 
enough,  and  if  the  general  public  was  educated  up  to  the  point  of 
paying  it,  so  that  it  did  not  reduce  the  patronage  of  the  company, 
meet  the  case  from  the  standpoint  of  the  company  ? 

Mr.  STORKS.  Oh,  yes.  They  would  still  buy  the  goods  at  the  higher 
rates. 

Commissioner  SWEET.  Yes. 

Mr.  STORKS.  Yes. 

Commissioner  GADSDEN.  Would  the  short-haul  rider  do  it,  though? 

Mr.  STORKS.  The  trouble  is  they  won't  buy  the  goods.  They  will 
buy  the  jitney  goods  instead. 

Commissioner  SWEET.  Well,  you  said  they  would  use  the  jitneys. 

Mr.  STORKS.  Or  walk. 

Commissioner  SWEET.  Or  walk. 

Mr.  STORRS.  The  short-haul  riders. 

Commissioner  SAVEET.  Of  course,  the  largest  profit  is  on  the  short 
haul  ? 

Mr.  STORRS.  Yes. 

Commissioner  SWEET.  There  is  less  service  performed? 

Mr.  STORKS.  Oh,  yes;  the  more  people  you  can  get  in  the  same  car 
on  each  mile  of  the  trip  the  more  profit  that  car  makes,  of  course. 

Commissioner  SWELT.  You  do  not.  as  far  as  I  can  see,  hold  out  any 
very  rosy  anticipation  for  the  immediate  future. 

Afr.  STORKS.  Not  the  immediate  future;  no,  sir.  We  hope  that 
this  will  be  made  a  continuing  business,  however,  with  the  assistance 
of  the  commissions. 

Commissioner  SWFKT.  There  is  no  doubt  of  that,  Mr.  Storrs,  but 
would  not  the  general  collapse  of  the  street-railway  business  result 
1(KX}43°— 'JO 30 


458       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

in  great  injury  to  the  general  public,  and  not  only  the  general  pub- 
lic, but  to  a  great  many  people  of  comparatively  small  means  who 
have  invested  in  their  securities?  Is  not  that  true? 

Mr.  STQURS.  Tremendously  so. 

Commissioner  SWEET.  It  is  almost  unthinkable  that  these  great 
properties  should  be  permitted  to  evaporate  and  collapse,  and  yet 
some  means  has  got  to  be  found  to  meet  the  present  emergency — • 
which  is  certainly  acute,  is  it  not? 

Mr.  STORES.  Decidedly  acute. 

Commissioner  SWEET.  And  then  it  must  be  followed  up,  I  should 
judge,  from  what  you  say,  by  a  readjustment  on  the  line,  according 
to  the  conditions  that  have  arisen  since  the  old  days? 

Mr.  STORRS.  That  is  my  thought  on  it. 

Commissioner  SWEET.  In  fact,  up  to  within  a  comparatively  re- 
cent period? 

Mr.  STORRS.  That  is  my  thought  on  it. 

Commissioner  SWEET.  That  is  a  correct  statement? 

Mr.  STORRS.  That  is  my  thought. 

Commissioner  SWEET.  Thank  you. 

Commi.s.sioner  GADSDEN.  Mr.  Storrs,  on  this  matter  of  the  dif- 
ference between  a  flat  rate  and  the  zone  system,  Mr.  Commissioner 
Sweet  wanted  to  know  whether  there  was  any  compromise.  Don't 
you  think  you  have  worked  out  the  answer  to  it,  or  they  have  worked 
it  out  in  Massachusetts — that  where  the  community  prefers  a  flat 
rate  of  5  cents  it  agrees  to  subsidize  the  company  for  the  difference? 

Mr.  STORRS.  There  is  no  question  about  that. 

Commissioner  GADSD£N.  That  is  the  answer,  is  it  not? 

Mr.  STORRS.  The  complete  answer  is  the  subsidizing  of  the  prop- 
erty. There  is  no  question  about  that. 

Commissioner  GADSDEN.  If  the  necessary  revenue  for  a  given  piece 
of  property  had  been  properly  ascertained,  a  community  could  very 
well  decide,  for  sociological  reasons,  to  keep  a  5-cent  fare,  and  enter 
into  a  contract  with  the  company  to  put  up  the  difference  out  of 
general  taxation,  could  it  not? 

Mr.  STORRS.  There  is  no  question  about  it. 

Commissioner  GADSDEN.  And  in  that  way  solve  the  question  of 
the  flat  rate,  if  it  be  thought  desirable  to  keep  the  flat  rate  ? 

Mr.  STORRS.  Yes.  If  the  theory  on  which  so  many  cities  have 
been  developed  has  been  a  proper  theory  from  the  standpoint  of  the 
communities,  the  only  way  to  get  that  is  by  proper  taxation. 

Commissioner  GADSDEN.  As  a  matter  of  fact,  Mr.  Storrs,  is  it  not 
your  observation  that  this  solution  of  the  community  problem  of 
America  has  been  worked  out  by  the  electric  railways  at  their  own 
expense  so  far? 

Mr.  STORKS.  Absolutely.    There  is  no  question  about  that. 

Commissioner  GADSDEN.  Therefore,  if  the  American  people  are 
wedded  to  this  system,  would  it  not  be  proper  that  they  should  at 
least  come  in  and  pay  the  difference  ? 

Mr.  STORRS.  Unquestionably. 

Commissioner  GADSDEN,  Instead  of  being  put  up  by  the  stock- 
holders or  the  bondholders  in  electric  railways? 

Mr.  STORRS.  There  is  no  question  about  it.  -,, 

Commissioner  GADSDEN.  That  would  seem  to  be  a  fair  way  to 
meet  the  issue,  would  it  not? 


PROCEEDINGS  OF  FEDEEAL  ELECTRIC  RAILWAYS  COMMISSION.      459 

Mr.  STORES.  Yes. 

Commissioner  GADSDEX.  Now,  Mr.  Storrs,  on  the  question  of  the 
effect  of  the  zone  system  on  congestion,  which  you  have  referred  to ; 
the  effect  of  the  zone  system  in  America  is  largely  problematical,  is 
it  not? 

Mr.  STORKS.  Absolutely  problematical. 

Commissioner  GADSDEN.  We  have  no  basis  for  thinking  that  what 
has  happened  in  Europe  is  going  to  happen  here,  have  we? 

Mr.  STORKS.  None  whatever. 

Commissioner  GADSDEX.  As  a  matter  of  fact,  have  we  not  in  New 
York  City  to-day,  with  the  flat  rates  of  fare  of  5  cents,  as  congested 
a  district  as  there  is  in  the  world  ? 

Mr.  STOKRS.  Yes;  that  is  doubtlessly  so. 

Commissioner  GADSDEN.  Notwithstanding  the  fact  that  for  a 
nickel  you  can  ride  anywhere  from  30  to  40  miles? 

Mr.  STORKS.  Yes. 

Commissioner  GADSDEX.  Yet  that  condition  exists  to-da}'  under  a 
fiat-rate  situation,  does  it  not? 

Commissioner  MEEKER.  Would  you  let  me  make  a  suggestion 
there? 

Commissioner  GADSDEN.  Yes. 

Commissioner  MEEKER.  Is  it  not,  perhaps,  partly  due  to  the  flat- 
rate  situation  that  we  have  the  greatest  congestion  known  in  the 
world  in  New  York  City  ?  And  is  it  not  quite  as  likely  that  a  zone 
rate  will  result  in  scattering  industries  to  smaller  localities  rather 
than  to  center  industries  and  population  in  urban  centers? 

Mr.  STORRS.  It  is  very  hard  to  assume,  in  connection  with  the 
New  York  situation,  that  it  is  entirely  due  to  transportation. 

Commissioner  MEEKER,  My  object  m  making  the  suggestion  was 
to  show  that  the  flat  rate  of  fares  and  the  zone  rates  operate  in  two 
directions  simultaneously;  and  that  you  can  not,  in  my  judgment, 
foretell  what  the  result  will  be. 

Mr.  STOKRS.  No,  sir;  that  is  true, 

Mr.  WARREN.  That  is,  it  will  keep  some  people  at  home  in  their 
own  zone? 

Commissioner  MEEKER.  Yes. 

Mr.  WARREN.  And  it  will  lead  other  people  to  congest  themselves 
in  the  central  zone,  and  you  can  not  tell  until  you  have  tried  what 
is  going  to  be  the  result  in  a  particular  locality. 

( 'ommissioner  MEEKER.  Yes. 

Mr.  STORRS.  That  is  the  entire  problem. 

Commissioner  MEEKER,  Pardon  me  for  making  the  suggestion. 

Commissioner  GADSDEN.  Yes. 

Commissioner  MEEKER.  We  can  not  derive  very  much  useful  in- 
formation from  the  history  of  the  trolleys,  the  electric  railways  of 
Kurope,  because  they  are  older  communities,  much  more  thickly 
populated,  and  they  all  had  about  the  degree  of  congestion  that  the}' 
Ivavo,  now  before  any  trolley  was  put  in. 

Mr.  STORRS.  Yes. 

Commissioner  MEEKER.  And  our  communities  are  wholly  different; 
and  I  do  not  think  we  can  safely  deduce  from  European  history. 

Mr.  STOKRS.  We  caji  only  deduce  from  the  European  history  the 
fact  that  the  building  of  the  trolleys  has  prevented  the  congested 
areas  of  cities,  or  those  trolleys  would  be  profitable  ventures. 


4CO       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  MEEKER.  That  would  be  a  generalization  that  would 
be  true  anywhere. 

Mr.  STORRS.  That  is  just  the  point.  There  is  no  question  but  what 
it  means  the  gradual  bringing  in  of  the  trolley  development,  un- 
less some  other  means  should  be  found,  and  to  abandon  the  un- 
profitable parts. 

Commissioner  SWEET.  Is  not  that  merely  another  way  of  saying 
that  if  you  had  only  the  profitable  parts  of  your  road  and  could 
abandon  the  unprofitable  parts,  you  would  be  making  money? 

Mr.  STORRS.  Of  course. 

Commissioner  GADSDEN.  Mr.  Storrs,  on  the  question  of  the  regu- 
lation of  the  jitneys — the  jitneys  started  on  the  Pacific  Coast,  did 
they  not? 

Mr.  STORRS.  Yes. 

Commissioner  GADSDEN.  They  started  at  Los  Angeles? 

Mr.  STORRS.  At  Los  Angeles  and  in  the  southern  part  of  the 
State. 

Commissioner  GADSDEN.  That  was  the  great  center  of  the  jitney 
activity  ? 

Mr.  STORRS.  Yes. 

Commissioner  GADSDEN.  Do  you  happen  to  know  what  the  his- 
tory of  the  jitney  in  Los  Angeles  has  been  in  recent  years? 

Mr.  STORRS.  Practically  elimination,  as  I  understand  it — the  elimi- 
nation of  the  service  of  the  jitney  out  there. 

Commissioner  GADSDEN.  By  what? 

Mr.  STORRS.  By  the  safety  car  and  the  operation  within  the  con- 
gested area. 

Commissioner  GADSDEN.  What  about  public  regulation? 

Mr.  STORRS.  Public  regulation,  too,  has  had  the  effect  of  making 
them  a  responsible  transportation  medium  and  eliminating  the  casual 
operator  entirely. 

Commissioner  GADSDEN.  Well  the  point  I  wanted  to  get  your  opin- 
ion on  was  this:  Is  it  not  true  that  wherever  there  has  been  proper 
public  regulation,  the  jitney  has  practically  disappeared? 

Mr.  STORRS.  Almost  entirely. 

Commissioner  GADSDEN.  Now,  Mr.  Storrs,  do  you  happen  to  know 
whether  the  Los  Angeles  railways  are  interested  in  operating  jit- 
neys of  their  own  ? 

Mr.  STORRS.  I  do  not. 

Commissioner  GADSDEN.  Mr.  Storrs,  did  you  intend  to  give  the 
commission  the  impression  that  an  increase  of  fare  bej'ond  6  cents 
would  necessarily  result  in  a  loss  of  revenue  ? 

Mr.  STORRS.  Not  at  all. 

Commissioner  GADSDEN.  I  rather  got  that  impression. 

Mr.  STORRS.  That  was  very  much  too  broad.  Throughout  our 
communities  in  New  England  it  has  been  generally  the  fact  that 
where  there  is  an  increase  of  fare,  there  has  been  a  loss  of  patron- 
age. I  think  that  is  almost  universally  so.  Mr.  Warren  can  cor- 
rect me  if  I  am  not  correct. 

Mr.  WARREN.  I  did  not  catch  that. 

Mr.  STORRS.  As  to  whether  an  increase  in  rates  of  fare  would  tend 
to  decrease  the  revenue.  It  was  a  misstatement  on  my  part,  if  it 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      461 

was  so  understood.  My  thought  was  that  with  the  increasing  of  the 
rate  of  fare  over  and  above  6  cents — there  has  been  an  increasing: 
loss  of  patronage,  although  still  the  gross  was  ascending. 

Commissioner  GADSDEN.  Yes. 

Mr.  WARREN.  Not  in  all  places.  Mr.  Ford,  of  Portland,  testified 
that  when  it  was  a  7-cent  fare  they  got  37  per  cent. 

The  CHAIRMAN.  Twenty-five  per  cent  out  of  the  possible  40  per 
cent. 

Commissioner  GADSDEN.  Does  not  your  own  experience  in  Con- 
necticut tend  to  prove  the  fact  that  if  you  will  stick  out  long  enough 
you  are  going  to  get  the  money? 

Mr.  STORRS.  That  is  true. 

Commissioner  GADSDEN.  You  put  in  a  6-cent  fare,  and  for  a  year 
you  could  get  no  result,  but  at  the  end  of  18  months  you  got  14  per 
cent.  Now,  don't  you  think  that  that  is  true,  as  a  general  propo- 
sition, if  we  stay  by  the  fare? 

Mr.  STORRS.  That  may  be  true. 

Commissioner  GADSDEN.  That  we  will  sell  the  transportation  at 
a  higher  price. 

Mr.  STORRS.  That  is  probably  true. 

Commissioner  GADSDEN.  It  hr.s  been  true  in  connection  with  your 
propert}'  ? 

Mr.  STORRS.  It  has  been  true  in  our  property,  certainly. 

Commissioner  GADSDEN.  Mr.  Storrs,  have  you  had  any  experi- 
ence in  your  Connecticut  properties  with  the  frequent-service  car  ? 

Mr.  STORRS.  Yes. 

Commissioner  GADSDEN.  I  think  the  commission  would  be  inter- 
ested in  having  your  experience  from  the  standpoint  of  the  oper- 
ators. We  have  heard  from  the  manufacturers,  and  we  would  like 
to  hear  from  the  operators  on  that. 

Mr.  STORRS.  Well,  in  connection  with  that,  we  have  relatively 
few  of  the  safety  cars.  Twenty  of  them  were  purchased  originally, 
and  some  of  them  were  placed  in  service  in  Bridgeport,  some  in  New 
Haven,  and  some  in  Hartford.  They  have  been  universally  satis- 
factory, so  far  as  we  can  find.  One  of  the  communities  is  so  thor- 
oughly satisfied  with  them  that  they  are  requesting  us  to  abandon 
all  other  means  of  transportation  in  that  community.  We  operate 
something  like  100  cars  at  the  present  time.  From  the  standpoint 
of  the  management,  the  treasury  is  the  only  thing  to  look  at;  and 
they  are  entirely  satisfactory.  A  more  frequent  service  brings  a 
greater  gross  revenue,  a  slightly  increased  service  a  slightly  in- 
creased gross  revenue  and,  of  course,  an  equal  service  brings  a  de- 
creased operating  cost. 

Commissioner  GADSDEX.  Would  you  care  to  say  what  community 
that  was? 

Mr.  STORRS.  That  is  in  Bridgeport. 

Commissioner  GADSDEN.  In  Bridgeport? 

Mr.  STORRS.  I  would  be  glad,  if  you  care  to  have  me  do  so,  in  order 
to  get  the  atmosphere,  to  file  as  part  of  this  testimony  a  letter  which 
was  written  by  the  secretary  of  the  Chamber  of  Commerce  of  the  city 
of  Bridgeport  to  the  secretary  of  the  Chamber  of  Commerce  of  the 
city  of  Norwalk,  that  letter  having  been  written  without  our  knowl- 
edge. I  can  get  a  copy  of  that. 

Commissioner  GADSDEX.  We  would  bo  glad  to  have  you  put  it  in. 


462       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  STORKS.  Yes. 

Commissioner  GADSDEN.  In  that  connection  you  referred  to  a  report 
of  the  Connecticut  Commission  ? 

Mr.  STORKS.  Yes,  sir. 

Commissioner  GADSDEN.  I  wish  you  would  put  that  in  the  record. 

Mr.  STORKS.  I  will  be  glad  to. 

Commissioner  GADSDEN.  As  a  part  of  your  testimony? 

Mr.  STORRS.  Yes,  sir. 

The  CHAIRMAN.  There  are  about  6  miles  of  lines  in  Connecticut  to 
1  in  England. 

Mr.  STORKS.  That  was  on  those  cities. 

The  CHAIRMAN.  I  wonder  if  that  is  due  to  the  fact  that  in  England 
the  trolley  lines  came  after  the  cities  and  villages  had  been  established  ? 

Mr.  STORKS.  Very  possibly  so. 

The  CHAIRMAN.  While  here  the  trolley  lines  have  been  attempting 
to  create  business  and  develop  the  country.  Would  not  that  be  a 
large  reason 

Mr.  STORRS  (interposing).  It  might  have  some  effect.  At  the  same 
time  you  are  familiar  with  some  of  the  English  cities  and  British 
cities  and  foreign  places.  They  do- not  have  the  dense  transportation 
facilities  that  we  have  in  this  country. 

The  CHAIRMAN.  You  have  given  us  some  very  interesting  testimony 
about  the  growth  of  the  automobile,  the  jitney,  and  the  motor-truck 
business.  In  1905  there  was  one  automobile  to  each  17  families,  and 
in  1917  one  automobile  to  each  5  families? 

Mr.  STORRS.  Yes. 

The  CHAIRMAN.  Naturally,  there  was  a  very  great  use  of  that  kind 
of  conveyance? 

Mr.  STORKS.  Yes. 

The  CHAIRMAN.  And  that  has  determined  the  revenues  of  the 
utilities? 

Mr.  STORRS.  If  you  will  go  through  some  of  the  New  England  cities, 
outside  of  the  industries,  you  will  see  the  field  parked  with  automo- 
biles, all  of  which  are  owned  by  the  operatives  in  that  industry  and 
used  in  their  trips  back  and  forth  by  that  operative  and  his  neighbors. 

The  CHAIRMAN.  Do  not  the  automobile  and  the  good  roads  also 
bring  into  the  zone  of  the  street-car  operations  a  great  many  people 
from  the  country  ? 

Mr.  STORRS.  It  is  conceivable  that  they  do. 

The  CHAIRMAN.  To  do  business,  and  they  travel  upon  the  cars? 

Mr.  STORRS.  That  is  true.     There  is  a  certain  revenue  in  that  way. 

The  CHAIRMAN.  Does  not  the  amount  of  business  that  is  brought  in 
in  that  way  to  your  companies  result  in  meeting  the  losses  which  you 
sustain  within  the  city  ? 

Mr.  STORRS.  No;  not  at  all. 

The  CHAIRMAN.  Does  it  not  do  so  in  any  considerable  part? 

Mr.  STOURS.  No,  sir;  not  at  all.  I  think  that  that  case  that  I  re- 
ferred to  in  Berkshire  is  very  clearly  indicative  of  that.  Our  serv- 
ice there  has  not  grown  materially  over  Avhat  it  was  five  years  ago 
in  the  city,  and  our  suburban  service  has  decreased  two-thirds  over 
what  it  was  five  years  ago. 

The  CHAIRMAN.  During  the  growth  of  the  automobile  industry, 
there  has  likewise  been,  I  suppose,  an  increase  in  the  gross  earnings 
of  the  street-car  industry? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      463 

Mr.  STOKKS.  I  have  never  checked  that  up. 

The  CHAIRMAN.  Has  this  increase  kept  pace  with  the  growth  of 
the  automobile  industry? 

Mr.  STORKS.  Xo;  not  by  any  manner  of  means. 

The  CHAIRMAN.  Mr.  Ford  and  others  are  suggesting  the  construc- 
tion of  a  very  much  cheaper  automobile ;  and  I  presume  we  have  rea- 
son to  believe  that  in  the  course  of  years  the  use  of  machines  will 
be  very  much  extended? 

Mr.  STORRS.  Of  course,  that  depends  entirely  upon  the  traffic  pos- 
sibilities in  the  street.  There  is  a  limitation  on  the  streets  and  roads. 
Certainly  the  highways  throughout  the  populated  portions  of  New 
England  have  reached  their  maximum  carrying  capacity  for  auto- 
mobiles on  Saturdays  and  Sundays  and  when  the  casual  rider  is  out. 

The  CHAIRMAN.  And  if  the  automobile  industry  does  expand,  what 
is  the  ultimate  future  of  the  street-car  industry  ?  Of  course,  we  must 
all  of  us  realize  that  the  street-car  industry  or  something  to  take  its 
place  is  here  to  stay,  because  the  people  must  be  served.  Now,  what 
will  be  the  ultimate  effect  on  the  street-car  industry  if  this  automo- 
bile industry  expands  as  rapidly  as  it  has  in  the  past  ? 

Mr.  STORRS.  ^Recognition  by  the  community  of  the  need  of  trans- 
portation and  the  subsidizing  of  it  to  meet  that  need.  They  are 
subsidizing  the  automobile  utility  now  by  paving  and  things  of  that 
sort,  which  they  are  offering  them  free. 

The  CHAIRMAN.  If  you  reach  that  point,  will  private  capital  be 
interested  in  investing  in  the  street-car  industry? 

Mr.  STORRS.  With  a  guaranteed  return,  I  imagine  it  would. 

The  CHAIRMAN.  Well,  if  there  is  not  a  guaranteed  return? 

Mr.  STORRS.  No;  certainly  not. 

The  CHAIRMAN.  Suppose  the  communities  are  obliged  to  guaran- 
tee a  return  to  the  street-car  industry.  Do  you  think  that  will  con- 
duce to  the  continuation  of  private  ownership  and  operation  of  the 
utility? 

Mr.  STORRS.  It  is  conceivable  that  there  would  be  some  method 
of  recognizing  that  subsidy  that  would  still  give  to  the  management 
of  the  industry  and  the  investor  a  method  of  compensating  them  for 
their  initiative  and  ownership. 

The  CHAIRMAN.  Do  you  believe  it  would  create  a  very  pronounced 
agitation  for  municipal  ownership  and  operation? 

Mr.  STORRS.  Conceivably  so. 

The  CHAIRMAN.  Suppose  we  reached  a  point  where  communities 
must  guarantee,  or  rather,  subsidize,  this  industry,  do  you  believe 
that  private  ownership  and  operation  or  municipal  ownership  and 
operation  should  be  preferred? 

Mr.  STORRS.  I  think  that  private  ownership  and  operation  would 
be  preferable  from  all  standpoints — from  the  standpoint  of  the  in- 
vestor, because  it  will  recognize  his  energy  and  initiative  in  the  con- 
stantly-increasing return,  and  from  the  standpoint  of  the  community 
in  the  certainly  declining  rate  of  fare,  as  compared  with  what  would 
result  if  the  municipality  itself  were  to  operate  the  property. 

The  CHAIRMAN.  Is  there  any  experience  in  this  country  which 
would  help  this  commission  to  reach  a  conclusion  upon  that  question? 

Mr.  STORKS.  That  I  am  not  thoroughly  advised  of. 

The  CHAIRMAN.  That  is  all. 


464       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Can  you  express  any  opinion  on  the  service- 
at-cost  plan? 

Mr.  STORKS.  I  am  not  an  expert  on  that,  because  \ve  have  not  got  it, 
but  I  have,  of  course,  followed  that  with  a  great  deal  of  interest. 
I  have  followed  the  development  of  it. 

Commissioner  SWEET.  You  have  not  tried  that  out  on  your  system  ? 

Mr.  STORKS.  We  have  not  tried  that  out  on  any  of  our  properties. 

Commissioner  MEEKER.  I  would  like  to  ask  one  question,  if  I  may. 

I  thought  I  understood  what  your  opinion  was  with  regard  to 
competition  from  motor  vehicles.  I  am  not  so  sure  that  I  understand 
it  now.  Do  you  think  that,  if  there  should  come  about  a  very  great 
improvement  in  some  means  of  transportation  other  than  street- 
railway  transportation,  a  means  of  transportation  that  was  clearly 
better  and  more  economical  than  street-railway  transportation,  the 
street  railways  should  still  be  maintained  by  means  of  subsidies? 

Mr.  STOKRS.  In  that  connection,  I  would  say  that  the  development 
of  the  ait  has  been  from  within  the  art  itself  and  not  from  any 
surprise  point,  such  as  the  automobile.  The  automobile  to-day  is  not 
capable  or  properly  equipped  to  take  care  of  the  transportation  needs 
of  the  community;  nor  is  it  at  all  possible  to  operate  on  the  same 
basis  as  the  electric  railway  operates,  except  in  isolated  cases ;  but 
the  development  to  the  ideal  to  which  you  refer,  it  seems  to  me,  must 
come  from  within  the  industry  itself,  and  that  would  be  a  great  deal 
of  progress. 

Commissioner  MEEKER.  That  is,  the  street-railway  industr}7? 

Mr.  STORKS.  That  is  my  thought  in  connection  with  that. 

Commissioner  MEEKER.  I  have  in  mind  the  situation  with  respect 
to  the  old  toll  roads  and  the  steam  railroads. 

Mr.  STORRS.  Yes. 

Commissioner  MEEKER.  The  courts  of  Maryland  decided  that  the 
toll  roads,  although  they  had  been  granted  monopoly  charters,  could 
not  stand  in  the  way  of  the  much  more  economically  operated  means 
of  transportation,  the  steam  railroads,  and  so  they  did  not — I  don't 
remember  whether  the  suit  was  in  the  nature  of  an  injunction  or  not, 
but  at  least  they  did  not  uphold  the  contentions  of  the  toll  roads, 
and  I  think  the  same  rules  would  apply  in  the  case  of  the  street-rail- 
way companies. 

Mr.  STORRS.  Of  course,  they  might,  but  the  thought  was  so  entire 
hypothetical  as  to  the  future  that  it  was  not  one  that  I  could  base 
a  judgment  on. 

Commissioner  WEHLE.  Is  the  commission  correct,  Mr.  Storrs,  in 
understanding  you  as  saying  that,  based  on  your  knowledge  of  the 
Connecticut  situation,  the  only  way  of  preventing  these  public  utili- 
ties from  becoming  public  futilities  is  for  the  general  public  to 
guarantee  deficits  of  the  privately  operated  companies? 

Mr.  STORRS.  In  this  report,  which  I  am  leaving  on  file  here,  there 
•was  gone  into  quite  largely  the  question  of  temporary  relief,  and  that 
commission  spoke  of  it  all  the  way  through  as  a  means  of  temporary 
relief,  until  we  could  come  to  some  adjustment,  and  without  any 
question  in  my  mind  the  same  is  true  in  Connecticut  as  has  been 
true  in  Massachusetts  and  other  places. 

The  CHAIRMAN.  I  notice  you  have  that  Connecticut  report  in  your 
hand,  Mr.  Storrs. 

Mr.  STORRS.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      465 

The  CHAIRMAN.  Can  you  secure  enough  copies  to  file  with  us  so 
that  we  will  not  have  to  have  it  transcribed  in  the  record? 

Mr.  STORKS.  Oh,  yes. 

Commissioner  WEHLE.  Mr.  Storrs,  do  you  think  that  in  the  freight 
business,  both  urban  and  interurban,  there  might  be  a  source  of 
revenue  to  the  electric  railways  which  has  not  yet  been  developed 
and  which  might  possibly  effect  a  greater  financial  return  to  them? 

Mr.  STORRS.  Without  question,  there  is  a  by-product  there  of  con- 
siderable value. 

Commissioner  WEHLE.  Mr.  Warren,  I  have  conferred  with  the 
chairman  over  the  following  questions  which  it  was  thought  might 
'be  developed  by  you  through  witnesses: 

First,  to  what  extent  might  the  net  revenues  of  traction  lines  in 
the  larger  cities  be  increased  through  a  use  of  the  properties  for  city 
express  service  at  such  times  and  under  such  conditions  as  would 
not  impair  passenger  service? 

Second,  have  companies  undertaken  such  service  as  this  kind  in 
any  cities;  if  so,  with  what  financial  results? 

Third,  have  companies  been  prevented  from  developing  such  city 
express  business  through  limitations  in  franchises,  and  have  there 
been  attempts  to  have  such  limitations  removed;  if  so,  with  what 
results  ? 

Fourth,  to  what  extent,  if  at  all,  does  the  interurban  freight  busi- 
ness improve  the  earnings  of  traction  companies? 

Have  you  considered,  Mr.  Warren,  that  that  field  of  inquiry  could 
be  developed  in  this  hearing?  I  think  it  would  be  of  interest  to  the 
commission. 

Mr.  "\VARREN.  We  certainly  shall  try  it.  Some  of  it,  I  think,  can 
be  furnished.  Whether  the  rest  of  it  can,  I  do  not  know. 

The  CHAIRMAN.  Mr.  Warren,  before  you  proceed  with  the  next 
witness,  the  commission  wishes  to  submit  a  proposition  to  you.  This 
is  the  month  of  July,  and  the  weather  is  somewhat  enervating. 
However,  we  are  all  confronted  with  a  tremendously  important 
problem,  and  it  is  one,  of  course,  that  should  command  our  undi- 
vided attention  until  the  question  is  disposed  of.  The  commission 
is  willing  to  violate  the  union  hours  and  hold  night  sessions,  from 
8  o'clock  to  10,  to  expedite  these  hearings,  if  it  is  convenient  to 
yourself  and  your  witnesses,  and  if  you  will  confer  with  your  as- 
sociates and  your  witnesses  during  the  noon  hour 

Mr.  WARREN.  Yes ;  I  will  be  very  glad  to. 

The  CHAIRMAN.  And  advise  us  after  our  recess,  which  we  will 
take  from  now  until  2  o'clock 

Mr.  WARREN.  We  can  assure  you  at  once  that  we  will  accept  it. 

The  CHAIRMAN.  Then  it  is  understood  that,  beginning  to-night, 
we  will  have  sessions  from  8  o'clock  until  10. 

Mr.  Warren,  in  connection  with  the  questions  that  were  asked  by 
Commissioner  Wehle,  will  you  insert  one  more: 

What  advantage  is  there  to  be  gained  in  utilizing  a  double-deck 
passenger  car,  and  what  experience  has  there  been  with  that  car  in 
this  country  or  in  Europe? 

Mr.  WARREN.  We  will  be  glad  to  add  that. 

The  CHAIRMAN.  Have  you  any  witness  that  can  complete  his  tes- 
timony before  the  hour  of  adjournment? 


466       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  I  have  not.    I  was  going  to  ask  you  to  suspend  now. 
The  CHAIRMAN.  Then  we  will  adjourn  until  2  o'clock. 
Mr.  WARREN.  Yes. 

(Whereupon,  at  12.55  o'clock  p.  m.,  a  recess  was  taken  until  2 
o'clock  p.  m.) 

AFTER  RECESS. 

Mr.  WARREN.  Mr.  Chairman,  during  the  noon  recess  I  have  been 
looking  over  my  witnesses  somewhat  and  I  am  afraid  that  I  can  not 
to  the  best  advantage  go  on  with  an  evening  session  this  evening. 
After  this  evening  I  am  very  confident  I  can ;  but  the  list  of  wit- 
nesses has  been  made  up  for  the  day,  and  if  it  could  be  possible  to 
begin  night  sessions  to-morrow  evening  instead  of  this  evening,  I 
think  perhaps  we  shall  get  along  just  as  rapidly. 

The  CHAIRMAN.  I  am  quite  sure  it  will  be  agreeable  to  the  com- 
mission to  suit  your  convenience. 

Mr.  WARREN.  Then  we  may  leave  it  that  way — that  the  evening 
sessions  may  begin  to-morrow  evening? 

The  CHAIRMAN.  Very  well. 

Mr.  WARREN.  Mr.  Nash,  will  you  take  the  stand? 

STATEMENT  OF  MR.  LUTHER  R.  NASH. 

Mr.  WARREN.  Your  full  name. 

Mr.  NASH.  Luther  R.  Nash. 

Mr.  WARREN.  You  are  an  engineer  by  education,  I  think? 

Mr.  NASH.  By  education. 

Mr.  WARREN'.  And  you  are  a  member  of  the  Stone  &  Webster 
staff? 

Mr.  NASH.  I  am.  I  have  been  connected  with  the  Stone  &  Web- 
ster organization  for  about  24  years. 

Mr.  WARREN.  And  along  what  lines  does  your  experience  run  in 
that  organization  ? 

Mr.  NASH.  About  the  first  third  of  that  period  I  was  designing 
and  constructing  engineer  and  made  various  investigations  in  con- 
nection with  the  surveys  of  prospective  fields  and  other  work  pre- 
liminary to  and  in  connection  with  the  construction  of  public-utility 
properties.  Following  that  I  became  the  manager  of  one  of  the 
Stone  &  Webster  properties  for  about  four  years.  After  tha*  I 
was  connected  with  the  supervisory  staff  of  a  group  of  the  Stone  & 
Webster  companies  and  had  to  do  with  the  general  problems  of  man- 
agement and  betterment,  engineering  and  financial  plans.  More 
recently  I  have  given  more  particular  attention  to  the  public  rela- 
tions problems,  matters  of  rate  and  fare  adjustments,  valuations, 
tax  adjustments,  and  financial  plans. 

Mr.  WARREN.  And  have  you  also  given  special  attention  and  made 
a  special  and  pretty  detailed  study  of  the  so-called  service-at-cost 
franchises  and  plans? 

Mr.  NASH.  I  have.  I  have  been  connected  with  the  working  out 
of  a  number  of  such  franchises  and  have  made  a  study  of  all  of  those 
which  are  now  in  effect  in  the  United  States  and  Canada. 

Mr.  WARREN.  Will  you  describe  to  the  commission  what  you  con- 
sider the  essential  features  of  a  service-at-cost  franchise  ? 


PROCEEDINGS  OF  FEDEKAL  ELECTRIC  RAILWAYS  COMMISSION.      467 

Mr.  NASH.  I  think  perhaps,  not  to  directly  answer  your  question  but 
to  get  at  the  import  of  it,  service  at  cost  was  developed  in  the  da^ys 
before  State  regulation  of  utilities  was  bej^ond  its  experimental  stage. 

The  first  service-at-cost  franchises  were  framed  in  1907.  Except 
for  Massachusetts,  there  was  no  commission  with  full  regulatory 
powers  previous  to  1907.  And  I  might  add  that,  up  to  1918,  there 
wore  no  service-at-cost  franchises  put  into  effect  in  States  which  had 
public-service  commissions. 

The  purpose  or  scope  of  service-at-cost  franchises  is  not  at  all  dis- 
similar to  that  of  the  regulation  of  the  public-service  commissions. 
It  involves  the  determination  of  all  the  elements  of  cost  of  service 
and  adjusting  the  fares  to  that  cost.  The  elements  of  cost  include  the 
return  on  the  capital  invested,  which  the  investors  demand  for  the 
use  of  their  money,  the  ordinary  expenses  of  operation,  the  upkeep 
of  the  property  or  a  provision  for  its  depreciation,  taxes,  and  the 
creation  of  such  reserve  barometer  funds  and,  in  a  few  cases,  amorti- 
zation, although  I  do  not  consider  amortization  any  part  of  the 
proper  cost  of  service.  Those  are  the  fundamental  elements  which 
enter  into  practically  all  of  these  service-at-cost  franchises.  Not  all 
of  them  carry  out  fully  the  service-at-cost  plan.  The  early  ones  had 
a  fixed  fare,  which  was  assumed  to  be  higher  than  the  cost  of  service, 
with  a  provision  that  the  surplus  yielded  by  this  fixed  fare  in  excess 
of  the  cost  of  service  would  be  divided  between  the  city  and  the  rail- 
way. But  the  later  forms  have  an  automatic  adjustment  of  tlie  fare 
to  the  cost,  and  that  automatic  feature  I  consider  the  essential  differ- 
ence between  the  operation  of  a  service-at-cost  franchise  and  the 
regulation  of  railways  as  practiced  by  the  State  commissions. 

I  think  one  reason  why  the  service-at-cost  plan  has  become  popu- 
lar is  because  of  this  automatic  feature.  It  has  been  the  experience 
of  a  good  many  railways  in  taking  cases  before  public-service  com- 
missions, even  where  these  commissions  have  full  authority  to  act, 
which  they  have  not  in  many  cases,  that  action  has  been  slow.  I  have 
been  concerned  in  a  number  of  rate  cases  myself  where,  with  a  com- 
paratively free  slate,  the  commissions  have  held  cases  under  consid- 
eration for  the  major  part  of  a  year  before  rendering  a  decision, 
even  when  the  condition  of  the  railway,  its  need  of  additional  reve- 
nue, were  perfectly  obvious. 

As  an  alternative,  any  plan  of  procedure  which  would  automati- 
cally increase — or  decrease,  so  far  as  that  is  concerned — the  fare  as 
soon  as  the  need  developed,  is  and  should  be  welcomed  by  the  elec- 
tric railways. 

Mr.  WARREN.  Is  there  anything  about  that  sliding  scale,  that 
automatic  adjustment  of  rates  with  the  cost  of  the  service  which,  in 
your  judgment,  is  incompatible  with  the  jurisdiction  of  the  State 
commission  or  with  the  State  commission's  exercising  the  authority 
which  under  some  of  these  franchises  is  reposed  in  municipal  or  local 
authorities? 

Mr.  NASH.  I  do  not  think  there  is  any  fundamental  difference  in 
the  effectiveness  of  the  plan  as  far  as  the  fare  schedule,  is  concerned 
as  to  whether  a  State  commission  or  a  local  board  has  immediate 
supervision.  The  automatic  feature  might  be  applied  in  either  event 
perfectly  well. 

Mr.  WAHHBN.  As  a  matter  of  fact,  Mr.  Nash,  when  the  Massachu- 
setts service-at-cost  statute  was  adopted  lust  year,  I  think,  tho 


468       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

adoption  of  the  sliding  scale  itself  is  first  to  be  determined  by  the 
commission,  is  it  not?  Or  do  you  recall? 

Mr.  NASH.  Yes;  in  case  of  the  Boston  Elevated  and  the  Bay 
State  Gas 

Mr.  WARREN.  I  mean  the  general  law. 

Mr.  NASH.  Yes;  the  State  commission  has  jurisdiction  under  the 
general  Massachusetts  act. 

Mr.  WARREN.  The  scale  has  to  be  satisfactory  to  the  State  com- 
mission; and,  as  I  remember  the  act,  there  *  was  a  provision  for 
changing  the  scale  from  time  to  time  on  the  initiative  of  the  com- 
pany, with  the  approval  of  the  commission,  or  something  of  that 
sort;  was  there  not? 

Mr.  NASH.  It  is  my  recollection  that  the  State  has  entire  jurisdic- 
tion; that  there  are  no  local  boards  having  any  jurisdiction  at  all. 

Mr.  WARREN.  Was  there  something  you  wanted  to  say  about  that  ? 

Mr.  NASH.  I  think  not. 

Mr.  WARREN.  The  term,  I  suppose,  varies  a  good  deal  in  these 
different  service-at-cost  plans  which  have  been  adopted? 

Mr.  NASH.  There  is  quite  a  wide  range,  from  20  years  to  an  in- 
determinate form.  The  indeterminate  form,  I  think,  is  becoming 
decidedly  more  popular,  and  properly  so,  because  of  the  great  facility 
in  financing  and  refinancing  under  a  plan  of  that  kind.  With  either 
State  or  local  supervision  the  public  is  amply  protected  against  any 
inferiority  of  service  or  excessive  charges  or  any  of  the  other  things 
that  might  develop  without  regulation. 

Mr.  WARREN.  In  fact,  is  one  of  the  merits  of  the  plan,  where  that 
feature  is  incorporated  in  it,  that  the  term  is  indeterminate  so  that 
the  city  or  territory  served  is  always  free  to  purchase  the  property 
if  the  service  is  not  properly  conducted  ? 

Mr.  NASH.  That  is  a  provision  usually  coupled  with  the  indeter- 
minate franchise  that  the  city  may  purchase  at  any  time  on  reason- 
able notice,  and  that,  of  course,  is  a  protection  against  any  misbe- 
havior on  the  part  of  the  railway. 

Mr.  WARREN.  And  the  price  is  usually  determined  in  connection 
with  the  franchise? 

Mr.  NASH.  It  is  usually  the  purchase  price  and  capital  value, 
so  called,  which  is  the  rate  base,  which  are  usually  the  same.  That  is, 
the  value  of  the  property  is  fixed  at  the  time  the  franchise  becomes 
effective  and  as  additions  to  the  property  are  made,  and,  as  property 
is  abandoned,  the  appropriate  additions  or  subtractions  are  made: 
so  that  there  is  constantly  kept  up  a  so-called  capital  value  of  the 
property  on  which  the  return  provided  for  in  the  franchise  is 
allowed  and  which  is  very  often  used  as  the  basis  for  accruing  for 
depreciation,  all  in  addition  to  being  the  basis  of  purchase  by  the 
municipality. 

Mr.  WARREN.  And  this  rate  base  is  determined  how?  This  rate 
base,  I  take  it,  is  the  amount  on  which  the  return  on  the  investment 
is  figured  or  estimated  ? 

Mr.  NASH.  Usually  that  is  a  sum  determined  more  or  less  arbi- 
trarily, I  might  say,  with  due  consideration  to  the  outstanding  se- 
curities, the  actual  investment  in  the  property  and  its  cost  of  repro- 
duction, and  so  forth;  but  in  the  majority  of  cases  the  amount  which 
has  been  determined  coincides  fairly  closely  with  the  actual  invest- 
ment in  the  property.  That  is  at  least  true  in  Massachusetts,  where 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      469 

the  actual  investment  has  been  the  standard  for  a  good  many  years 
of  the  rate  base  which  the  commissions  have  adopted.  And,  although 
cost  of  reproduction  has  been  used  and  been  recommended  in  other 
jurisdictions,  I  think  there  is  a  definite  tendency  toward  actual  in- 
vestment, so  far  as  that  can  be  determined.  Of  course,  in  the  case 
of  many  of  the  very  old  railways  which  have  gone  through  numer- 
ous reorganizations  and  consolidations  it  is  often  difficult  to  deter- 
mine from  the  accounting  records  what  the  actual  investment  was, 
but  it  is  usually  possible  to  make  some  approximation  by  a  thorough 
search  through  the  old  records. 

Mr.  WARREN.  But  in  every  case  there  lies  at  the  entrance  upon 
this  plan  a  determination  by  agreement,  or  in  some  way — ultimately 
by  agreement,  I  suppose — as  to  what  that  rate  base,  or  so-called 
value  of  the  property,  shall  be. 

Mr.  NASH.  That  is  one  of  the  essentials  of  the  service-at-cost  plan. 

Mr.  WARREN.  Then,  as  to  supervision — does  the  plan  ordinarily 
contemplate  supervision  of  the  operation  and  finances  of  the  com- 
pany ? 

Mr.  NASH.  Ordinarily  the  plan  provides  for  a  local  supervisor 
or  board  of  control,  with  one  to  three  members,  which  has  super- 
vision over  the  service,  the  accounting,  the  rates,  and  matters  of  ex- 
tension; in  fact,  the  general  supervision  of  the  operations  and  pol- 
icy of  the  property. 

Mr.  WARREN.  And  where  the  plan  is  put  into  effect  merely  as  a 
local  undertaking  by  arrangement  between  the  company  and  the 
local  authorities  of  the  city  or  town,  the  supervising  commission, 
if  there  be  one.  has  nothing  to  do  with  it  ? 

Mr".  NASH.  No. 

Mr.  WARREN.  As  in  Ohio? 

Mr.  NASH.  In  Ohio  there  are  two  service-at-cost  franchises  in  op- 
eration— in  Cleveland  and  in  Cincinnati;  and  in  both  of  those  cit- 
ies the  local  supervisor  has  direct  charge  and  full  charge  over  the 
regulation  of  the  railways.  The  State  commission  has  no  such  au- 
thority. 

Mr.  WARREN.  As  a  matter  of  fact,  does  the  Ohio  commission — if  you 
happen  to  know — have  very  much  jurisdiction  over  street  railways? 

Air.  NASH.  I  am  not  very  familiar  with  the  act  there,  but  as  far 
as  its  actual  operations  are  concerned,  it  has  not.  I  have  seen  very 
few  evidences  of  its  activities  in  railway  cases. 

Mr.  WARREN.  If  you  were  recommending  the  supervision  pro- 
vision in  such  a  franchise,  should  you  stop  with  the  absolute  juris- 
diction in  the  local  authorities,  or  should  you  provide  an  appeal, 
and  if  so,  to  whom? 

Mr.  NASH.  I  do  not  think  that  the  absolute  local  supervision  would 
work  out  to  the  best  advantage.  It  has  worked  fairly  satisfactorily 
in  the  cases  where  it  has  been  tried,  but  experience  with  any  of  these 
franchises  has  been  comparatively  limited.  It  seems  to  me  that  in 
the  final  analysis  authority  ought  to  be  lodged  with  the  State  regu- 
latory authorities. 

Now,  there  are  all  kinds  of  degrees  of  jurisdiction  between  local 
and  State  that  might  bo  worked  out.  For  example,  the  city  might 
appoint  a  representative,  who  would  be  called  a  supervisor,  or  ho 
might  be  an  existing  city  official,  who  would  represent  the  city  in 


470       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

negotiations  with  the  company  with  respect  to  service,  extensions. 
or  changes  in  rates  or  operating  conditions,  and  in  9  cases  out  of  10 
the  city  representative  and  the  company  representative  would  prob- 
ably agree  upon  what  should  be  done.  In  cases  where  they  could 
not  agree,  I  think  the  logical  appeal  should  be  to  the  State  commis- 
sion,  partly  because  of  their  wide  acquaintance  with  the  conditions 
which  "have  arisen  in  some  particular  locality  and  partly  because 
it  removes  the  decision  in  the  case  further  away  from  local  appeal 
and  prejudice.  City  officials  are  apt  to  make  the  best  kind  of  a 
trade  they  can  for  their  constituents,  and  the  State  commissions,  on 
the  other  hand,  have  a  broader  view  and  are  more  apt  to  decide  the 
question  upon  abstract  merits  and  with  a  view  to  the  long-range 
interests  of  the  community  rather  than  its  immediate  advantage. 

Mr.  WARREN.  What  do  these  franchises  provide,  if  there  is  any 
usual  provision  in  them,  with  respect  to  franchise  practice?  And 
what,  in  your  opinion,  should  be  the  provision  regarding  franchise 
practice  ? 

Mr.  NASH.  There  are  only  two  or  three  of  the  dozen,  approximately, 
that  I  recall  that  provide  specifically  for  a  tax  which  could  be  called 
a  franchise  tax  or  .a  rental.  In  fact,  the  only  two  that  I  recall  at 
the  moment  are  Montreal  and  Cincinnati,  in  which  substantial  sums 
are  provided  to  be  paid  annually  as  a  price  for  doing  business  on 
the  city  streets.  In  both  those  cases  the  percentage  of  the  gross 
earnings,  if  I  remember  rightly,  is  in  excess  of  4  or  5  per  cent;  in 
one  case  it  is  considerably  higher  than  that. 

I  do  not  at  all  approve  of  that  kind  of  a  tax.  Theoretically  a 
tax  on  a  franchise  ought  to  be  a  tax  on  the  right  to  earn  a  profit 
in  excess  of  that  which  investors  could  earn  in  ordinary  industrial 
or  commercial  enterprises.  Under  a  service-at-cost  plan  there  is 
no  excess  profit.  The  profit  is  just  the  bare  amount  which  theoreti- 
cally the  investor  could  earn  somewhere  else.  So  that  the  oppor- 
tunity for  rendering  a  public  service  has  no  special  value  on  which 
a  tax  should  be  levied.  So  that  I  think  taxation  of  public  utilities 
should  be  limited  to  the  ordinary  ad  valorem  taxes  which  are  paid  by 
other  industrial  and  commercial  industries,  plus  also  such  license 
fees  as  are  paid  by  other  kinds  of  business;  in  other  words,  the 
same  kinds  of  taxes  which  other  industries  pay  and  no  more. 

Mr.  WARREN.  In  other  words,  I  suppose  the  effect  of  the  franchise 
tax,  if  it  is  levied,  is  to  add  just  that  much  more  to  the  cost  of  service 
to  the  car  rider. 

Mr.  NASH.  Yes;  it  is  passed  along  directly  to  the  car  rider — wThich 
means  that  amount  of  taxes  is  paid  by  a  certain  group  of  citizens 
instead  of  being  distributed  uniformly  over  the  entire  list  of  tax- 
payers, as  it  should  be. 

Mr.  WARREN.  Do  any  of  these  franchises  provide  for  public  con- 
tributions to  the  cost  of  operation  or  to  the  cost  of  the  service? 

Mr.  NASH.  A  number  of  the  most  recent  ones  do  make  provisions 
of  that  kind.  These  contributions  are  of  different  kinds  and  of 
different  degrees.  The  franchise  which  was  prepared — or  it  might 
be  called  a  lease — in  Philadelphia  .for  the  use  of  the  new  rapid- 
transit  facilities  which  are  being  constructed  there — an  agreement 
which  was  entered  into  between  the  railway  and  the  city  which  went 
to  the  public-service  commission  and  was  criticized  in  certain  re- 
spects and  has  not  gone  into  effect  as  yet — that  franchise  provided^ 


PROCEEDINGS  OF  FEDERAL.  ELECTRIC  RAILWAYS  COMMISSION.      471 

that  rentals  on  the  city-owned  rapid-transit  facilities  might  be  sus- 
pended wholly  or  in  part  by  the  city  if  the  revenues  under  the  exist- 
ing fare  schedules  were  not  adequate  to  take  care  of  all  of  the  other 
costs  -of  service  and  these  rentals.  And  I  think  in  all  cases  the  rental 
of  subways  and  rapid-transit  lines  was  to  be  borne  by  the  city  dur- 
ing the  first  year,  but  thereafter  it  might  be  waived  wholly  or  in 
part  if,  under  existing  or  normal  or  what  might  be  considered  normal 
rates  of  fare,  the  rentals  could  not  be  paid. 

Mr.  WARREN.  Did  that  franchise  provide  for  a  sliding  scale  of 
rates* 

Mr.  XASH.  It  has  the  sliding  scale,  but  without  the  steps  being  de- 
fined. The  determination  of  fares  in  that  case  was  left  entirely  to 
the  board  of  supervisors,  consisting  of  a  city  representative  and  a 
company  representative  and  a  third  member,  who  would  act  as  an 
umpire  in  case  of  disagreement.  That  is  one  of  the  very  few  fran- 
chases  in  which  no  rates  of  fare  are  mentioned.  Usually  a  scale  is 
fixed  with  a  certain  number  of  steps  from  one  to  another  in  which 
the  rates  in  effect  change  automatically  as  the  costs  increase  or 
decrease. 

Mr.  WARREN.  And  in  that  franchise,  do  you  remember  whether 
there  was  a  provision  that,  after  the  board  of  supervisors  and  the 
company  agreed  on  the  change  in  rate,  the  proposed  change  Avas  to 
be  submitted  to  the  public-utilities  commission  for  its  approval? 

Mr.  NASH.  The  approval  of  the  commission  is  required  in  that 
case. 

Air.  WARREN.  If  the  commission  will  allow  me,  Mr.  Chairman,  I 
should  like  to  suspend  Mr.  Xash's  testimony  at  this  point  and  call 
Mr.  Culkins,  who  is  the  Cincinnati  director  of  street  railways.  He 
is  not  our  witness  in  any  sense,  except  that  he  has  very  kindly  con- 
sented to  come  at  this  time,  while  more  naturally  he  might  come 
when  the  cities  are  represented  two  weeks  from  now.  It  seemed  to 
us  very  desirable,  if  we  could,  to  present  somebody  to  the  commis- 
sion who  would  explain  the  city  side  of  one  of  these  service-at-cost 
franchises  which  is  in  actual  operation  at  the  same  time  that  we 
explain  the  other  side. 

The  CHAIRMAN.  Do  you  intend  to  put  Mr.  Xash  on  again? 

Mr.  WARREN.  Yes;  we  intend  to  put  Mr.  Nash  on  again.  Mr. 
Culkins  has  to  leave  at  4  o'clock  to  get  a  train  at  half  past  4,  so 
with  that  explanation  I  should  like  to  call  Mr.  Culkins. 

(Witness  excused.) 

STATEMENT  OF  MB.  W.  C.  CULKINS. 

Mr.  WARREN.  Your  full  name? 

Mr.  CULKINS.  W.  C.  Culkins. 

Mr.  WARREN.  Have  I  correctly  described  your  title? 

Mr.  CULKINS.  Director  of  street  railroads  is  correct. 

Mr.  WAUICKN.  Director  of  street  railroads  of  Cincinnati? 

Mr.  CULKIXS.  Yes. 

Mr.  WARREN.  And  in  that  capacity  you  represent  the  public  in 
supervising  the  opc'rations  and  activities  of  the  street-railway  com- 
pany ? 

Air.  CULKINS.  Yes. 


472        PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Can  you  and  will  you  tell  the  commission  how  Cin- 
cinnati came  to  adopt  this  service-at-cost  plan,  what  the  public 
sentiment  was  with  reference  to  it  before  its  .adoption  and  how  it  is 
working  out,  and  how  the  public  regard  it  ? 

Mr.  CULKIXS.  The  situation  in  Cincinnati  was  a  little  different 
from  a  good  many  other  cities  from  the  fact  that  there  was  a  fran- 
chise revision  open  at  the  time  this  general  question  had  arisen  all 
over  the  country.  And  perhaps  it  might  clarify  it  if  I  would  ex- 
plain briefly  just  how  that  situation  arose.  It  was  not  a  question  of 
a  new  franchise.  In  1890  the  city  granted  a  50-year  franchise  to 
the  companies  which  contained  a  provision  that  .this  franchise  should 
\)f.  open  for  revision  at  the  end  of  the  first  20  years  and  each  15 
years  thereafter,  and  provided  in  that  clause  that  the  revision  should 
be  as  to  rates  of  fare  and  all  other  terms  and  conditions  based 
equitably  upon  the  then  cost  of  carrying  passengers,  and  should 
be  acceptable  to  the  company,  and  in  event  of  their  failing  to  agree — • 
the  company  and  the  city — that  it  should  be  submitted  to  a  court, 
of  competent  jurisdiction  by  way  of  an  injunction  on  the  part  of  the 
company  against  the  city's  enforcing  its  proposed  contract. 

This  20-year  period  expired  in  191C.  and  the  city  proceeded  with 
the  company  to  revise  the  franchise  then  which  included  a  provi- 
sion for  the  rental  of  a  rapid-transit  system  that  the  city  proposed 
building.  The  Supreme  Court  declared  that  franchise  invalid  on 
the  ground  that  it  was  a  lending  of  the  city's  credit,  because  the 
rental  was  not  paid  in  the  distribution  of  gross  receipts.  The  pay- 
ment of  the  rental  on  the  rapid -transit  lines  came  subsequent  to  the 
returns  to  the  company.  That  decision  was  handed  down  in  October 
of  last  year  and  immediately  brought  up  the  question  of  a  further 
revision  or  a  new  revision. 

Xow,  in  approaching  this  question,  the  city  took  the  view  in  the 
experience  that  had  already  appeared  during  the  war  times  that 
there  was  a  new  viewpoint  necessary  in  the  working  out  of  a  fran- 
chise that  would  be  the  most  serviceable  to  all  concerned.  They 
realized  that  a  street-railway  utility  was  the  key  utility  in  any 
community,  since  it  made  all  other  industries  possible,  and  that 
therefore  it  was  highly  important  to  the  development  of  the  com- 
munity that  some  kind  of  a  franchise  be  worked  out  which  would 
allow  the  community  itself  to  expand  and  to  do  its  part  in  the  general 
expansion  of  the  country.  They  took  rather  the  new  view.  The  old 
franchise  was  the  old  type  of  franchise.  It  contained  very  few  re- 
strictions ;  it  provided  that  cars  should  run  as  often  as  the  public  con- 
venience required  and  neglected  to  say  who  should  determine  that. 
And  it  was  found  there  was  a  very  great  difference  of  opinion  between 
the  stockholder  and  the  strap  hanger  as  to  how  often  cars  ought  to 
run.  The  view  taken  by  the  city  in  this  case  was  that  we  should  vis- 
ualize a  street-railway  franchise  not  so  much  as  a  permit  given  to  per- 
mit a  corporation  to  operate  an  industry  in  the  city,  but  as  the  crea- 
tion of  an  agency  to  carry  out  a  purely  municipal  function;  that  it 
was- the  duty  and  the  function  of  the  city,  which  it  might  exercise  of 
its  own  motion  and  of  itself,  to  provide  transportation  for  its  people; 
and  that  if  it  did  not  do  it,  it  should  create  an  agency  under 
its  control  that  would  carry  out  this  function  in  the  way  that  the 
city  should  direct. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      473 

It  was  very  evident  that  most  of  the  trouble  in  street-railway 
franchises  was  growing  out  of  too  much  rigidity  all  along  the  line, 
not  only  in  rates  of  fares  but  in  terms  and  conditions;  and  the  city 
felt  that  perhaps  the  cure  for  too  much  rigidity  was  a  great  deal  of 
elasticity.  The  question  was  opened  at  a  time  when  prices  were  very 
high,  when  it  would  be  obviously  unfair  to  the  company  to  expect 
them  to  operate  on  a  rate  of  fare  based  on  prewar  conditions.  It 
would  be  obviously  unfair  to  the  community  to  ask  them  to  allow 
the  company  a  rate  of  fare  based  upon  war  times  which  would 
continue  for  a  period  until  1931.  assuming  that  there  was  a  prob- 
ability at  least  of  there  being  some  change  in  conditions  during 
that  period.  So  that  the  thing  which  seemed  to  be  obvious  was  the 
service-at-cost  plan,  since  it  would  automatically  adjust  itself  to 
these  changing  conditions.  It  would  be  high  enough  to  allow  the 
public  to  have  the  kind  of  service  that  it  wanted  and  was  willing  to 
pay  for,  and  it  would  automatically  reduce  those  rates  when  the 
costs  and  market  conditions  changed  in  accordance  with  that.  So 
that  a  plan  was  adopted  that  follows  somewhat  the  Cleveland  plan, 
being  the  oldest  service-at-cost  plan  in  operation  then,  with  such 
modifications  as  we  felt  experience  had  warranted  in  that  plan. 

Our  plan,  briefly,  provides  that  the  rates  of  fare  shall  be  sufficient 
to  pay  the  cost  of  service — the  cost  of  service  being  defined  as  operat- 
ing expenses  and  taxes  and  a  return  to  the  company  and  $350.000 
franchise  tax.  After  that  is  earned,  the  surplus  goes  into  a  fund 
with  the  usual  machinery  of  a  reserve  or  stabilizing  fund  to  regulate 
the  rates  of  fare. 

The  CHAIRMAN.  Will  you  refer  to  your  franchise-tax  item  again? 
I  did  not  understand  about  that  franchise  tax  of  $350,000. 

Mr.  CULKINS.  Yes;  there  is  a  franchise  tax  of  that  amount. 

The  CHAIRMAN.  That  is  collected  out  of  operating  revenues? 

Mr.  CULKINS.  That  is  collected  out  of  operating  revenues.  I  will 
be  glad  to  refer  to  that  further  a  little  later,  if  you  desire. 

Mr.  WARREN.  How  about  depreciation  ?     Have  you  mentioned  that  ? 

Mr.  CULKINS.  Depreciation,  of  course,  will  be  included  in  the  cost, 
although  the  provision  in  there  is  not  altogether  satisfactory,  and 
will  continue  for  five  years,  at  which  time  the  public-utility  commis- 
sion will  decide  the  method  of  charging  the  depreciation. 

There  were  many  things  in  this  franchise  which  had  to  recognize 
the  present  financial  condition  of  the  company,  because  it  was 
necessary  to  keep  the  thing  moving — to  recognize  that  the  company, 
like  all  companies,  was  in  strained  financial  condition.  The  pro- 
vision for  a  return  on  the  capital  seemed  to  us  to  be  perfectly  legiti- 
mate and  absolutely  necessary,  aside  entirely  from  the  fact  that  a 
great  number  of  our  people  have  invested  their  savings  in  this  par- 
ticular utility,  which  is  very  popular,  from  the  fact  that  people  can 
see  it  running  on  the  streets  and  feel  that  the}7  own  it,  and  very 
largely  it  is  held  by  people  in  very  moderate  circumstances. 

But  primarily,  from  the  city's  point  of  view,  the  situation  was  no 
longer  whether  an  investor  should  save  or  lose  his  investment,  but 
it  would  be  necessary  to  provide  a  return  in  this  cost  of  service  that 
would  enable  the  company  to  procure  the  necessary  new  capital  to 
carry  on  its  expansion  in  harmony  with  the  expansion  of  the  com- 
munity. 

100043°— 20 31 


474       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

I  do  not  linow  that  you  want  me  to  go  into  minute  details  in  de- 
scribing this  ordinance. 

The  CHAIRMAN,  You  may  file  a  copy  of  the  ordinance. 

Mr.  CULKINS.  Perhaps  that  would  be  better. 

The  CHAIRMAN.  But  we  would  like  to  have  you  touch  the  high 
spots  as  you  go  along.  I  am  quite  unfamiliar  with  the  service-at- 
fost  plan,  and  I  am  sure  the  other  members  of  the  commission  will 
wish  to  hear  more  about  it. 

Mr.  CULKINS.  As  I  have  said,  it  includes  the,  operating  expenses, 
depreciation,  taxes,  return  to  the  company,  and  this  $350,000  fran- 
chise tax,  and  provides  that  after  that,  with  the  authority  of  the  city, 
a  working  capital  may  be  set  up  and  any  receipts  beyond  that  go  info 
what  is  known  as  the  reserve  fund ;  that  is,  the  balancing  or  stabiliz- 
ing fund. 

Under  the  plan,  when  this  fund  reaches  $650,000,  fares  will  be 
automatically  reduced  by  one-half  cent.  When  it  is  reduced — deficits 
then  will  be  paid  out  of  it  if  there  are  any— -and  when  it  is  reduced 
to  $250,000,  fares  automatically  are  increased  one-half  cent.  The 
$250,000  is  to  be  put  into  this  fund  by  the  company,  the  remainder 
of  it  to  be  from  receipts. 

The  CHAIRMAN.  At"  that  point  will  you  explain  how  you  handle 
the  half -cent  increase  or  decrease  in  the  fare  ? 

Mr.  CuwaNS.  It  is  handled  by  way  of  tickets.  There  is  no  limi- 
tation either  top  or  bottom  in  this  ordinance.  The  ordinance  was 
initiated  at  a  5-cent  fare,  which  was  an  incorrect  rate  of  fare.  The 
committee  which  prepared  the  ordinance  found  on  investigation  that 
it  was  costing  5-J  cents  to  carry  a  passenger,  and  recommended  that 
the  initial  rate  of  fare  be  C  cents.  A  committee  of  public-spirited 
citizens,  who  had  been  before  the  committee  every  day  threatening 
a  referendum,  suggested  that  if  the  city  would  initiate  the  ordinance 
with  a  5-cent  fare  that  then  they  would  abandon  all  their  suggestion 
of  a  referendum.  That  suggestion  was  made  about  three  days  after 
Buffalo  had  a  referendum,  and  I  think,  rather  to  the  surprise  of 
the  city,  the  company  came  in  and  volunteered  to  carry  it  out  on 
that  figure.  The  citizens  continued  to  talk  about  a  referendum; 
but  it  should  not  have  been  initiated  at  5  cents,  because  you  are  ini- 
tiating a  service-at-cost  ordinance  at  less  than  cost. 

I  might  bring  this  to  your  attention,  too — that  in  the  distribution 
of  this  surplus  there  is  another  provision  that  is  unlike  most  of  the 
service-at-cpst  ordinances.  Based  upon  our  information  that  the 
greatest  criticism  of  the  service-at-cost  ordinance  plan  was  that  it 
tended  to  produce  an  inertia  on  the  part  of  the  company,  a  sort  of 
feeling,  "  We  get  ours;  now  go  ahead  and  tell  us  what  to  do  " — there 
is  a  provision  by  which  the  company  may  participate  in  this  surplus 
at  certain  times.  When  the  fares  are  more  than  6  cents,  all  the  sur- 
plus after  paying  cost  of  service  goes  into  the  reserve  fund  for  reduc- 
tion of  fares.  When  the  fares  are  6  cents  the  company  is  permitted 
to  retain  20  per  cent,  80  per  cent  going  into  the  reserve  fund. 
When  fares  go  down  to  5-}-  cents  the  company  is  permitted  to  retain 
30  per  cent,  and  when  fares  go  down  to  5  cents  or  less  the  company 
is  permitted  to  retain  45  per  cent.  So  we  think  we  have  a  piece  of 
machinery  in  there  which  makes  it  always  against  the  interest  of 
the  company  to  have  high  rates  of  fare,  but  which  enforces  from  our 
point  of  view  the  necessity  of  economical  operation. 


PROCEEDINGS  OF  FEpEEAL  ELECTRIC  RAILWAYS  COMMISSION.      475 

Xow,  it  might  be  said  that  the  company  might  impair  the  service 
in  order  to  get  that,  but  the  city  retains  absolute  control.  To  my 
mind,  that  is  a  very  vital  feature  of  this  ordinance.  The  city  main- 
tains that  control  over  the  operation  of  the  company,  over  its 
finances,  over  its  service,  over  its  investments,  and  that  control,  with 
the  exception  of  three  particulars,  is  vested  in  the  director,  in  one 
man,  with  a  view  of  centralizing  the  responsibility.  He  is  not  only 
made  responsible  for  that  but  he  is  made  responsible  wherever  any 
olher  department  touches  this  company— that  the  company  need 
only  to  go  to  one  man  and  then  its  becomes  his  duty  to  take  it  to  the 
proper  place.  The  matter  of  extensions,  rerouting,  and  further  fran- 
chises are  vested  in  the  city  council,  but  they  are  required  to  refer  the 
matter  to  the  director  for  report  and  recommendation  before  they 
take  any  action  on  it,  thus  overcoming  the  action  of  the  council  from 
being  influenced  by  a  large  delegation  and  the  usual  procedure. 

By  way  of  controlling  the  cost  and  expenses  of  the  company  we 
adopted,  rather  than  the  Cleveland  plan  of  a  car-mileage  allowance, 
a  budget  plan.  The  company  is  required  to  file  with  the  director, 
45  days  before  the  beginning  of  each  year,  a  budget  of  operating  ex- 
penses classified  in  accordance  with  the  Interstate  Commerce  Com- 
mission system.  That  budget,  however,  carrying  out  the  thought  of 
elasticity  and  realizing  that  you  can  not  even  tell  a  year  ahead  just 
what  will  happen,  may  be  revised  by  way  of  the  company's  filing 
a  request  for  a  supplemental  budget,  which  the  director  may  allow 
or  disallow,  or  he  may  transfer  among  those  funds  in  order  to  meet 
any  extraordinary  or  unusual  expenses.  That  is  the  only  feature  of 
the  ordinance  wherein  an  arbitration  is  involved.  If  the  company  and 
the  director  are  unable  to  agree  to  the  budget,  then  the  matter  may  be 
submitted  to  an  arbitration,  which  is  final. 

The  thought  of  elasticity  is  carried  out  in  the  control,  since  the 
city  determines  the  number  of  cars,  the  kind  of  cars,  their  frequency, 
where  the  cars  shall  stop,  where  the  transfers  shall  be  given,  and  in 
the  matter  of  extension  the  city  reserves  the  right  to  order  extensions 
wherever  it  sees  fit. 

We  have  also  included  in  there,  in  case  it  may  be  feasible  to  do  it, 
the  right  of  the  company  to  operate  freight  cars,  to  haul  express 
packages  and  anything  of  that  character. 

The  council  reserves  the  right  to  reroute  at  any  time,  in  other  words 
to  meet  whatever  condition  may  arise  at  any  time.  There  is  no 
rigidity  and  no  specific  requirement  as  to  anything.  In  the  case  of 
nn  order  to  improve  service,  the  order  is  effective  in  10  days  unless 
the  company  files  a  complaint.  In  the  event  of  the  company  filing 
a  complaint  there  shall  be  a  public  hearing  before  the  director,  who 
finally  determines  after  the  hearing  what  shall  be  done;  and  the  city 
may  enforce  its  order  in  a  suit  for  specific  performance  and  the  com- 
pany may  defend  only  on  the  ground  it  has  not  been  allowed  a  suf- 
ficient revenue  in  the  budget  to  carry  out  the  improvement  as  ordered. 
Since  the  director  has  the  right  to  authori/e  a  supplemental  budget, 
it  really  amounts  to  no  defense  or  a  question  of  fact.  In  regard  to 
transfers,  the  only  limitation  is  that  the  public  may  not  be  brought 
back  to  the  point  of  origin. 

I  think  I  have  tried  to  touch  all  the  high  points  in  the  system. 

Mr.  WARREN.  You  spoke  of  arbitration  once  or  twice,  Mr.  Culkins. 
Is  there  any  fixed  arbitration  board  or  tribunal  ? 


476      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  CULKINS  No. 

Mr.  WARREN.  Or  is  it  selected  by  agreement? 

Mr.  CULKINS.  The  company  selects  one,  the  city  selects  another, 
and  those  two  select  a  third,  but  in  the  event  of  their  failing  to  do 
that  the  arbitration  committee  of  the  local  chamber  of  commerce 
selects  the  third,  and  in  event  of  the  failure  to  appoint  a  committee 
the  sinking-fund  trustees — that  is,  the  initial  arbitrators — the  sink- 
ing-fund trustees  appoint  them. 

Mr.  WARREN.  Under  the  present  rapid  increases  in  the  cost  of 
operating  street  railways  how  is  the  experience  of  this  year  compar- 
ing with  the  budget  which  was  presented  at  the  beginning  of  the 
year  ? 

Mr.  CULKINS.  Well,  we  are  keeping  within  the  budget ;  very  close 
to  the  edge  of  it — well,  keeping  well  within  the  budget.  I  think  just 
offhand  we  are  probably  $100,000  to  the  good  on  the  budget.  The 
budget  was  estimated  on  the  basis  of  reaching  a  T-cent  fare  in 
October. 

Mr.  WARREN.  Of  this  year? 

Mr.  CULKINS.  Yes.  We  are  hoping  not  to  have  to  reach  a  7-cent 
fare.  We  went  to  a  5^-cent  fare  in  January,  a  6-cent  fare  in  April, 
and  6^-cent  fare  in  July.  Now,  our  experience  has  probably  been  a 
little  more  fortunate  than  that  of  some  cities  in  regard  to  the  loss  of 
traffic  on  the  increase  of  fares. 

Commissioner  GADSDEN.  Before  you  get  into  your  experience,  Mr. 
Culkins,  would  you  go  a  little  further  into  the  question  of  how  you 
are  treating  the  franchise  as  to  the  cost  of  money  ? 

Mr.  CULKINS.  That,  too,  is  so  drawn  as  to  meet  the  conditions  as 
they  arise.  Any  new  securities  issued  by  the  company  must  be 
approved  by  the  public-utilities  commission  tnder  the  State  law,  and 
also  by  the  director ;  and  all  of  the  terms  and  conditions  and  the  rates 
and  everything  are  determined  at  the  time.  There  is  no  limitation 
on  that.  Market  conditions  of  money  determine  it. 

Commissioner  GADSDEN.  That  is  flexible,  too? 

Mr.  CULKINS.  That  is  flexible,  just  the  same  as  the  other. 

Mr.  WARREN.  If  you  borrow  money  at  6  per  cent,  the  interest 
charge  on  that  money  is  added  to  the  cost  of  service  ? 

Mr.  CULKINS.  To  the  cost  of  service ;  yes,  sir. 

Mr.  WARREN.  And  if  you  refund  an  existing  issue  of  bonds  at  a 
higher  rate  that  is  added? 

Mr.  CULKINS.  We  recognized  this  principle — that  you  could  no 
more  foresee  the  value  of  money  ahead  of  time  than  you  could  have 
foreseen  these  things  that  came  upon  the  industry  in  the  last  few 
years. 

Mr.  WARREN.  Like  the  rate  of  wage,  for  example  ? 

Mr.  CULKINS.  Yes ;  like  the  rate  of  wage. 

Mr.  WARREN.  You  spoke  of  the  council's  having  control  of  exten- 
sion, I  think. 

Mr.  CULKINS.  Yes. 

Mr.  WARREN.  And  service? 

Mr.  CULKINS.  No ;  the  council  has  control  of  extension,  rerouting, 
and  new  franchises.  They  are  final  on  that.  But  in  each  case  they 
must  refer  it  to  the  director  for  his  advice  and  recommendation.  I 
think  that  is  the  term. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      477 

Mr.  WARREN.  Suppose  he  makes  a  recommendation  one  way  and 
they  can  still — 

Mr.  CULKINS.  They  can  still  do  just  as  they  please.  The  value  of 
that  is  that  it  secures  some  kind  of  study  into  the  question ;  that  it 
will  not  be  carried  by  public  hurrah. 

Mr.  WARREN.  You  spoke  of  having  started  with  the  5-cent  rate? 

Mr.  CULKINS.  Yes. 

Mr.  WARREN.  How  soon  did  you  go  to  the  5|-cent  rate? 

Mr.  CULKINS.  At  the  earliest  opportunity,  in  the  three  months. 
Now,  perhaps  to  explain  that,  until  this  reserve  fund  is  accumulated 
the  rates  of  fare  may  change  every  three  months.  In  any  two  calen- 
dar months  where  the  gross  receipts  are  not  equal  to  the  cost  of 
service,  the  rates  of  fare,  beginning  at  the  first  of  the  next  succeeding 
month,  shall  be  advanced  one-half,  cent.  That  is  to  continue  until 
they  reach  the  cost  of  service  and  until  $400,000  of  the  normal  re- 
serve fund  is  accumulated.  When  there  is  $400,000  in  the  fund  then 
the  reserve  fund  may  be  used  to  meet  deficiencies,  but  not  until  then. 

Mr.  WARREN.  When  you  went  to  the  5^-cent  rate — you  may  have 
told  it  but  I  did  not  catch  it — that  is  with  tickets? 

Mr.  CULKINS.  Yes. 

Mr.  WARREN.  And  the  cash  fare  is  6  cents  ? 

Mr.  CULKINS.  Yes. 

Mr.  WARREN.  Your  present  rate  is  G|  cents  ? 

Mr.  CULKINS.  Six  and  a  half  cen-ts  or  7  cents  cash. 

Mr.  WARREN.  What  do  you  estimate  that  that  would  yield,  if  there 
was  no  loss  of  traffic  ? 

Mr.  CULKINS.  Well 

Mr.  WARREN.  Does  practically  everybody  use  the  tickets? 

Mr.  CULKINS.  No ;  our  experience  with  the  5£  and  6-cent  fare,  was 
that  80  per  cent  used  tickets  and  20  per  cent  paid  cash.  We  have  not 
got  the  figures  out  yet,  but  there  is  a  sort  of  surface  indication,  which 
is  interesting,  that  there  will  be  a  larger  percentage  of  cash  fares 
than  tickets  from  the  6£  and  7-cent  fares,  they  apparently  feeling 
that  the  proportion  is  not  sufficient — a  man  would  put  up  33  cents 
rather  than  pay  the  extra  half  cent  each  time,  but  he  will  not  put  up 
39  cents.  However,  it  is  not  a  sufficiently  large  fraction  to  be  of  any 
importance. 

Mr.  WARRAN.  Has  your  experience  with  the  increasing  rate  led  you 
to  believe  pretty  firmly  that  your  revenue  will  increase  with  increase 
in  rates? 

Mr.  CULKINS.  As  a  broad  question,  I  do  not  think  there  can  be 
any  doubt  that  under  this  plan  raising  rates  of  fare  will  reach  a 
point  where  the  economic  law  of  diminishing  returns  will  set  in  and 
where  there  will  be  a  loss  of  car  riders.  Because  the  man  who  must 
ride  and  on  whom  the  company  loses  money  will  be  with  you'  always. 
The  man  who  can  walk  will  have  a  disposition  to  walk  as  fares  go 
up.  I  think  that  will  probably  be  different  in  every  city  or  in  various 
cities. 

Mr.  WARREN.  What  has  been  your  experience? 

Mr.  CULKINS.  On  the  5£  and  6-cent  rates  there  was  apparently  no 
appreciable  loss.  Of  course,  you  will  understand  that  it  is  a  little 
difficult  to  reach  any  conclusion,  because  this  is  just  at  a  period  when 
the  soldiers  and  the  workmen  are  coming  back,  when  people  are  re- 
turning. We  do  not  know  how  many  arc  returning;  we  do  not  know 


478      PROCEEDINGS  OP  FjEDEJiAL  i^^JCOWC  RAILWAYS  COMMISSION. 

what  we  ought  to  ;get.  On  the  >6£-cent  fare  so  Jar  this  month,  the 
increase  in  receipts  is  31.7  per  cent.  Now,  that  would  indicate  that 
we  are  setting  a  little  more  than — the  increase  is  30  per  cent 

The  CHAIRMAN.  Is  that  an  increase  over 

Mr.  CULKINS.  Over  1918. 

The  GH AIRMAN .  But  not  over  the  6-cent  fare? 

Mr.  CULKINS.  No;  over  1918— over  last  year.  The  previous  ex- 
perience of  the  company  indicated  that  under  normal  conditions 
there  should  he  .on  average  increase  of  &|  .per  cent  every  year.  You 
see,  even  with  the  soldiers  coming  back  it  is  not  up  to  that.  The 
excess  of  the  30  per  cent  of  what  your  fare  would  actually  produce 
is  ,not  up  to  that,  which  would  indicate  we  are  getting  dangerously 
near  the  point  where  they  are  going  to  come  together. 

Mr.  WARRED.  Where  there  might  be  some  loss? 

Mr.  CULKINS.  Yes.  But  I  do  not  think  there  is  any  doubt  that 
there  is  some  now;  there  is  bound  to  be,  of  course,  but  J  do  not 
think  it  is  very  large. 

Mr.  WARRED.  You  think  your  theoretical  increase,  leaving  out  the 
3^  per  cent  of  normal  increase,  anyway  is  about  30  per  cent? 

Mr.  GULKINS.  Yes;  a  little  over  30  per  cent. 

Mr.  WARREX.  And  you  are  actually  getting  a  little  over  31  per 
cent? 

Mr.  CULKIXS.  Yes. 

Mr>  WARREN.  So  if  you  -subtract  your  3£  from  that,  you  are  getting 
28.2  per  cent? 

Mr.  CULKIXS.  Yes;  you  are  getting  as  much  as  you  could 

Mr.  WARREN.  You  are  getting  pretty  nearly  as  much  as  you  could. 

Mr.  CULKINS.  Yes. 

Mr.  WARREX.  You  would  normally  get  29  per  cent  where  you  are 
getting  28  ? 

Mr.  CULKIXS.  Yes.  There  has  not  been  very  much  change  on  the 
part  of  the  public,  which  probably  accounts  for  that. 

Mr.  WARREX.  You  were  at  one  time  city  auditor? 

Mr.  CULKINS.  Yes. 

Mr.  WARREN.  And  at  another  executive  secretary  of  the  Cham- 
ber of  Commerce,  of  the  city  of  Cincinnati  ?  Do  you  want  to  say 
anything  to  the  commission  about  the  state  of  public  sentiment  about 
this  service  at  cost  since  it  has  been  in  effect  ? 

Mr.  CULKIXS.  I  believe  that  the  plan  appeals  to  the  public  very 
strongly.  Of  course,  it  is  like  everything  else  connected  with  this 
subject ;  many  of  the  public  do  not  understand  it  and  have  not  been 
able  to  understand  it ;  but  wherever  it  is  brought  to  their  attention 
it  seems  to  be  popular,  and  I  think  it  will  be  safe  to  say  it  is  a 
very  popular  plan  in  the  city.  Now,  just  where  the  rate  of  fare 
would  have  to  be  for  it  to  begin  to  be  unpopular  is  a  thing  only  ex- 
perience will  showr,  but  the  current  comment  is  that  the  suggestion 
of  paying  for  what  you  get  does  appeal  to  the  public.  And  I  think 
the  best  test  of  that  is  that  they  keep  on  riding. 

Mr.  WARREX.  Do  you  think  the  reason  of  that  popularity  is  the 
assurance  that  the  company  is  not  making  excess  profits? 

Mr.  CULKINS.  Where  they  understand  it.  Of  course,  that  has  to 
be  explained,  and  it  has  not  been  thoroughly  explained.  The  com- 
pany now  contemplates  a  campaign  of  publicity  in  order  that  the 
public  may  better  understand  this  franchise,  f  have  explained  it 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION".      479 

to  a  large  number  of  groups  of  our  citizens,  and  I  have  never  had 
an  exception  to  the  experience  that  where  it  was  explained  to  them 
they  looked  very  favorably  upon  it  and  seemed  to  be  very  well 
satisfied  with  the  plan. 

Mr.  WABKEN.  How  do  you  get  along  with  the  company,  you  as  the 
city's  representative? 

Mr.  CULKINS.  Oh,  we  get  along  fairly  well. 

Mr.  WARREN.  If  you  were  starting  out  with  such  an  experience  as 
you  have  already  had  with  your  service-at-cost  franchise — if  you 
were  starting  out  to  draw  one  now  just  as  you  would  like  it  as  a 
sort  of  ideal  or  model  franchise,  what  changes  would  you  make 
from  those  you  have  described  in  the  Cincinnati  franchise? 

Mr.  CULKINS.  I  do  not  know  that  I  would  make  any  fundamental 
changes.  I  think  there  is  a  weakness  in  our  ordinance  that  the  super- 
vision is  charged  to  the  general  taxpayer  rather  than  as  a  cost  of  op- 
eration. That  will  always  have  a  tendency  to  crab  the  supervision, 
because  cities  are  always  broke.  I  believe  that  legitimately  ought 
to  be  a  charge  against  the  car  rider,  for  the  service  is  specifically  for 
the  car  rider,  and  you  can  easily  see  it  differentiates  from  every  other 
city  department. 

Mr.  WARREN.  How  about  the  term  of  franchise,  if  you  were  start- 
ing out  with  a  new  franchise? 

Mr.  CULKINS.  Of  course  that  is  a  matter  of  p-ersonal  opinion.  I 
personally  believe  in  an  indeterminate  franchise. 

Mr.  WARREN.  Your  franchise,  however,  has  so  long  to  run  that 
that  question  is  not  vital  yet,  if  it  is  ever  going  to  be. 

Mr.  CULKINS.  Well,  not  until  we  get  near  to  the  end  of  it;  and 
that  may  be  corrected  some  way  in  the  1931  revision. 

Mr.  WARREN.  Has  the  operation  of  this  service-at-cost  franchise  so 
far  resulted  in  any  demand  for  public  ownership  or  any  increased 
demand? 

Mr.  CULKINS.  Not  any  at  alL  I  do  not  think  there  is,  beyond  the 
group  which  exists  in  every  city,  any  very  large  amount  of  sentiment 
for  public  ownership,  and  perhaps  less  than  before.  Because  we  have 
said  that  under  this  ordinance  you  get  substantially  all  the  benefits 
of  public  ownership  without  any  of  its  disadvantages.  I  believe  if 
Cincinnati  leaned  toward  public  ownership  they  would  lean  first 
toward  public  ownership  and  private  operation,  because  we  have  the 
experience ;  we  own  a  steam  railroad  which  is  operated  privately  and 
yields  about  one  and  a  quarter  million  dollars  revenue  to  the  city 
every  year;  so  I  think  that  sentiment  would  be  the  first.  I  have 
heard  that  suggested  as  a  way  of  relief — that  the  city  might  own  it, 
thereby  relieving  the  company  of  that  much  taxes. 

Mr.  WARREN.  I  think  that  is  all  I  want  to  ask,  Mr.  Chairman,  but 
I  think  Mr.  Culkins  would  be  very  glad,  because  he  has  realty  come 
to  give  information  to  the  commission,  to  answer  any  questions  of  the 
commission,  keeping  in  mind  only  that  he  would  like  to  get  away  at 
4  o'clock. 

The  CHAIRMAN.  Have  you  some  other  witnesses  upon  this  same 
question  ? 

Mr.  WARREN.  We  have  other  witnesses  on  the  question ;  yes. 

The  CHAIRMAN.  You  are  going  to  file  with  the  commission  a  copy 
of  the  city  franchise? 

Mr.  WARREN.  Yes;  I  understand  Mr.  Culkins  will. 


480      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CULKINS.  Yes ;  I  will  as  soon  as  I  get  back. 

The  CHAIRMAN.  And  Mr.  Nash  had  some  books. 

Mr.  WARREN.  Yes;  he  is  coming  back.  I  see  every  commissioner 
has  one  of  those. 

The  CHAIRMAN.  And  that  book  enters  into  a  very  complete  de- 
scription of  the  plan,  does  it  not  ? 

Mr.  WARREN.  Well,  of  the  Cincinnati  plan — you  refer  to  Mr. 
Nash's  book? 

The  CHAIRMAN.  Yes. 

Mr.  WARREN.  Yes ;  together  with  the  ordinance.  I  think  you  will 
get  all  you  want  from  it. 

The  CHAIRMAN.  Ho\v  long  have  you  been  commissioner  of  Cincin- 
nati ? 

Mr.  CULKINS.  About  two  years. 

The  CHAIRMAN.  What  was  your  experience  in  the  handling  of 
street-car  companies  prior  to  that  time? 

Mr.  CULKINS.  None. 

The  CHAIRMAN.  What  was  your  business  before  that  ? 

Mr.  CULKINS.  I  was  executive  secretary  of  the  chamber  of  com- 
merce before  that. 

The  CHAIRMAN.  How  long  have  you  been  a  resident  of  Cin- 
cinnati ? 

Mr.  CULKINS.  Oh,  since  1890. 

The  CHAIRMAN.  Were  you  appointed  or  selected? 

Mr.  CULKINS.  Appointed. 

The  CHAIRMAN.  For  how  long  a  term? 

Mr.  CULKINS.  Well,  there  is  no  term  specified.  It  runs  with  the 
mayor. 

The  CHAIRMAN.  The  appointment  of  the  commissioner  is  a  part 
of  this  cost-of -service  plan? 

Mr.  CULKINS.  Oh,  yes;  the  plan  itself;  the  power — of  course,  the 
department  is  not  part  of  the  cost  of  service. 

The  CHAIRMAN.  Did  the  State  have  a  commissioner  before  they 
adopted  this  plan? 

Mr.  CULKINS.  No.  In  1917 — which  was  declared  invalid — there 
was  a  provision  in  the  ordinance  for  the  city  street-railroad  com- 
mission, adopting  the  title  in  Cleveland,  to  take  charge,  which  was 
made  a  subdepartment  of  the  mayor  instead  of  the  council,  as  in 
Cleveland.  Then  in  the  new  charter  it  wras  made  a  principal  depart- 
ment of  the  city  with  the  title  of  director  of  street  railroads. 

The  CHAIRMAN.  What  is  the  length  of  your  term  ? 

Mr.  CULKINS.  At  the  pleasure  of  the  mayor. 

The  CHAIRMAN.  What  are  your  duties  as  commissioner? 

Mr.  CULKINS.  The  general  supervision  over  the  entire  operation — 
over  whatever  powers  outside  of  those  three  of  the  legislative  powers 
the  city  has  reserved  on  any  electric  street  railway,  interurban  or 
electric  union  .  depot.  If  tlie  rapid-transit  plan  is  carried  out, 
the  director  will  have  control  of  the  operation  of  that,  whether 
it  be  municipal  or  privately  operated. 

The  CHAIRMAN.  Are  you  the  regulating  force  of  the  city? 

Mr.  CULKINS.  Yes;  and  in  addition  to  that  I  have  control  over 
the  accounting  of  the  company. 

The  CHAIRMAN.  You  have  control  over  service,  accounting,  ex- 
tensions  • 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      481 

Mr.  CULKINS.  Not  extensions,  except  as  to  advise  and  recommend 
to  the  council. 

The  CHAIRMAN.  To  what  extent  do  you  regulate  the  rates? 

Mr.  CULKINS.  They  are  automatic. 

The  CHAIRMAN.  Taken  care  of  in  the  contract? 

Mr.  CULKINS.  Taken  care  of  in  the  contract. 

The  CHAIRMAN.  Are  your  orders  valid  before  they  are  approved 
by  the  council? 

Mr.  CULKINS.  Yes;  the  council  has  nothing  to  do  with  the  orders 
issued  by  the  department.  My  orders  are  issued  directly  to  the  com- 
pany, and  they  are  enforceable. 

The  CHAIRMAN.  Has  the  company  the  right  of  appeal  to  the 
courts? 

Mr.  CULKINS.  Xo ;  it  has  the  right  of  appeal  first  to  me  and  then 
the  right  of  appeal  to  the  court,  but  the  only  defense  they  may 
offer  is  that  the  amount  allowed  in  the  budget  is  insufficient  to  carry 
out  the  order. 

The  CHAIRMAN.  Suppose  you  made  an  order  affecting  the  service, 
would  they  have  the  right  of  appeal  from  that? 

Mr.  CULKINS.  Not  except  on  the  ground  that  to  improve  the  service 
as  required  would  cost  more  than  they  were  allowed  in  the  budget. 

The  CHAIRMAN.  Then  you  are  permitted  to  make  any  order  you 
please  so  long  as  the  cost  does  not  exceed  the  amount  fixed  in  the 
budget  ? 

Mr.  CULKINS.  And  have  authority  to  increase  the  budget  if 
necessary  to  cover  it.  It  amounts  to  practically  absolute  authority. 

The  CHAIRMAN.  Well,  that  is  some  power. 

Mr.  CULKINS.  That  is  some  power.  Well,  that  is  the  thought  of 
the  ordinance,  Mr.  Chairman,  because  the  city  allows  the  company 
to  retain  its  reserve  that  it  reserves  to  itself,  and  to  charge  whatever 
may  be  necessary  to  do  that — that  it  reserves  to  itself  to  say  how 
much  this  shall  be. 

The  CHAIRMAN.  How  large  a  force  have  you  under  you? 

Mr.  CULKINS.  Three  inspectors,  an  accountant,  chief  clerk,  and 
stenographer;  not  a  sufficient  force. 

The  CHAIRMAN.  What  are  the  duties  of  the  inspectors? 

Mr.  CULKINS.  They  inspect  traffic,  inspect  equipment  generally 
and  whatever  may  be  necessary,  under  instruction,  and,  of  course, 
most  of  their  time  is  required  to  make  traffic  checks  and  determine 
what  improvements  may  be  necessary  in  the  service,  or  to  make  any 
investigation  that  may  be  necessary. 

The  CHAIRMAN.  You  have  one  accountant? 

Mr.  CULKINS.  Yes, 

The  CHAIRMAN.  Is  that  enough  to  pay  close  attention  to  the  work? 

Mr.  CULKINS.  Well;  of  course  he  puts  in  all  his  time.  The  com- 
pany furnishes  an  office  adjacent  or  adjoining  their  accounting  de- 
partment and 

The  CHAIRMAN.  How  is  he  selected? 

Mr.  CULKINS.  Appointed  by  me. 

The  CHAIRMAN.  Must  he  be  confirmed  by  the  council? 

Mr.  CULKINS.  No. 

The  CHAIRMAN.  How  are  the  inspectors  appointed? 
.    Mr.  CULKINS.  They  arc  civil-service  appointees. 


482       PROCEEDING  OF  IfEDEEAL  ELECTBIC  BAIL  WAYS  COMMISSION. 

The  CHAIRMAN.  You  have  nothing  to  do  with  it? 

Mr.  CULKINS.  Except  that  I  requisition  the  civil  service  for  an 
eligible  list  and  make  the  appointments  from  it. 

The  CHAIRMAN.  To  what  extent  do  you  regulate  the  accounts  of 
the  company? 

Mr.  CULKINS.  Under  the  ordinance  the  right  is  reserved  to  object 
to  any  voucher,  to  have  access  to  all  the  books  and  records  of  every 
kind  and  description,  and  it  is  practically  a  control  over  the  account- 
ing. 

The  CHAIRMAN.  Do  you  prescribe  the  method? 

Mr.  CULKINS.  No.  That  is  described  under  the  ordinance  by  the 
public-utilities  commission  of  the  State;  which  means  that  the  public- 
utilities  commission  of  the  State  simply  advise  us  that  they  had 
adopted  the  Interstate  Commerce  Commission's  uniform  system  of 
accounting,  which  we  have  adopted. 

The  CHAIRMAN.  In  what  way  is  the  depreciation  determined? 

Mr.  CULKINS.  There  is  no  regular  depreciation  charge  made  now 
and  that  will  not  be  put  in  until  five  years  after  the  ordinance  is 
adopted;  and  then  it  will  be  prescribed  by  the  public-utilities  com- 
mission of  the  State. 

The  CHAIRMAN.  Is  that  commission  making  a  study  of  the  depre- 
ciation? 

Mr.  CULKINS.  I  assume  they  are  doing  it  generally  on  the  subject 
of  depreciation.  They  are  not  making  a  study  of  our  particular 
case.  No  doubt  they  will  make  a  sufficient  study  in  advance  to  adapt 
the  general  rules  for  depreciation  to  the  local  condition. 

The  CHAIRMAN.  Under  your  Cincinnati  plan,  what  is  there  for 
the  State  commission  to  do  either  with  respect  to  service  or  rates,  or 
accounting,  or  anything  else  affecting  the  service? 

Mr.  CULKINS.  The  State  commissions  Irave  only  two  powers — that 
is.  the  State  commission  has  a  general  State  control  over  accounting 
of  all  utilities  in  the  State,  and  these  specific  things  I  have  referred 
to,  which  is  a  right  that  they  have  without  its  being  specified  in  the 
ordinance,  and  to  pass  upon  securities;  and  all  of  those  rights  exist 
doubtless  without  regard  to  this  ordinance,  although  they  are  spe- 
cifically provided  therein.  It  is  local  control,  Mr.  Chairman,  specifi- 
cally and  intentionally  local  control,  and  it  is  in  conformity  with 
the  constitutional  provision  of  the  State  granting  local  control  to 
home-rule  cities.  There  has  been  a  decision  of  the  Supreme  Court 
that  in  Ohio  the  chartered  cities  have  plenary  powers  in  matter  of 
all  contracts  of  this  kind. 

The  CHAIRMAN.  Has  the  commission  any  control  over  the  issuance 
of  securities? 

Mr.  CULKINS.  Yes;  they  must  be  approved  by  the  commission  as 
Avell  as  by  the  city. 

The  CHAIRMAN.  But  have  you  any  power  over  the  issuance  of  se- 
curities? 

Mr.  CULKINS.  Yes ;  they  must  be  approved  by  the  director  as  well 
as  by  the  commission. 

The  CHAIRMAN.  Suppose  you  disapprove  it  and  the  commission 
allows  it. 

Mr.  CULKINS.  They  would  not  be  issued. 

The  CHAIRMAN.  They  would  not  be  issued? 

Mr.  CULKINS.  No. 


PROCEEDINGS  OF  FEDEKAL  ELECTBIC  RAILWAYS  COMMISSION.      483 

The  CHAIRMAN.  There  has  to  be  joint  action? 

Mr.  CULKINS.  Yes. 

The  CHAIRMAN.  Under  the  cost-of -service  plan  is  there  a  tendency 
on  the  part  of  the  company  to  be  extravagant  in  its  operations  ? 

Mr.  CujLKiNS.  No;  there  is  not.  The  purpose  of  providing  this 
incentive.,  by  an  additional  return,  was  intended  to  meet  that.  Then 
our  control  over  the  expenditures  would  prevent  that  in  any  event, 
but  there  lia.s  been  practically  no  such  tendency. 

The  CHAIRMAN.  That  return  which  you  speak  of  goes  to  the  stock- 
holders and  not  to  tlie  employees? 

.Mr.  CULKINS.  It  goes  to  the  stockholders — well,  of  course  it  goes 
to  the  company  for  such  purpose  as  they  see  J6t  to  use  it.  The  city 
does  not  dictate  where  it  goes.  The  .company  retains  that  and  it  goes 
wh.ere  they  .see  fit. 

The  CHAIRMAN.  Are  the  employees  as  efficient  under  that  plan? 

Mr.  CULKINS.  Yes;  I  think  they  are. 

The  CHAIRMAN.  Have  vou  found  any  tendencj7  on  the  part  of  the 
(MMployees  to  soldier  on  tne  job? 

Mr.  CULKINS.  No;  not  #  bit  of  that.  Whether  that  is  due  to  the 
fact  that  they  are  the  same  employees  or  to  other  reasons,  of  course 
it  is  too  early  in  the  game  to  determine. 

The  CHAIRMAN.  Does  it  have  any  tendency  on  the  part  of  the  em- 
ployees to  try  to  secure  higher  wages? 

Mr.  CULKINS.  Well,  judging  by  the  experience  in  cities  not  having 
the  cost-of-service  plan,  I  would  say  not.  In  fact,  the  wages  are 
lower  now  in  Cincinnati  than  they  are  in  some  cities  that  have  not 
the  service-at-cost  plan. 

The  CHAIRMAN.  What  is  your  scale? 

Mr.  CULKINS,  The  scale  is  50  cents  an  hour. 

The  CHAIRMAN.  Eight  hours? 

Mi-.  CULKINS.  Nine  hours. 

The  CHAIRMAN.  Is  there  any  demand  for  increases  now? 

Mr.  CULKINS.  WTe  have  just  closed  a  new  contract  with  them. 

The  CHAIRMAN.  And  that  is  the  new  scale? 

Mr.  CULKINS.  That  is  the  new  scale,  as  effective  the  1st  of  July. 

The  CHAIRMAN.  How  long  does  it  exist? 

Mr.  CULKINS.  Three  years — no;  one  year. 

The  CHAIRMAN.  What  was  it  before? 

Mr.  CULKINS.  Before  that  it  was  a  War  Labor  Board  award— -43, 
46,  and  48. 

The  CHAIRMAN.  Will  this  increased .  w.age  result  in  an  increased 
fare? 

Mr.  CULKINS.  I  do  not  know,  Mr.  Chairman.  As  I  say,  I  am 
hoping  so  strongly  that  it  will  not  that  perhaps  I  may  be  a  little 
biased.  In  the  month  of  June  it  cost  7.54  cents  per  revenue  pas- 
senger, but  that  included  a  largo  back  award  from  the  War  Labor 
Board.  Deducting  tliat,  the  cost  per  revenue  passenger  was  C.75 
cents.  Now,  with  any  kind  of  an  increase  in  July  that  will  be  met. 
July  and  August  will  be  the  base  months  to  determine  the  rate  of 
fare  on  the  1st  day  of  October. 

Commissioner  GADHDEX.  Have  you  talked  with  the  employees  suffi- 
ciently to  find  out  whether  the  fact  that  an  increased  wage  might 
increase  the  fare  would  have  a  tendency  to  keep  them  from  asking 
for  it? 


484      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CULKINS.  Well,  I  think  it  did  in  Cincinnati.  I  really  think 
it  has  had  an  effect.  I  think  it  was  an  effective  feature  there,  because 
they  seemed  to  be  somewhat  sensitive  to  the  fact  that  the  public 
know  that  most  of  the  increase  is  going  to  them  and  that  they  may 
reach  a  point  where  their  own  unions  and  their  own  fellows  will 
say,  "  Now,  here,  this  has  gone  far  enough."  That  is  that  sentiment 
in  their  minds,  without  any  doubt,  because  they  have  talked  to  me 
about  it.  The  rate  of  wage  reflects  so  directly  on  the  rate  of  fare 
that  there  is  an  opportunity  for  the  public  to  measure  it. 

The  CHAIRMAN.  Do  you  feel  from  your  experience  that  this  plan 
would  tend  to  reduce,  or  at  least  keep  in  a  more  permanent  form,, 
the  present  scale  of  wages? 

Mr.  CULKINS.  I  would  not  be  prepared  to  answer  that,  Mr.  Chair- 
man, because  the  personal  equation  is  strong  in  that  among  the  men, 
and  because  in  this  particular  industry  you  find  there  is  an  indi- 
viduality in  every  city  and  different  characteristics  of  the  people. 
While  a  man  in  Cincinnati  may  feel  strongly,  as  I  have  indicated — 
and  they  undoubtedly  do — it  is  pretty  evident  there  is  no  such  feel- 
ing in  Cleveland,  which  has  a  similiar  franchise. 

The  CHAIRMAN.  Is  Cincinnati  a  large  manufacturing  city  ? 

Mr.  CULKINS.  Yes. 

The  CHAIRMAN.  And  are  the  unions  strong  there  ? 

Mr.  CULKINS.  Fairly  so.     Not  as  strong  as  they  are  in  other  places. 

The  CHAIRMAN.  Is  there  a  close  relationship  between  the  street- 
car organization  and  other  organized  labor? 

Mr.  CULKINS.  Yes ;  they  are  a  member  of  the  central  labor  council. 

The  CHAIRMAN.  How  do  the  wages  compare  between  the  em- 
ployees of  the  company  and  other  lines  of  industry  ? 

Mr.  CULKINS.  Well,  if  you  regard  conductors  and  motormen  as 
common  labor,  it  is  higher  than  other  branches.  Probably  I  would 
say  a  little  out  of  proportion  upward  as  to  other  lines  at  this  time. 

The  CHAIRMAN.  Now,  you  said  that  the  cost-of-service  plan  is 
popular  in  Cincinnati? 

Mr.  CULKINS.  Yes. 

The  CHAIRMAN.  Do  you  mean  that  plan  is  popular  since  it  results 
in  a  6|-cent  fare  as  compared  with  the  former  franchise  with  the 
same  charge? 

Mr.  CULKINS.  No — do  you  mean  that  it  is  more  popular  at  6| 
cents  than  the  old  franchise  would  have  been  at  5  cents? 

The  CHAIRMAN.  No;  both  at  6£  cents. 

Mr.  CULKINS.  Unquestionably,  because  they  can  see  the  time  when 
this  rate  of  fare  will  be  lower.  Oh,  I  think  there  is  no  question  that 
an  arbitrary  fixing  of  the  rate  of  fare  at  6£  cents  would  have  cre- 
ated a  great  deal  more  disturbance  than  has  been  created  by  this, 
and,  in  fact,  there  has  been  no  disturbance  on  this;  and  I  think  that 
that  is  one  feature  which  must  be  considered  in  connection  with  the 
whole  feature  of  car  riding  under  service-at-cost  franchises — that 
much  of  it  depends  upon  the  psychological  phenomena  that  whether 
a  man,  for  example,  goes  and  pays  20  per  cent  more  to  see  a  moving- 
picture  show  and  thinks  nothing  about  it,  the  picture  shows  aro 
crowded,  but  if  he  feels  half  a  cent  or  a  cent  g^oing  to  a  street-rail- 
way company  is  being  taken  away  from  him  unjustly,  his  resentment 
will  counterbalance  the  question  of  convenience  and  comfort. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      485 

The  CHAIRMAN.  When  the  fare  was  increased  from  5|  to  6  cents, 
were  there  many  demands  for  an  accounting? 

Mr.  CULKINS.  No. 

The  CHAIRMAN.  Or  when  it  was  increased  from  G  to  6^  cents  ? 

Mr.  CULKINS.  No. 

The  CHAIRMAN.  They  were  satisfied  with  your  supervision  ? 

Mr.  CULKINS.  Apparently  so.  In  fact,  I  was  very  much  surprised 
that  there  was  not  a  great  deal  more  of  a  clamor  at  fr|  cents  than 
there  was  at  5^  cents.  Of  course,  the  public  mind  was  pretty  well 
set  for  6  cents  at  the  time  the  franchise  was  adopted,  because  it  was. 
known  the  committee  had  recommended  it,  and  as  an  actual  occur- 
rence, quite  a  number  of  people  offered  a  6-cent  fare  to  the  con- 
ductor under  the  impression  it  was  already  in  effect.  They  were 
rather  set  for  6  cents.  1  expected  there  would  be' considerable  feel- 
ing expressed  at  6i  cents,  but  it  has  not  appeared. 

The  CHAIRMAN.  What  is  the  result  of  your  operation?  You  sug- 
gested, or  at  least  I  inferred  from  your  testimony,  that  you  would 
have  to  put  in  a  7-cent  fare  pretty  soon. 

Mr.  CULKINS.  No;  I  said  I  trust  not.  I  was  afraid  we  might  have 
to.  That  would  depend  upon  whether  or  not  the  increase  in  the  new 
wage  scale  would  be  offset  by  the  increase  in  traffic.  In  the  month  of 
June,  6£  cents  would  have  taken  care  of  the  cost  of  service,  so  we  are 
getting  just  about  to  the  point 

The  CHAIRMAN.  Did  the  population  in  Cincinnati  increase  or  de- 
crease during  the  war? 

Mr.  CULKINS.  Oh,  it  decreased. 

The  CHAIRMAN.  About  how  much? 

Mr.  CULKINS.  Twenty  or  thirty  thousand,  I  would  say.  The  de- 
crease in  revenue  passengers  was  about  5,000,000. 

The  CHAIRMAN.  If  you  had  maintained  your  population,  would 
you  have  operated  favorably  on  the  5-cent  fare? 

Mr.  CULKINS.  The  1917  ordinance,  which  is  the  5-cent  flat  fare 
ordinance,  was  based  on  the  experience  in  1916,  which  showed 
$100,000  margin,  after  paying  what  they  call  the  cost  of  service 
in  this  ordinance,  although  it  was  not  the  same  items,  and  the  coul 
alone  in  1917  more  than  wiped  that  out. 

The  CHAIRMAN.  How  long  had  your  company  been  paying  regu- 
lar dividends  on  its  fixed  charges,  according  to  this  past  year? 

Mr.  CULKINS.  I  don't  know  that,  because  they  have  not  paid  any 
dividends  since  my  connection  with  the  properties.  The  operating 
company  is  not  the  owning  company.  The  property  is  leased  by  the 
Cincinnati  Street  Railway  Co.,  and  is  operated  on  a  leasehold,  by  a 
lease  which  requires  a  rent,  equivalent  to  6  per  cent  on  the  outstand- 
ing capital  stock  of  the  street-railway  company. 

The  CHAIRMAN.  Wherein  does  your  company  have  anything  to 
do  with  the  operation  of  this  plant  ? 

Mr.  CULKIXS.  I  don't  know  that  I  got  your  question,  Mr.  Chair- 
man. 

The  CHAIRMAN.  Well,  you  have  nothing  to  do  with  the  hiring  and 
discharging  of  the  men  for  the  company? 

Mr.  CULKINS.  No:  nothing  at  all. 

The  CHAIRMAN.  You  have  nothing  to  do  with  the  expenditure  of 
its  money  ? 


486      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CULKINS.  Except  that  it  must  be  kept  within  the  budget  al- 
lowance. 

The  CHAIRMAN.  Within  the  budget  allowance? 

Mr.  CULKINS.  Yes — as  long  as  it  is  not  objected  to  as  an  improper 
charge. 

The  CHAIRMAN.  Yet  your  supervision  is  not  to  any  extent  a  check 
upon  the  operation  of  the  company  ? 

Mr.  CULKINS.  Oh,  yes,  in  this  way — that,  in  the  first  place,  there 
must  be  no  expenditures  made  in  excess  of  the  budget  which  is  al- 
lowed to  them. 

The  CHAIRMAN.  Within  that  budget,  they -can  do  anything  they 
like? 

Mr.  CULKINS,  Except  that  we  have  the  right  to  object  to  improper 
expenditures,  which  is  done  through  the  supervision  of  accounting 
and  a  constant  check  on  the  accounting. 

The  CHAIRMAN.  Can  you  place  any  limit  upon  the  salaries  paid? 

Mr.  CULKINS.  The  question  has  never  been  raised.  I  would  think 
I  could  to  an  unreasonable  salary.  I  think  it  would  have  to  be 
manifestly  unreasonable. 

The  CHAIRMAN.  Does  the  ordinance  give  you  that  power? 

Mr.  CULKINS,  It  gives  the  power  to  object  to  the  purpose  of  any 
voucher.  I  would  do  it,  if  there  was  an  increase  of  salary  to  any 
official  which  I  regarded  as  unreasonable. 

The  CHAIRMAN.  What  is  the  highest  salary  paid  there? 

Mr.  CULKINS.  I  don't  recall. 

The  CHAIRMAN.  How  do  the  salaries  go,  generally? 

Mr.  CULKINS.  Well,  they  vary. 

The  CHAIRMAN,  What  is  the  salary  of  the  general  manager? 

Mr.  CULKINS.  I  don't  recall.  I  would  have  to  refer  to  the  pay 
roll. 

The  CHAIRMAN.  Or  the  vice  president, 

Mr,  CULKINS.  As  I  say,  I  do  not  recall  those  salaries. 

The  CHAIRMAN.  If  the  cost-of-service  plan  is  extended  to  all  of 
the  villages  of  Ohio,  will  there  be  anything  for  a  State  regulating 
commission  to  do? 

Mr.  CULKINS.  Yes;  the  supervision  of  securities — the  issuance  of 
securities,  and  of  accounting. 

The  CHAIRMAN,  Now,  when  it  comes  to  the  question  of  account- 
ing, do  you  feel  that  the  inhabitants  of  a  city  would  be  better  satis- 
fied to  Kave  that  left  with  the  city  commission  or  with  the  State 
commission  ? 

Mr.  CULKINS.  That  will  be  a  matter  of  personal  equation  entirely. 
It  would  depend  upon  the  individual.  It  would  depend  upon  their 
confidence  in  the  State  or  their  confidence  in  the  local  official.  There 
is  in  our  city  a  very  strong  tendency  to  resent  outside  influences; 
that  is,  they  would  rather  have  the  thing  done  at  home,  if  possible. 
Now,  that  sentiment  might  be  different  in  other  cities.  I  think  we 
get  a  more  direct  action  through  direct  control  than  we  would  get 
by  going  through  the  form  of  filing  complaints  and  applications 
before  the  public-utilities  commission,  and  having  people  taken  up 
to  the  Capitol,  perhaps,  unless  the  commission  elected  to  hold  hear- 
ings in  the  city. 

The  CHAIRMAN.  In  this  cost-of-service  plan,  you  fixed  the  plan? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      487 

Mr.  CULKINS.  There  was  not  an  appraisement.  This  particular 
ordinance  adopted  the  method  of  valuation  from  the  old  ordinance, 
which  was  invalidated  by  the  Supreme  Court,  with  the  exception 
of  one  item,  because  that  had  been  approved  by  the  vote  of  the 
people,  and  because  the  city  did  not  feel  that  the  year  1918  was  a 
very  good  time  to  make  a  valuation,  particularly  as  our  commis- 
sion had  adopted  the  reproduction  method  of  valuation. 

The  CHAIRMAN.  Well,  does  that  value  remain  the  value  for  all 
time  as  to  that  basis  with  respect  to  extensions  and  betterments? 

Mr.  CULKINS.  Yes;  generally  speaking.  It  is  not  a  specific  val- 
uation. The  company  is  to  pay  interest  on  its  bonds  and  notes  and 
interest  on  the  equipment  notes,,  the  equipment  notes  being  paid  out 
of  operating  expenses,  and  a  flat  allowance  for  this  additional  in- 
vestment of  $416,000. 

The  CHAIRMAN.  That  is  not  a  real  valuation  there? 

Mr.  CULKINS.  Oh,  no. 

The  CHAIRMAN.  Were  you  permitted  to  make  a  valuation? 

Mr.  CULKIXS.  Oh,  yes. 

The  CHAIRMAN,  Suppose  you  did  make  a  valuation  and  found 
that  the  value  of  the  plant  was  considerably  in  excess  of  the  items 
that  you  have  enumerated,  then  what  would  you  do  ? 

Mr.  CULKINS.  The  company  would  be  stuck  then. 

The  CHAIRMAN.  Would  you  be  permitted  to  change  the  con- 
tract then,  inside  of  three  years? 

Mr.  CULKINS.  Not  unless  the  city  elected  to  purchase  from  the 
company. 

The  CHAIRMAN.  On  the  other  hand,  should  it  be  found  that  the 
valuation  was  considerably  less  than  the  items  you  have  enum^ 
crated •. 

Mr.  CUKLINS.  The  city  would  be  stuck  then. 

The  CHAIRMAN.  The  city  would  be  stuck  then? 

Mr.  CULKINS.  Yes. 

The  CHAIRMAN.  So  that  is  a  very  important =- 

Mr.  CULKINS.  Yes;  it  is  very  important. 

The  CHAIRMAN  (continuing).  Question  to  establish  a  physical 
valuation  of  the  property? 

Mr.  CULKINS.  Well,  in  this  case,  it  was  not  a  haphazard  matter 
by  any  means.  It  was  established  as  a  guide  and  compared  with 
the  valuation  made  by  the  public-utilities  commission,  which  ran 
about  $27,000,000,  several  years  ago.  There  was  an  agreed  valua- 
tion under  a  previous  administration  of  $29,000,000,  in  1912,  and 
this  valuation  amounts  to  about  $30,000,000,  and  the  return  is  about 
equivalent  to  6  per  cent  on  that. 

The  CHAIRMAN.  What  tribunal  should  make  the  valuation? 

Mr.  CULKINS.  The  public-utilities  commission. 

The  CHAIRMAN.  The  city  or  State  commission? 

Mr.  CULKINS.  Well.  T  think  the  State  commission  would  prob- 
ably be  the  logical  tribunal  to  make  it.  The  city  has  a  right,  under 
the  constitution,  to  purchase  by  condemnation,  or  the  right  under 
this  plan  to  purchase  by  that  plan,  or  on  the  valuation  prescribed 
by  the  ordinance.  Five  million  dollars  of  this  will  be  wiped  out 
before  the  end  of  the  franchise. 

The  CHAIRMAN.  Did  the  company  express  a  great  necessity  for 
having  tho  value  fixed  upon  its  present  basis? 


488       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CULKINS.  Do  you  mean  to  have  a  valuation  fixed  at  that? 

The  CHAIRMAN.  Upon  the  basis  recognized  in  the  contract. 

Mr.  CULKINS.  I  don't  know  that  that  question  has  come  up  at  all, 
Mr.  Chairman. 

The  CHAIRMAN.  Do  you  believe  that  the  city  will  continue  to  be 
favorably  impressed  with  the  cost-of-service  plan? 

Mr.  CULKINS.  If  rates  do  not  go  too  high,  I  think  they  will. 

The  CHAIRMAN.  What  will  be  the  effect  upon  the  public  mind  if 
the  rates  are  put  to  7  cents? 

Mr.  CULKINS.  I  do  not  think  anybody  can  answer  that  question, 
because  experience  has  been  of  no  value.  The  city  of  Pittsburgh 
went  to  6  cents  and  showed  an  increase  in  gross  receipts,  I  think,  of 
less  than  1  per  cent.  The  city  of  St.  Louis  showed  a  marked  falling 
off  on  the  6-cent  rate.  Other  cities  have  shown  a  falling  off.  It 
seems  to  vary  in  each  community.  It  varies  entirely  in  accordance 
with  the  temperament  of  the  public.  I  do  not  believe  that  any  man 
who  sits  down  and  figures  it,  when  he  is  paying  200  per  cent  for  every- 
thing else,  believes  that  he  is  being  stung  if  his  transporation  rates 
go  up  35  or  40  per  cent ;  but,  as  I  said  before,  there  is  a  psychological 
phase  to  this  whole  question  that  can  not  be  overlooked.  One  city 
will  agree  to  7  cents  and  another  city  will  shove  the  cars  over. 

The  CHAIRMAN.  Is  there  any  relationship  existing  between  the 
company,  their  employees,  and  the  public? 

Mr.  CULKINS.  Between  the  company  and  their  employees? 

The  CHAIRMAN.  Betwreen  the  company,  their  employees,  and  the 
public  ? 

Mr.  CULKINS.  Yes;  I  think  so — probably  a  better  relation  than 
there  wras. 

The  CHAIRMAN.  Do  you  think  that  improved  condition  has  re* 
suited  somewhat  from  your  cost-of -operation  plan  ? 

Mr.  CULKINS.  Yes;  I  do.  I  believe  that  there  is  a  feeling  that  as 
the  public  generally  understands  it  better,  that  they  have  an  interest 
in  the  control  of  the  company  and  its  operations,  and  that  there  is 
going  to  be  a  readjustment  whenever  they  are  entitled  to  it.  That 
has  a  tendency  to  produce  that  state  of  mind. 

The  CHAIRMAN.  Does  the  feeling  that  the  public  has  an  interest  in 
the  control  and  operation  of  the  property  naturally  lead  to  the  other 
feeling  that  they  should  own  the  plant  as  well  as  operate  it? 

Mr.  CULKINS.  Not  so  far.  The  feeling  has  been — and  I  think  the 
general  feeling  in  our  city  is — that  municipal  ownership  would  be 
the  last  thing  to  do;  that  this  will  give  them  all  that  they  would 
have  under  municipal  ownership  and  not  the  obvious  disadvantages 
that  they  would  have.  There  is  not  so  much  talk  about  that  at  all. 
It  is  not  a  live  subject  in  the  city. 

The  CHAIRMAN.  I  believe  you  said  that  the  Government  operation 
of  the  railroads  and  the  telephones  might  have  something  to  do  with 
that  opinion. 

Mr.  CULKINS.  Well,  I  was  thinking  of  that. 

The  CHAIRMAN.  I  have  no  further  questions. 

Commissioner  SWEET.  Has  your  street  railway  in  Cincinnati  any 
outside  lines  ?  Does  it  control  any  interurban  companies  ? 

Mr.  CULKINS.  Well,  only  one  line  is  an  outside  line,  that  is  owned 
by  the  owners  of  the  traction  company.  Some  parts  are  in  the  city 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      489 

and  some  parts  outside;  and  under  this  ordinance  they  are  required 
to  operate  it  as  a  part  of  their  regular  system. 

Commissioner  SWEET.  Does  that  come  under  your  jurisdiction  as 
director? 

Mr.  CULKINS.  In  so  far  as  it  is  within  the  city. 

Commissioner  SWEET.  In  so  far  as  it  is  within  the  city  ? 

Mr.  CULKINS.  Yes,  sir. 

Commissioner  SWEET.  Beyond  the  city  limits  you  have  no  author- 
ity? 

Mr.  CULKINS.  No  authority,  although  the  question  is  not  particu- 
larly raised  on  that,  because  you  can  not  run  a  schedule  to  the  Nor- 
wood line  and  change  it  very  much  beyond  the  Norwood  line. 

Commissioner  SWEET.  Is  that  interurban  or  extension  outside  of 
the  city  limits  paying  or  running  behind? 

Mr.  CULKINS.  It  is  not  paying.  The  interurban  end  of  it  is  not 
paying. 

Commissioner  SWEET.  Are  the  accounts  of  that  company  kept  en- 
tirely separate  from  the  accounts  of  the  other  ? 

Mr.  CULKINS.  They  are  kept  separate,  but  they  are  kept  in  the 
same  office.  The  gross  receipts  from  that  line  become  a  part  of  the 
gross  receipts  under  this  ordinance,  and  the  expenses  of  that  line  pay 
the  expenses  under  the  ordinance;  so  that  it  is  handled  simply  as 
n  part  of  the  general  system,  although  there  is  a  separate  account- 
ing kept,  because  it  belongs  to  the  Ohio  Traction  Co.,  which  is  the 
owner  of  the  Cincinnati  Traction  Co. 

Commissioner  SWEET.  The  people  of  the  city  then,  in  one  sense, 
are  losers  by  reason  of  having  this  outside  line? 

Mr.  CULKINS.  Yes;  the  car  riders  are. 

The  CHAIRMAN.  Yes. 

Mr.  CULKINS.  Although  there  is,  of  course,  a  great  part  of  the 
community  population  of  the  city,  some  of  them  actually  within  the 
city  limits — others  are  within  the  economic  community — who  would 
necessarily  be  served  by  an  extension,  even  though  this  did  not  exist; 
and  that  was  why  it  was  included,  because  it  would  doubtless  have 
to  furnish  service  to  them,  and,  like  all  long  extensions,  you  would 
run  a  pretty  good  risk  of  having  a  losing  line.  Many  of  them  are 
losing,  because  we  have  very  many  long  hauls  in  the  city  which  are 
losing  lines. 

Commissioner  SWEET.  And  there  might  be  a  necessity  for  what- 
ever might  be  directly  lost  in  money,  in  the  fact  of  bringing  the 
business  into  the  city? 

Mr.  CULKINS.  Yes. 

Commissioner  SWEET.  It  would  be  a  benefit  to  the  merchants? 

Mr.  CULKINS.  Unquestionably  the  community  would  get  the  bene- 
fit of  it. 

Commissioner  SWEET.  Were  you  appointed  by  the  mayor  absolute, 
or  did  it  have  to  be  confirmed  by  the  council? 

Mr.  CULKINS.  By  the  mayor. 

Commissioner  SWEET.  He  has  the  power  of  removal  ? 

Mr.  CULKITCS.  At  any  time. 

Commissioner  SWEET.  Have  you  the  commission  form  of  govern- 
ment in  Cincinnati  ? 

Mr.  CULKIXS.  No.  We  have  a  council-and-director  plan.  We  have 
a  council  representative  from  each  ward,  and  six  at  large,  and  the 

1GOG430— 20 32 


490      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

mayor  appoints  the — he  has  the  general  appointing  power.  The 
council  is  limited  to  legislative  duties.  There  is  a  director  of  service, 
a  director  of  safety,  and  a  director  of  street  railways,  which  the 
maA'or  appoints. 

Commissioner  SWEET.  Just  one  from  each  ward,  and  then  six  at 
large? 

Mr.  CULKINS.  Yes. 

Commissioner  SWEET.  And  then  one  joint  body? 

Mr.  CULKINS.  One  joint  body. 

Commissioner  SWEET.  What  was  the  condition  of  the  street-rail- 
way companies  that  led  to  making  this  change? 

Mr.  CULKINS.  Well,  the  franchise  was  open  for  revision.  It  came 
about  logically.  It  was  the  time  to  revise  it. 

Commissioner  SWEET.  I  understand  that.  But  was  it,  like  other 
companies  throughout  the  country,  recognized  to  be  in  rather  bad 
financial  condition? 

Mr.  CULKINS.  There  is  a  question  about  that.  At  the  time  this 
revision  was  passed  it  was  costing  three-quarters  of  a  cent  more 
to  carry  each  passenger  than  was  received. 

Commissioner  SWEET.  That  was  well  understood  in  the  com- 
munity generally? 

Mr.  CULKINS.  I  think  so. 

Commissioner  SWEET.  What  did  the  company  do,  if  anything,  to 
make  the  public  aware  of  its  actual  financial  situation? 

Mr.  CULKINS.  There  was  nothing  done  beyond  these  statements  to 
the  council.  It  issued  a  booklet,  which  was  given  to  the  council, 
and  very  widely  published  in  the  newspapers — general  newspaper 
news  publicity,  not  any  paid  publicity. 

Commissioner  SWEET.  Giving  a  statement  of  the 

Mr.  CULKINS.  A  statement  of  its  condition,  the  financial  condi- 
tion, and  the  reason  therefor,  and  why  it  was  necessary  to  have  an 
increased,  rate  of  fare  in  order  to  live. 

Commissioner  SWEET.  Did  the  council  select  any  auditor  or  ex- 
pert to  go  to  investigate  and  see  whether  that  was  correct? 

Mr.  CULKINS.  Not  other  than  my  department. 

The  CHAIRMAN.  Your  department  had  not  been  created  then, 
had  it? 

Mr.  CULKINS.  Oh,  yes. 

Commissioner  SWEET.  You  had  been  appointed  before  that? 

Mr.  CULKINS.  Oh,  yes.  I  had  been  appointed  the  previous  year, 
on  the  1st  of  January,  and  the  department  was  changed  from  a  sub- 
department  of  the  mayor  to  a  principal  department  of  the  city. 

Commissioner  SWEET.  And  an  accountant  employed  by  you  went 
over  these  figures  to  see  whether  they  were  correct  ? 

Mr.  CULKINS.  Yes. 

Commissioner  SWEET.  And  was  that  understood  by  the  public? 

Mr.  CULKINS.  Yes. 

Commissioner  SWEET.  There  had  not  been  any  serious  dispute? 

Mr.  CULKINS.  Oh,  not  at  all.  During  the  public  hearings  I  think 
one  or  two  came  in  and  suggested  that  outside  accountants  might 
be  brought  in,  or  that  outside  experts  be  brought  in,  but  nothing 
very  serious. 

Commissioner  SWEET.  No  other  public  sentiment  demanding  that  ? 

Mr.  CULKINS.  No. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      491 

Commissioner  SWEET.  At  that  time,  at  the  time  the  change  was 
made  and  immediately  prior  thereto,  had  the  company  been  able  to 
sell  its  bonds  or  induce  any  new  capital  to  become  interested  in  it? 

Mr.  CULKINS.  It  had  not  been  able  to  do  that  for  some  time. 

Commissioner  SWEET.  Has  it  been  able  to  do  it  at  all  since? 

Mr.  CULKINS.  Not  since.  As  a  matter  of  fact,  immediately  after 
the  passage  of  this  ordinance  there  was  a  suit  filed  to  test  its  validity, 
and  that  was  only  decided  a  little  over  a  month  ago.  The  superior 
court  sustained  the  validity  of  the  ordinance. 

Commissioner  SWEET.  Is  there  an  appeal  from  that  ? 

Mr.  CULKINS.  No  appeal  was  taken.  The  time  has  elapsed  in 
which  an  appeal  might  be  taken. 

Commissioner  SWEET.  So  now  you  regard  that  as  conclusive? 

Mr.  CULKINS.  Yes.  Now,  they  can  go  ahead  with  things  they 
might  have  done  some  years  ago,  if  it  had  been  possible. 

Commissioner  SWEET.  I  take  it  from  what  you  have  told  us  that 
the  sentiment  of  what  might  be  called  the  more  intelligent  people 
of  Cincinnati  is  distinctly  favorable  to  this  change. 

Mr.  CULKINS.  I  think  so. 

Commissioner  SWEET.  And  that  from  what  you  might  call  the  less 
intelligent  portion  of  the  community  there  has  been  no  complaint? 

Mr.  CULKINS.  There  appears  to  be  practically  none. 

Commissioner  SWEET.  Have  you  had  any  jitney  opposition  there? 

Mr.  CULKINS.  No;  none  whatever.  The  jitney  was  attempted  in 
Cincinnati  some  years  ago,  and  the  public  just  ignored  it.  A  man 
would  stand  waiting  for  a  street -car,  and  when  a  jitney  rode  by  ready 
to  pick  him  up  and  take  him  down  to  the  station,  he  would  let  the 
jitney  go  by  and  take  the  street-car.  There  are  none  there  now 
at  all. 

Commissioner  SWEET.  How  do  you  account  for  that,  when  you 
have  heard  such  testimony  as  we  have  heard  this  morning? 

Mr.  CULKINS.  I  do  not.  It  is  a  question  of  temperament.  In 
this  whole  transportation  industry,  yon  can  not  tell  what  any  par- 
ticular city  is  going  to  do,  or  know  an}rthing  about  it.  They  just 
don't  want  them  in  Cincinnati,  and  they  don't  like  them. 

Mr.  WARREN.  That  was  before  the  cost-of-service  plan  was 
adopted  ? 

Mr.  CULKINS.  Oh,  yes.    There  has  not  been  anything  since  that. 

Commissioner  MEEKER.  Are  not  your  street-cars  rather  unusually 
efficient  instruments  of  transportation  ? 

Mr.  CULKINS.  Well,  we  would  like  to  think  so.  I  think  they 
should  be  more  efficient  than  they  are. 

Commissioner  SWEET.  Is  there  any  difference  between  vour  cars 
and  those  used  by  the  Bridgeport  Co.,  so  far  as  you  know! 

Mr.  CULKINS.  I  don't  know  what  kind  they  use  in  Bridgeport. 
The  later  type  of  cars  are  very  modern  cars. 

Commissioner  SWEET.  The  pay-as-you-enter  car? 

Mr.  CULKINS.  A  pay-as-yon-enter  car.  Wo  have  some  old  anti- 
quated equipment,  and  that  will  be  got  rid  of  very  soon  now. 
They  are,  building  105  new  cars  now  to  take  the  place  of  a  lot  of 
single-truck  old-type  cars  that  are  obsolete.  Then  we  are  operating 
some  open  curs  which,  under  the  State  law,  will  be  discontinued  this 
year,  the  old  running-board  type  of  cars. 


492      PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Do  you    use  what  they  call  the  safety  car? 

Mr.  CULKINS.  No. 

Commissioner  SWEET.  The  one-man  safety  car  ? 

Mr.  CULKINS.  No ;  we  are  investigating  tnat.  They  have  a  double 
trolley  in  Cincinnati,  and  the  question  was  whether  they  could  be 
operated  there.  That  is  a  matter  which  is  being  investigated  now. 

Commissioner  SWEET.  You  use  the  overhead  trolley  wire? 

Mr.  CULKINS.  Two  of  them — the  double  trolley. 

Commissioner  SAVEET.  Yes;  two  of  them. 

Mr.  CULKINS.  Yes. 

Commissioner  SWEET.  "What  sort  of  power  do  you  use? 

Mr.  CULKINS.  Electricity. 

Commissioner  SWEET.  What  is  that  ? 

Mr.  CULKINS.  Electricity. 

Commissioner  SWEET.  I  mean  how  is  it  generated  ? 

Mr.  CULKINS.  The  company  generates  its  oAvn  power. 

Commissioner  SWEET.  It  has  a  power  plant  ? 

Mr.  CULKINS.  It  has  a  power  plant;  yes. 

Commissioner  SWEET.  Does  it  buy  any  of  its  power? 

Mr.  CULKINS.  Very  little. 

Commissioner  SAVEET.  Dees  it  use  coal  in  the  generation  of  current  ? 

Mr.  CULKINS.  Yes,  sir. 

Commissioner  SAVEET.  I  am  a  little  surprised  at  what  you  say  with 
regard  to  no  new  capital  being  invested.  Under  this  plan,  now,  there 
is  practically  a  guaranteed  return  on  the  investment  ? 

Mr.  CULKINS.  Well,  I  do  not  know  that  I  made  it  clear  that  this 
plan  has  only  been  in  operation  since  last  October,  and  that  up  to  a 
few  months  ago  it  Avas  under  attack  in  the  courts. 

Commissioner  SAVEET.  I  understand. 

Mr.  CULKINS.  Of  course,  you  would  not  be  able  to  issue  any  capital 
as  long  as  the  ordinance  was  under  attack. 

Commissioner  SAVEET.  That  is  very  true.  But  from  what  you  say, 
it  has  been  a  couple  of  months  or  so  since  the  decision  Avas  rendered. 

Mr.  CULKINS.  About  that;  yes. 

Commissioner  SAVEET.  Is  there  a  crying  need  of  neAV  capital  now? 

Mr.  CULKINS.  Yes ;  there  is  a  need  for  neAv  capital. 

Commissioner  SWEET.  But  it  is  a  fact,  as  I  stated  a  moment  ago, 
that,  under  your  statement,  there  would  be  practically  a  guaranteed 
return  on  the  investment? 

Mr.  CULKINS.  It  would  be  a  guaranteed  return,  unless  eventually 
a  rate  of  fare  would  be  reached  that  would  not  produce  increased 
revenue.  That  is  on  the  knees  of  the  gods.  Nobody  knoAvs  whether 
that  Avill  happen  or  not.  That  would  be  the  only  contingency  that  I 
can  see  that  would  prevent  this  from  being  substantially  a  guar- 
anteed return. 

Commissioner  SAVEET.  Is  there  any  difference  in  the  different 
classes  of  expenses  to  which  the  gross  returns  should  be  applied ;  for 
instance,  if  there  should  be  a  falling  off  of  business  so  that  your  gross 
revenues  should  not  be  alloAved  to  take  care  of  the  expenses,  including 
fair  interest  upon  the  investment  ? 

Mr.  CULKINS.  That  has  been  provided  for  in  the  ordinance  by  the 
method  and  arrangement  of  distribution  of  the  gross  receipts:  A, 
operating  expenses,  including  taxes  and  depreciation.  . 

Commissioner  SAVEET.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      493 

Mr.  CULKINS.  B,  rental  of  leased  lines;  C,  what  is  called  the  re- 
ducible debt — that  is,  $5,000,000  of  bonds,  notes,  etc.,  that  will  be 
wiped  out;  D,  return  on  new  capital;  E,  $416,000  further  flat  return 
allowed  to  the  company;  F,  the  City's  $350,000  franchise  tax;  G, 
working  capital,  if  any;  H,  reserve  fund. 

The  result  of  these  two  months  will  show  whether  or  not  it  is 
necessary  to  raise  fares  in  order  to  produce  all  of  those  items.  So  far, 
it  has  not  been. 

Commissioner  SWEET.  Including  the  reserve  fund  ? 

Mr.  CULKINS.  Yes.  Of  course,  the  reserve  fund  will  be  an  overflow 
of  that. 

Commissioner  SWEET.  So  that,  if  there  should  be  a  slight  falling 
off — if  there  should  not  be  quite  enough  revenue,  the  first  thing  to 
suffer  would  be  the  reserve  fund? 

Mr.  CULKINS.  Well,  of  course,  the  reserve  fund  would — 

Commissioner  SWEET.  In  other  words,  that  might  get  nothing? 

Mr.  CULKINS.  Yes;  it  would  get  nothing  on  that  until  there  was 
more  than  enough  to  pay  for  the  cost  of  service. 

Commissioner  SWEET.  Then,  the  next — 

Mr.  CULKINS.  Would  be  the  working  capital,  if  any. 

Commissioner  SWEET.  Return  on  the  capital  originally  invested? 

Mr.  CULKINS.  No ;  the  next  would  be  the  city's  franchise  tax.  Just 
as  it  is  now,  the  money  has  not  been  sufficient  to  come  all  the  way 
down;  of  course,  when  the  reserve  fund  is  once  established  those  de- 
ficiencies will  be  taken  out  of  the  reserve  fund;  and  that  is  just  the 
point  now.  For  the  first  two  months  of  the  ordinance  there  was  not 
sufficient  to  pay  all  of  these  items. 

Commissioner  SWEET.  Yes. 

Mr.  CULKINS.  Therefore,  the  fares  won't  do,  and  they  will  have 
to  go  up.  Unless  in  the  months  of  July  and  August  there  will  be  a 
sufficient  amount  of  money  received  to  pay  from  A  to  F^  inclusive, 
fares  will  have  to  go  up.  If  there  is  a  sufficient  amount  of  them, 
and  there  is  not  going  to  be  a  cent  left  for  the  reserve  fund,  the  fares 
will  not  go  up,  but  the  city  franchise  tax  will  be  lopped  off  first. 
That,  of  course,  is  cumulative,  and  must  be  paid  when  there  is  money 
with  which  to  pay  it. 

Commissioner  SWEET.  The  company,  I  suppose,  like  most  other 
companies,  had  to  issue  bonds? 

Mr.  CULKINS.  Yes. 

Commissioner  SWEET.  At  what  rate  of  interest  on  the  bonds? 

Mr.  CULKINS.  Five  per  cent. 

Commissioner  SWEET.  And  common  stock? 

Mr.  CULKINS.  No;  there  is  no  common  stock  provided  for  under 
this  ordinance. 

Commissioner  SWEET.  It  does  not  say  anything  about  the  common 
stock? 

Mr.  CULKINS.  Unless  they  are  able  to  get  it  out  of  this  incentive 
return — the  additional  return  to  the  road  for  economic  management. 
They  are  allowed  interest  on  the  sinking  fund,  on  the  bonds  and 
notes,  and  interest  on  new  securities,  and  an  amount  which  is  equal 
to  4.87  per  cent  of  the  outstanding  preferred  stock  of  the  Ohio 
Traction  Co.,  which  owns  the  Cincinnati  Traction  Co.  There  is  no 
return  allowed  on  the  common  stock  of  the  Cincinnati  Traction  Co. 


494      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

or  the  common  stock  of  the  Ohio  Traction  Co.,  unless,  from  the  in- 
centive return,  there  is  an  added  return  to  produce  it. 

Commissioner  SWEET.  I  am  not  quite  clear  on  that.  Would  the 
common  stock  come  in  after  the  reserve  fund  that  is  to  be  created,  or 
come  out  of  that?  I  don't  quite  understand  it. 

Mr.  CULKINS.  Perhaps  I  did  not  make  it  plain.  The  return  al- 
lowed are  these  specific  items. 

Commissioner  SWEET.  Yes;  I  understand  that. 

Mr.  CULKINS.  Now,  naturally  the  preferred  stock  would  have  the 
first  claim  on  the  $416,000,  and  then  only  enough  to  pay  less  than 
the  5  per  cent  on  the  preferred  stock. 

Commissioner  SWEET.  Could  the  directors  of  the  company,  the 
management  of  the  company,  have  absolute  control  of  that  and  de- 
vote that  to  any  purpose  that  they  saw  fit  without  your  consent  ? 

Mr.  CULKINS.  Oh,  yes. 

Commissioner  SWEET.  What  is  that? 

Mr.  CULKINS.  Oh,  yes;  I  assume  so,  although  it  is  allowed  as  the 
return  on  the  investment.  I  guess  that  is  a  matter  that  the  stock- 
holders themselves  could  work  out  together.  They  could  defer 
it  if  they  did  not  want  to  apply  it  to  the  dividend,  if  they  saw  fit  to 
use  it  for  other  purposes,  but  the  dividend  is  cumulative. 

Commissioner  SWEET.  If  they  did  not  declare  a  dividend,  it  would 
remain  ? 

Mr.  CULKINS.  I  think  that  would  be  a  matter  between  them  and  the 
preferred  stockholders.  I  do  not  know  anything  about  that.  Now, 
the  reserve  fund  is  the  reservoir  into  which  the  surplus  is  deposited. 

Commissioner  SWEET.  I  understand. 

Mr.  CULKINS.  Now,  if  there  is  not  any  surplus,  there  is  nothing 
that  goes  in  there. 

Commissioner  SWEET.  No.  I  wish  you  would  tell  us  again — you 
explained  it  once,  but  I  did  not  quite  get  a  clear  idea  of  it — with  re- 
gard to  that  reserve  fund  going  up  to  a  certain  point. 

Mr.  CULKINS.  The  reserve  fund  consists  first  of  the  $250,000  pro- 
vided by  that  company.  It  is  the  bumper. 

Commissioner  SWEET.  Yes. 

Mr.  CULKINS.  The  minimum.  Then  into  that  reserve  fund  is 
placed  the  whole  excess  earnings  over  the  cost  of  service. 

Commissioner  SWEET.  Yes. 

Mr.  CULKINS.  That  is,  A  to  F,  inclusive. 

Commissioner  SWEET.  Yes. 

Mr.  CULKINS.  When  that  reserve  fund  reaches  $650,000,  including 
the  amount  put  in  by  the  company,  then  fares  shall  be  reduced  a  half 
a  cent. 

Commissioner  SWEET.  I  see. 

Mr.  CULKINS.  Then  when  it  goes  down  to  $250,000  they  are  to  be 
increase^.  Now,  if  you  want  a  further  explanation  about  the  initial 
return  to  the  company  out  of  that  surplus — 

Commissioner  SWEET.  Yes ;  I  think  we  might  have  that. 

Mr.  CULKINS.  Now,  under  certain  conditions  all  of  the  surplus  in 
excess  of  the  cost  of  service  goes  into  the  reserve  fund.  That  is,  when 
fares  are  more  than  6  cents.  When  fares  are  6  cents  only  80  per  cent 
of  the  surplus  goes  in,  and  the  company  retains  20  per  cent.  If  they 
can  bring  the  fares  down  to  5^  cents  they  would  get  30  per  cent  of  it, 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      495 

and  if  they  can  bring  it  down  to  5  cents  or  under,  they  would  get  45 
per  cent. 

Commissioner  MEEKER.  That  is  not  clear.  The  return  paid  to  the 
company  is  granted  upon  the  valuation  of  the  properties? 

Mr.  CULKIXS.  No ;  rather  upon  an  agreement. 

Commissioner  MEEKER.  Outstanding  capital? 

Mr.  CULKIXS.  Outstanding  capital. 

Commissioner  MEEKER.  That  is  all. 

Commissioner  SWEET.  Just  one  point  further,  Mr.  Culkins.  After 
going  through  the  experience  that  you  have  gone  through  in  Cincin- 
nati up  to  date,  and  realizing,  as  I  have  no  doubt  you  do,  the  general 
problem  now  confronting  the  country,  and  one,  as  you  know,  which  is 
being  considered  by  this  commission  with  the  hope  of  helping,  in 
some  way  or  other,  in  this  serious  situation,  what  suggestion  would 
you  make  as  to  the  proper  remedy  for  the  general  situation?  Do  you 
think  that  it  is  to  go  to  this  service-at-cost  plan  such  as  you  have 
adopted,  with  one  or  two  slight,  changes  that  you  have  made?  Would 
you  recommend  that  the  Cincinnati  plan  be  adopted  generally 
throughout  the  country  ?  Do  you  think  that  would  be  the  best  remedy 
or  do  you  have  any  other  suggestion  to  make? 

Mr.  CULKIXS.  We  do  not  offer  the  Cincinnati  plan  as  any  perfect 
36,  or  anything  of  that  sort,  but  I  believe  the  service-at-cost  plan 
offers  an  opportunity  to  solve  the  whole  question ;  but  as  to  whether 
it  may  require  some  modifications  as  to  the  introduction  of  some 
zoning  system  or  something  of  that  character  is  going  to  depend 
a  good  deal  upon  the  city  or  the  particular  community.  Now,  many 
cities  have  not  had  the  experience  that  Cincinnati  has  had.  I  per- 
sonally believe  it  is  going  to  be  necessary  for  the  companies  to  intro- 
duce every  reasonable  efficiency,  that  the  keeping  of  fares  down 
is  of  vital  importance,  and  that  these  losses  of  traffic  will  not  be  a 
vital  thing,  provided  the  companies  could  live  throughout.  I  think 
that  if  they  could  live  throughout  for  a  year,  or  perhaps  two  years, 
you  would  find  that  the  people  would  become  accustomed  to  it; 
localise  I  think  we  all  have  to  realize  that  this  increase,  just  like 
that  of  any  other  commodit^y  that  is  bought,  is  due  to  a  great  many 
of  the  things  that  you  brought  out  this  morning.  There  is  appar- 
ently an  inherent  prejudice  against  the  public  utilities,  and  the  feel- 
ing of  the  average  man  is  that  a  public  utilh\y  is  making  all  kinds 
of  money.  Anyhow,  and,  of  course,  there  is  the  fetish  of  the  nickel, 
which  unquestionably  was  built  up  by  the  utilities  themselves.  They 
were  taught  that  the  nickel  was  ]ust  right  for  a  street-car  ride,  and 
you  have  to  have  a  lot  of  sentiment  to  make  them  realize  that  the 
question  of  transportation  is  just  like  coffee  or  coal  or  hogs  or 
hominy.  They  can  not  go  and  buy  a  7-cent  pound  of  sugar  for  a 
nickel,  without  running  a  long  chance  for  having  short  weight  or 
having  sand. 

Commissioner  SWEET.  Are  you  personally  interested  in  street- 
railway  stocks  or  l)onds? 

Mr.  CULKIXS.  Not  in  anv  street-railway  stock  or  bonds. 

Commissioner  SWEET.  And  you  make  your  statement  now  as  a 
citizen  ? 

Mr.  CULKINS.  As  a  citizen. 

Commissioner  SWEET.  And  a  representative  of  the  public  of  Cin- 
cinnati ? 


496      PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CULKIXS.  Absolutely. 

Commissioner  SWEET.  I  think  your  views  from  that  standpoint 
ought  to  have  special  weight. 

Mr.  CULKIXS.  I  don't  know  anything  about  that. 

Commissioner  SWEET.  Of  course,  the  matter  of  education — differ- 
ent standards  in  different  communities  do  undoubtedly  exist.  Every 
community  has  certain  characteristics  that  are,  perhaps,  controlled 
by  the  leading  citizens  to  some  extent,  and  by  various  causes  which 
we  can  not  analyze  definitely,  but  that  really  give  communities  an 
identity,  just  the  same  as  individuals  have.  Now,  that  is  oftentimes 
very  largely  controlled  by  the  newspapers  of -the  community;  is  it 
not?  They  have,  perhaps,  more  influence  than  any  other  one  thing. 

Mr.  CULKINS.  There  is  no  question  about  that. 

Commissioner  SAVEET.  What  was  the  attitude  of  the  newspapers  in 
Cincinnati  on  the  question? 

Mr.  CULKINS.  The  newspapers  have  all  been  favorable  to  the  plan. 
I  attribute  that  very  largely — the  lack  of  loss  of  short  haul — to  the 
fact  that  the  newspapers  have  not  been  unfavorable.  If  the  news- 
papers had  given  the  impression  to  the  public  that  this  was  not 
right,  the  ordinary  man  would  have  said,  "  I  won't  do  it;  I  will  walk 
first." 

Of  course,  there  is  another  thing  that  should  be  borne  in  mind 
in  connection  with  this,  because,  as  you  get  away  from  the  nickel, 
your  problem  becomes  greater :  Your  communities  also  differ  in  their 
local  characteristics.  I  do  not  mean  the  sentiment  of  the  people, 
but  in  the  characteristics  themselves.  For  example,  Cincinnati  has 
long  lines,  long  hauls.  It  has  low  density  of  traffic.  Other  towns, 
like  Cleveland,  for  instance,  and  Detroit,  have  high  density  of  traffic. 
They  may  be  perfectly  able  to  get  the  service-at-cost  plan  to  a  point 
where  they  can  haul  passengers  for  a  nickel  and  make  a  profit, 
whereas  Cincinnati  would  be  unable  to  do  it.  There  is  one  of  your 
problems,  because  the  avearage  man  says,  "  If  you  can  do  it  in  one 
town,  why  can  you  not  do  it  in  another  ?  " 

Towns  that  have  a  great  many  short  hauls  and  congested  popu- 
lation can  haul  passengers  at  a  lower  rate  per  passenger;  because, 
after  all,  that  is  the  volume  of  business,  just  as  any  other  line  of 
business  treats  the  cost  of  handling  a  unit. 

Commissioner  SWEET.  Do  you  think  the  service-at-cost  p)an  suffi- 
ciently elastic  to  adapt  itself  to  these  varying  conditions  in  different 
communities? 

Mr.  CULKIXS.  It  must  do  it,  of  course. 

Commissioner  SWEET.  So  it  would  be  peculiarly  appropriate  then 
as  a  sort  of  general  plan,  because  it  would  adapt  itself  to  the  needs 
of  the  community,  which  are  quite  different  in  the  different  com- 
munities. 

Mr.  CULKIXS.  I  think  so;  and  yet  I  think  it  probably  is  well  to 
have  in  mind  that,  in  the  communities  that  have  long  expensive 
hauls  there  may  be  some  question  again  of  making  the  service  on 
those  particular  lines  pay  a  little  more  than  their  share.  Of  course, 
you  are  running  now  into  a  very  large  question — into  that  flat-fare 
question  that  you  had  up  this  morning,  with  the  congestion,  and  so 
forth,  with  which  I  have  not  a  great  deal  of  sympathy. 

Mr.  WARREN.  Your  scale  is  only  a  flat  fare? 

Mr.  CULKINS.  Yes;  we  have  a  flat  fare. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      497 

Commissioner  SWEET.  You  have  never  tried  the  zone  system  ? 

Mr.  CULKINS.  The  zone  system  was  discussed  in  thrashing  out  the 
ordinance.  I  think  I  was  the  only  one  present  to  have  any  sym- 
pathy for  the  zone  system  when  it  was  being  discussed ;  but  there  are 
a  great  many  reasons  why  it  would  have  been  difficult  to  have  placed 
it  in  effect.  It  would  have  taken  time  to  study  it,  and  at  the  same 
time  we  were  anxious  to  have  the  matter  thrashed  out  as  soon  as 
possible.  It  was  suggested  not  only  in  connection  with  the  ordi- 
nance but  the  suggestion  was  made  also  in  connection  with  the  ex- 
tensions. 

The  CHAIRMAN.  Just  a  moment,  Mr.  Culkins.  What  is  the  amount 
of  that  franchise  tax  ? 

Mr.  CULKINS.  $350,000. 

The  CHAIRMAN.  And  what  does  the  railway  pay  for  its  paving 
obligations  in  that  city? 

Mr.  CULKINS.  That  is  supposed  to  take  the  place  of  the  paving 
obligations.  They  are  not  required  to  pave.  That  goes  into  the 
public-service  fund. 

The  CHAIRMAN.  If  you  excluded  the  franchise  tax  and  the  operat- 
ing cost,  you  would  be  able  to  reduce  your  fare  ? 

Mr.  CULKINS.  We  would  not  be  able  to  reduce  it,  but  we  would  be 
able  to  hold  it  where  it  is,  without  any  question. 

The  CHAIRMAN.  Has  any  consideration  been  given  to  that  subject? 

Mr.  CULKINS.  Well,  there  was  discussion  at  the  time  the  franchise 
was  issued;  but  it  was  not  seriously  discussed,  because  it  has  been 
there  so  long  that  no  power  could  have  convinced  the  people  of  Cin- 
cinnati that  to  remove  that  tax  would  not  have  been  taking  the  money 
out  of  their  pockets  and  presenting  it  to  the  traction  company.  The 
cit}T's  financial  system  was  built  around  it.  WTe  have  the  present 
limitation  of  taxes  in  Ohio,  and  the  cities  are  all  bankrupt.  The 
taking  away  of  $350,000  was  a  matter  that  the  council  would  not 
have  agreed  to  in  any  event. 

Commissioner  SWEET.  If  they  had  the  option  of  paying  7  cents  for 
a  ride,  or  simply  paying  this  $375,000  in  the  form  of  a  general  tax, 
which  would  be  more  satisfactory? 

Mr.  CULKINS.  I  think,  Mr.  Chairman,  that  the  car  riders, 'if  you 
ever  get  them  up  to  it,  would  begin  to  then  understand  it  for  the 
first  time.  Of  course,  there  is  no  option  in  it.  It  is  a  part  of  the 
ordinance  now. 

The  CHAIRMAN.  Does  the  cost-of-service  plan  have  any  material 
effect  upon  the  number  of  or  the  amount  of  the  payments  of  judg- 
ment allowed  on  personal-injury  claims? 

Mr.  CULKINS.  There  has  not  been  any  experience  upon  which  to 
make  any  determination  on  that,  Mr.  Chairman.  Our  claim  ratio 
is  pretty  low — less  than  3  per  cent ;  and  I  have  not  noticed  any  par- 
ticular change  in  it. 

The  CMAIRMAN.  Would  it  be  convenient  for  you  to  file  a  sufficient 
number  of  your  franchises? 

Mr.  CULKINS.  I  will  be  very  glad  to  do  so,  or  any  other  informa- 
tion that  may  occur  to  the  commission.  I  would  be  only  too  glad  to 
furnish  it. 

Mr.  WARREN.  Mr.  Culkins,  you  said  that  the  rate  of  wages  was  50 
cents  an  hour? 


498      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CULKINS.  Yes. 

Mr.  WARREN.  How  much  of  an  increase  is  that? 

Mr.  CULKIXS.  Two  cents  an  hour  over  the  award  of  the  War 
Labor  Board. 

Mr.  WARREN.  Have  you  any  idea  what  the  eft'ect  would  be  on  your 
rate  of  fare  if  your  rate  of  wages  went  up  to  62  cents  an  hour,  and 
your  day's  work  reduced  to  eight  hours,  as  has  just  been  done,  ac- 
cording to  the  papers,  in  Boston? 

Mr.  CULKINS.  Oh,  just  roughly,  I  would  say  that  it  would  put  the 
fare  above  8  cents. 

Mr.  WARREN.  Above  8  cents,  instead  of  6|  cents? 

Mr.  CULKINS.  Yes,  sir ;  I  would  say  so,  about. 

Mr.  WARREN.  Do  you  publish  your  cost  of  service  periodically? 

Mr.  CULKINS.  We  have  it  in  the  newspapers.  It  is  not  published 
in  advertising  form,  but  it  is  available  to  the  public  through  my 
office. 

Mr.  WARREN.  That  is  all,  Mr.  Culkins.  Thank  you  very  much. 
Mr.  Chairman,  I  am  going  to  suspend  Mr.  Nash's  cross-examina- 
tion longer,  because  Mr.  Draper  is  here.  He  is  the  operating  vice 
president  of  the  Cincinnati  Co.,  and  I  thought  it  might  be  well  to 
hear  both  the  Cincinnati  sides  at  the  same  time. 

The  CHAIRMAN.  Very  well. 

Mr.  WARREN.  Mr.  Draper,  will  you  take  the  stand? 

STATEMENT  OF  MR.  WALTER  A.  DRAPER. 

Mr.  WARREN.  Your  full  name,  Mr.  Draper? 

Mr.  DRAPER.  Walter  A.  Draper. 

Mr.  WARREN.  Was  I  right  in  saying  that  you  were  the  vice  presi- 
dent? 

Mr.  DRAPER.  Vice  president  of  the  Cincinnati  Traction  Co. 

Mr.  WARREN.  How  long  have  you  been  connected  with  that  com- 
pany, Mr.  Draper? 

Mr.  DRAPER.  Since  1907. 

Mr.  WARREN.  And  how  long  have  you  been  vice  president  of  that 
company  ? 

Mr.  DRAPER.  Since  1913. 

Mr.  WARREN.  You  have  heard  Mr.  Culkins's  testimony? 

Mr.  DRAPER.  I  did ;  yes,  sir. 

Mr.  WARREN.  What  can  you  add  to  his  testimony  regarding  the 
Cincinnati  situation? 

Mr.  DRAPER.  Well,  I  understood  that  one  point  that  was  desired 
to  be  touched  upon  was  the  question  of  the  incentive  to  economical 
operation,  and  knowing  time  was  of  the  essence  here  as  everywhere 
else,  I  have  reduced  to  a  few  pages  what  I  might  say  on  that  sub- 
ject, if  you  will  allow  me  to  read  it. 

Mr.  WARREN.  I  would  be  very  glad  to  have  you  do  that.  Is  that 
based  on  what  Mr.  Culkins  referred  to,  in  part,  the  amount  of  the 
surplus? 

Mr.  DRAPER.  Yes ;  that  is  based  on  the  amount  which  comes  to  the 
company  from  the  amount  that  was  left  over  after  providing  for  all 
the  other  requirements,  and  based  on  what  the  rate  of  fare  may  be. 
In  other  words,  if  it  is  6  cents  or  over,  the  company  gets  nothing. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      499 

NEED    FOR    INCENTIVE    FOR    ECONOMICAL    OPERATION    UNDER    SERVICE-AT- 

COST  FRANCHISES. 

One  of  the  fundamentals  of  the  serviee-at-cost  plan  is  to  arrive  at 
some  figure  that  will  represent  the  return  to  the  company  on  capital 
invested.  This  is  reached  by  ascertaining  the  present  value  of  the 
property,  or  the  actual  cost  of  the  property  and  allowing  a  certain 
rate  of  return  on  such  value.  The  rigid  application  of  this  rule,  how- 
ever, pays  little  or  no  attention  to  the  fact  that  a  return  on  mere 
present  value  or  historical  value  does  not  include  any  consideration 
for  the  risk  originally  undertaken  or  for  the  care,  attention,  labor, 
and  efficiency  bestowed  by  the  company  on  the  development  of  the 
property. 

The  advocate  of  a  fixed  and  rigid  return  will  say  that  by  the  very 
certainty  of  its  being  earned,  which  is  often  erroneously  called  a 
guaranty,  the  company  is  sufficiently  rewarded  and  needs  no  other 
recompense  for  its  years  of  effort  and  endeavor.  It  is  nowadays 
rather  easily  forgotten  that  the  property  was  built  and  developed 
by  capital  mat  was  attracted  to  it  by  the  anticipated  opportunity  of 
making  more  than  a  bare  legal  interest  on  the  investment.  In  fact 
the  investor  himself  has  almost  forgotten  the  happy  days  when  he 
looked  forward  to  the  increasing  value  of  his  property  with  the  de- 
velopment of  the  city  or  county  it  served;  and  as  increasing  costs 
have  left  an  ever-decreasing  margin  between  income  and  operation, 
it  is  considered  the  height  of  kindness  and  generosity  on  the  part  of 
the  municipal  or  other  government  to  allow  a  legal  rate  of  interest 
on  the  bare  bones.  Ought  not  in  all  fairness  an  opportunity  be  given 
the  investor  to  get  a  little  more  by  efficient  operation  out  of  his  money 
that  he  has  risked  in  the  development  of  his  community  than  he  could 
have  gotten  if  he  had  locked  it  up  in  bonds  or  turned  money  broker? 

In  settlements  of  traction  problems  fixing  a  valuation  and  a  return 
the  rate  is  generally  made  as  low  as  the  lowest  legal  rate  of  interest. 
Six  per  cent  is  most  frequently  used.  The  original  investor  certainly 
expected  more  when  he  risked  his  money,  and  money  for  utilities 
can  not  be  borrowed  at  that  rate  very  easily  now ;  and  if  a  low  rate  is 
fixed  in  the  franchise  to  define  the  minimum  return  the  investors 
should  be  encouraged  to  careful  and  economical  operation  by  an  op- 
portunity of  receiving  something  more  if  they  can  earn  it. 

So  much  for  the  ethical  side  of  the  question.  What  of  the  prac- 
tical ?  It  is  true  that  a  servicc-at-cost  franchise  offering  an  almost 
certain  return  makes  it  more  easy,  or  at  least  possible,  to  borrow 
money.  But  bankers  have  always  taken  into  consideration  not  the 
question  whether  a  concern  can  just  live — just  manage  to  make  ends 
meet — but  rather  how  much  margin,  how  much  over  the  bare  living, 
it  can  make.  And  this  question  of  banking  and  getting  new  money  is 
a  vital  one.  Not  only  has  the  question  to  be  solved  as  to  how  street 
railroads  are  to  make  their  operating  expenses,  but  how  they  are  to 
pay  interest  on  borrowed  money  in  the  shape  of  permanent  invest- 
ment or  bank  loans. 

Actual  experience  under  the  Cincinnati  franchise  has  demonstrated 
that  the  banker  begins  to  take  more  interest  when  he  is  shown  that 
in  addition  to  a  fixed  low  interest  rate  that  is  practically  assured  the 
company  can  do  even  a  little  better  by  careful  and  attentive  manage- 
ment. When  it  comes  to  marketing  securities  those  paying  a  fixed 


COO      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

return  of  6  per  cent  will  not  sell  so  well  as  those  that  have  at  least  some 
show  of  paying  a  fixed  return  of  G  per  cent  and  then  something  more. 
But  G  per  cent  is  not  n«w  a  sufficiently  high  return.  If  6  per  cent 
must  be  written  in  the  franchise,  then  let  there  also  be  written  therein 
that  an  additional  1  or  2  per  cent  can  be  earned  by  hard  work.  If 
the  fixed  return  is  just  enough  to  meet  the  dividend  or  interest  on  a 
senior  security,  let  the  possible  additional  return  go  to  the  common- 
stock  holder,  who  under  a  service-at-cost  franchise  is  pretty  apt  to  be 
left  at  the  dock  when  the  boat  pulls  out,  because  there  is  no  room  for 
him.  And  don't  forget  that  the  common-stock  holder  has  played  his 
part,  if  not  the  important  part,  in  the  development  of  street-railroad 
enterprises.  The  senior  security  holder  is  the  banker.  The  common- 
stock  holder  is,  or  was,  the  prospector,  the  pioneer,  the  builder — the 
man  with  the  vision. 

Those  who  operate  street  railroads  have  not  lost,  and  it  is  to  be 
hoped  never  will  lose,  their  ambition  to  operate  as  economically  and 
efficiently  as  possible;  and  yet,  because  we  are  all  still  human,  there  is 
needed  in  addition  to  the  desire  to  make  a  showing  the  spur  of  real 
financial  benefit.  Under  a  rigid  service-at-cost  franchise  the  company 
really  becomes  a  sort  of  clearing  house  for  the  money  it  takes  in.  It 
pays  the  employees,  then  the  tax  gatherers,  and  then  the  senior  security 
holders.  This  takes  its  all.  Justice  and  good  business  sense  dictate 
that  there  should  be  at  least  a  small  commission  paid  for  all  this  work. 
It  wrll  add  zest  to  an  otherwise  flat  existence.  Operating  under  a 
service-at-cost  franchise,  without  some  added  incentive,  would  be  a 
good  deal  like  asking  an  old  gambler  to  play  poker  for  fun  and  not  for 
money. 

It  has  sometimes  been  said  that  a  service-at-cost  franchise  with  a 
purchase  clause  therein  and  complete  city  control  has  all  the  good 
features  of  municipal  ownership  and  none  of  its  bad  ones. 

I  did  not  know  that  I  was  going  to  quote  Mr.  Culkins's  language, 
but  I  think  that  is  what  he  says. 

This  becomes  true  if  there  is  an  incentive  to  careful  management  in 
an  additional  and  contingent  return. 

The  Cincinnati  franchise  provides  that  when  the  fare  is  5  cents  the 
surplus  remaining  after  all  requirements  are  met  shall  be  divided— 
f>5  per  cent  to  the  reserve  fund  and  45  per  cent  to  the  company.  When 
the  fare  is  5|  cents  the  division  shall  be  70  per  cent  to  the  surplus 
fund  and  30  per  cent  to  the  company,  and  when  the  fare  is  6  cents  the 
division  shall  be  80  and  20  per  cent,  respectively.  When  the  fare  is 
over  G  cents  the  company  gets  nothing.  This  plan  falls  short  of  pro- 
viding a  proper  incentive,  because  if  the  fare  goes  above  6  cents  there 
is  no  additional  return  to  the  company  beyond  the  fixed  minimum. 
A  more  efficacious  plan  would  be  to  allow  some  additional  return  at 
all  times — larger  as  the  operating  expense  is  kept  down,  smaller  as 
the  operating  expense  increases.  Even  as  it  stands  the  company  has 
an  incentive  to  operate  efficiently  and  economically,  since  by  keeping 
the  fares  down  it  will  receive  a  bonus,  which  can  be  given  the  com- 
pany's common-stock  holders,  who  otherwise  are  cut  off  under  the 
franchise  like  a  disinherited  child. 

There  is  another  potent  argument  for  providing  this  incentive, 
and  that  is  the  tendency  of  the  public  to  feel  that  if  the  company  is 
practically  guaranteed  a  certain  return  and  can  get  no  more,  it  will 
be  indifferent  to  how  high  operating  costs  and  fares  may  go,  and 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      501 

will  readily  "  pass  the  buck  "  to  the  city  in  matters  of  higher  wages 
or  any  other  element  likely  to  affect  fares  on  the  very  comfortable 
theory 'of  "Why  should  we  care?  Let  the  men  get  higher  wages 
so  long  as  the  car  rider  pays." 

In  a  recent  discussion  of  the  wage  question  with  our  employees, 
the  main  interest  the  public  took  in  the  matter  was  whether  we 
wouldn't  give  in  without  much  pressure,  because  it  would  all  go 
into  the  rate  of  fare.  In  fact,  some  people  declared  that  we  were 
in  league  with  our  men  to  get  the  rate  of  fare  up  and  hold  it  there 
through  their  asking  for  higher  wages  and  our  quickly  granting 
the  demand.  When  they  were  informed  that  it  was  to  our  interest 
to  keep  fares  below  6  cents,  as  we  would  then  receive  an  additional 
allowance,  they  saw  things  differently. 

I  have  spent  much  time  and  vigorous  language  in  advising  against 
a  certain  extension  to  a  remote  suburb,  but  my  talk  was  taken  as 
all  buncombe,  and  received  with  the  question :  "  Why  do  you  care 
as  long  as  we  will  pay  for  it?"  until  I  mentioned  the  fact  that 
we  were  interested  in  a  financial  way  by  getting  more  money  in  our 
own  hands  if  we  kept  the  fare  down.  It  is  all  very  well  for  street- 
railway  officials  to  argue  against  unwarranted  expenditures  on  the 
ground  that  it  will  make  the  public  pay  higher  fares,  but  it  only  puts 
this  same  public  to  the  task  of  trying  to  find  some  other  motive  than 
regard  for  its  welfare.  If  told  that  it  is  financially  to  the  interest 
of  the  company,  the  motive  is  apparent,  the  mystery  is  no  longer  a 
mystery  and  the  public  is  satisfied.  The  people  have  too  long  looked 
upon  the  utility  as  having  no  regard  for  their  welfare  to  think  of  it 
at  once  as  an  unselfish,  sympathetic  benefactor.  They  want  some- 
thing that  they  can  comprehend.  In  the  Cincinnati  Enquirer  of 
June  12  appeared  an  editorial  on  a  strike  in  one  of  our  large  cities. 
It  contained  the  -following  language: 

THE    PUBLIC    BE — IGNORED. 

The  paralysis  of  the  public  service  is  becoming  more  and  more  fashionable 
as  a  forcible  argument  for  the  increase  of  the  corporation's  income  and  the 
payment  of  wages. 

*  *  *  furnished  the  latest  illustration  of  this  tendency.  Transportation 
arbitrarily  was  denied  three-quarters  of  a  million  people  because  the  city 
council  had  declined  to  amend  the  street-railway  ordnance  in  compliance  with 
the  demands  of  the  employees.  The  operating  company,  faced  with  requests 
for  increased  wages,  promptly  transferred  the  burden  to  the  municipal  govern- 
ment, which  was  the  same  as  passing  along  the  increase  to  the  patrons  of  the 
service. 

If  there  were,  in  the  city  referred  to,  a  service-at-cost  franchise 
and  a  clause  therein  providing  a  premium  on  efficient  and  economical 
management  as  reflected  by  the  rate  of  fare,  could  this  complaint 
have  been  penned?  Moreover,  would  not  the  company  have  more 
reason  to  consider  much  more  carefully  the  merits  of  the  case  instead 
of  merely  " passing  the  buck,"  even  if  it  were  inclined  to  do  so? 

Such  an  added  incentive  could  be  provided  in  many  ways,  either 
by  dividing  a  surplus  over  requirements  as  in  the  Cincinnati  fran- 
chise, or  an  addition  of  1  or  2  per  cent  to  the  fixed  minimum  return. 
In  all  cases,  however,  it  should  be  made  to  depend  upon  the  com- 
pany, not  how  well  it  is  liked  or  the  degree  of  Christian  fortitude 
with  which  officials  bear  public  criticism,  but  upon  actual  tangible  re- 
sults obtained  in  successful  operation.  The  best  test  would  be  pro- 


502      PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

vicled  by  fixing  the  added  return  inversely  on  the  rate  of  fare,  but 
allowing  something,  no  matter  what  the  fare  may  be. 

Mr.  WARREX.  Mr.  Draper,  does  your  franchise  have  any  provision 
for  changing  the  measure  of  the  scale?  As  I  understood  Mr.  Gui- 
ld ns,  it  has  a  scale  based  on  a  flat  rate  of  fare. 

Mr.  DRAPER.  Yes ;  there  is  no  provision  for  a  change  unless  the  city 
avails  itself  of  the  opportunity  of  again  revising  the  franchise  in 
1931. 

Mr.  WARREX.  There  is  nothing  in  connection  with  it,  except  by 
agreement  ? 

Mr.  DRAPER.  No. 

Mr.  WARREX.  The  last  thing  Mr.  Culkins  said  as  he  left — and  I 
would  like  your  judgment  on  that  also — was  that  if  the  Boston  wage 
scale,  which  had  just  been  settled  by  arbitration  at  62  cents  an  hour, 
and  the  Boston  hours  of  work  of  8  hours  per  day  were  introduced 
in  Cincinnati,  it  would  probably  send  the  cost  of  service  up  to  about 
8  cents  per  passenger.  Did  you  hear  that? 

Mr.  DRAPER.  Yes;  I  heard  that.- 

Mr.  WARREX.  You  think  that  is  about  right? 

Mr.  DRAPER.  It  is  rather  hard  to  estimate.  I  do  not  know  what 
the  8  hours  would  mean,  but  I  think  if  the  fare  was  as  high  as  it 
would  go  under  existing  conditions  at  the  present  time,  it  would  run 
it  to  about  7.5  cents. 

Mr.  WARREX.  If  your  present  6.5  cents  is  paying  the  cost  of  service 
at  the  50-cent  wage  scale? 

Mr.  DRAPER.  Yes. 

Mr.  WARREX.  Do  you  think  the  62-cent  wage  scale,  if  not  affected 
too  much  by  the  8  hours,  would  be  met  by  the  7.5  rate? 

Mr.  DRAPER.  I  think  so. 

Mr.  WARREX.  Now,  suppose  the  7.5  cent  rate  did  not  meet  it,  or 
suppose  the  scale  of  wages  went  substantially  higher  than  62  cents — 
I  believe  in  Chicago  they  are  asking  87  cents,  are  they  not? 

Mr.  DRAPER.  Eighty-five  cents,  I  think. 

Mr.  WARREX.  Eighty-five? 

Mr.  DRAPER.  Yes. 

Mr.  WARREX.  Is  there  any  way,  then,  in  which  you  could  substi- 
tute some  different  method  of  collecting  the  fare,  or  some  method 
which  would  be  related  to  the  distance  that  the  passenger  rode,  for 
example  ? 

Mr.  DRAPER.  Only  by  amending  the  present  franchise. 

Mr.  WARREX.  And  that  can  only  be  by  agreement  between  the  com- 
pany and  the  city? 

Mr.  DRAPER.  Yes. 

Mr.  WARREX.  Do  you  think  the  method  which  you  have  of  increas- 
ing the  income  of  the  company,  in  case  of  making  a  reduction  in  the 
rate,  furnishes  a  sufficient  inducement  ?  How  does  it  work  out  finan- 
cially, in  other  words? 

Mr.  DRAPER.  Financially,  of  course,  up  to  the  present  time,  it  has 
not  worked  at  all. 

Mr.  WARREX.  At  present  it  all  goes  into  the  reserve  fund? 

Mr.  DRAPER.  No ;  it  does  not  even  reach  the  reserve  fund ;  but  if  it 
reached  the  reserve  fund  under  the  6.5  cents  there  would  not  be  any 
division  at  all. 

Mr.  WARREX.  It  would  all  go  into  surplus  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      503 

Mr.  DRAPEB.  It  would  all  go  jnto  surplus. 

Mr.  WARREN.  At  6  cents  there  would  be  20  per  cent  of  the  amount 
otherwise  going  into  the  surplus  going  into  the  treasury  of  the  com- 
pany ? 

Mr.  DRAPER.  That  is  true,  if  it  reached  that. 

Mr.  WARREN.  How  much  that  would  be  would  depend  upon  your 
fare? 

Mr.  DRAPER.  Yes,  sir;  you  can  not  fix  a  rate  that  will  be  just 
enough  to  be  $20,000  too  much. 

Mr.  WARREN.  But  if  there  is  enough  to  bring  the  reserve  fund  up 
to  $650,000,  then  the  rate  automatically  goes  down  ? 

Mr.  DRAPER.  The  rate  goes  down.  If  it  builds  your  reserve  fund 
up  to  $650,000  in  a  certain  period,  and  is  $20,000  in  excess  on  a 
6-cent  fare,  we  get  $5,000  out  of  it,  or  20  per  cent— $4,000. 

Mr.  WARREN.  That  does  not  seem  to  be  very  much. 

Mr.  DRAPER.  Well,  it  is  not  much  of  an  incentive. 

Mr.  WARREN.  Did  you  consider  at  all,  or  would  you  think  it  worth 
recommending,  to  share  the  savings,  if  there  were  any,  between  the 
company  and  employees — a  saving  on  the  budget? 

Mr.  DRAPER.  I  do  not  quite 

Mr.  WARREN.  In  Mr.  Culkins's  testimony,  the  company  submits 
the  budget  45  days  before  the  beginning  of  the  new  year.  That 
is  the  calendar  year,  I  presume. 

Mr.  DRAPER.  Yes. 

Mr.  WARREN.  And  that  budget  has  to  be  approved  by  the  director 
of  street  railways  ? 

Mr.  DRAPER.  That  is  true. 

Mi\  WARREN.  He  intimated  that  thus  far,  I  think,  you  were  living 
within  the  budget? 

Mr.  DRAPER.  That  is  true. 

Mr.  WARREN.  Now,  suppose  you  get  through  the  year  with  a  sav- 
ing of  $100,000  on  that  budget,  would  it  be  any  more  of  an  incentive 
if  that  amount,  $100,000,  were  to  go  to  the  company  or  to  go  to  the 
company  and  the  men,  or  be  distributed  in  some  other  way  and  not 
go  into  the  reserve? 

Mr.  DRAPER.  Yes;  I  would  say  that  that  would  be  an  additional 
incentive.  We  found,  however,  if  that  would  be  used  in  any  way 
to  induce  the  men  to  accept  a  lower  flat  wage  in  anticipation  of  a 
possible  additional  return,  that  they  would  not  receive  it  very 
enthusiastically. 

Mr.  WARREN.  They  do  not  care  for  the  contingency  in  it? 

Mr.  DRAPER.  No ;  they  want  to  be  sui-e  of  what  they  get. 

Mr.  WARREN.  They  do  not  like  to  live  on  what  was  referred  to 
here  the  other  day  with  reference  to  some  of  the  securities  as 
"hopes"? 

Mr.  DRAPER.  No;  they  do  not  care  to  live  on  what  the  street  rail- 
ways would. 

Mr.  WARREN.  Perhaps  they  have  been  in  the  business  too  long  and 
would  not  want  to  live  on  the  street  railway's  "  hopes." 

Mr.  DRAPER.  Well,  they  have  been  in  the  business  a  long  while; 
that  is  true. 

The  CHAIRMAN.  Is  that  the  hopes  of  the  holder  of  common  stock 
in  your  company! 


504      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  DRAPER.  The  holder  of  the  common  stock  has  apparently  no 
hopes  left. 

Commissioner  SWEET.  That  was  his  attitude  several  years  ago. 

Mr.  DRAPER.  When? 

Commissioner  SWEET.  Quite  a  number  of  years  ago  that  was  his 
attitude. 

Mr.  DRAPER.  He  had  hopes  then;  yes.  This  franchise  has  given 
our  common  stockholders  some  hope.  You  can  see  how  vague  the 
hope  is  from  the  fact  that  if  your  surplus  goes  down  to  about  $20,000 
in  excess,  they  will  get  $4,000  on  the  6-cent  fare. 

The  CHAIRMAN.  What  is  the  amount  of  the  common  stock  ? 

Mr.  DRAPER.  $7,500,000. 

The  CHAIRMAN.  How  much  money  actually  went  into  the  property 
from  the  sale  of  that  common  stock  ? 

Mr.  DRAPER.  That  is  a  little  hard  to  tell,  because  of  the  fact  that 
the  company  also  invested  some  money  in  the  building  that  is  occu- 
pied by  the  officers. 

The  CHAIRMAN.  Well,  can  you  approximate  the  amount  that  went 
into  the  plant  of  that  $7,500,000  common  stock? 

Mr.  DRAPER.  The  $7,500,000  common  stock  and  the  preferred  were 
both  used.  The  preferred  was  sold  at  a  discount,  and  the  common 
block  practically  took  up  that  discount.  I  don't  know 

The  CHAIRMAN.  This  common  stock  is  technically  called  the 
"•  hope  "  stock  ? 

Mr.  WARREN.  That  is  about  what  it  is;  yes. 

The  CHAIRMAN.  That  is  all. 

Commissioner  GADSDEN.  Mr.  Draper,  you  did  not  intend  to  give 
the  impression  to  the  commission  that  you  think  that  there  is  any- 
thing inherently  opposed  to  the  interest  of  the  common  stockholder 
in  the  service-at-cost  plan,  do  you? 

Mr.  DRAPER.  No;  I  should  say  under  this  franchise  he  is  given 
some • 

Commissioner  GADSDEN.  But  the  service-at-cost  plan  is  theoreti- 
cally based  upon  the  investment,  is  it  not? 

Mr.  DRAPER.  The  service-at-cost  plan  presupposes  some  sort  of  a 
valuation,  either  made  or  agreed  upon. 

Commissioner  GADSDEN.  If  the  common  stock  represents  real 
value,  is  there  any  more  reason  why  he  should  not  be  taken  care  of 
under  the  service-at-cost  plan  than  the  owner  of  the  preferred  stock  ? 

Mr.  DRAPER.  If  it  represents  real  value,  it  would  have  to  be  taken 
care  of. 

Commissioner  GADSDEN.  Exactly.  You  did  not  want  this  com- 
mission to  understand  that,  as  a  general  proposition,  the  common- 
stock  holders  in  this  industry  had  given  up  hope  that  the  common 
stock  will  be  of  real  value? 

Mr.  DRAPER.  No;  absolutely.  I  say  our  common  stock  has  this 
additional  interest  in  the  building,  but,  so  far  as  the  street-railway 
business  is  concerned,  they  have  not  been  very  much  encouraged  in 
the  last,  few  years,  and  this  franchise  gives  them  some  additional 
hope. 

The  CHAIRMAN.  Does  your  common  stock,  separate  from  the  pre- 
ferred stock,  ever  have  a  market  value? 

Mr.  DRAPER.  Yes ;  it  is  sold  in  the  local  stock  market. 

The  CHAIRMAN.  What  is  the  highest  price  that  it  has  sold  fqr? 


PiiOCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      505 

Mr.  DRAPER.  I  think  it  sold  for  about  52. 

The  CHAIRMAN.  What  is  it  worth  now? 

Mr.  DRAPER.  It  is  quoted  at  20. 

Mr.  WARREX.  Mr.  Draper,  how,  under  your  service-at-cost  plan, 
can  there  be  any  return  on  that  common  stock? 

Mr.  DRAPER.  Under  this  plan  there  can  be  only  a  return  on  the 
common  stock  in  case,  in  the  first  place,  the  fare  can  go  down  again 
to  6  cents,  and  then  they  get  a  share  in  the  excess  over  the  amount 
necessary  to  take  care  of  the  requirements. 

Commissioner  GADSDEX.  If  you  could  get  your  fare  back  to  5 
cents  your  common  stock  would  be  worth  some  money,  would  it  not  ? 

Mr.  DRAPER.  Yes;  the  common  stock,  on  $20,000,  as  I  illustrated 
a  while  ago,  would  get  nearly  half. 

Commissioner  GADSDEX.  Yes. 

Commissioner  SWEET.  If  the  general  prices  throughout  the  coun- 
try should  drop  to  the  same  level  as  they  were  in  191-1,  we  will  say, 
so  that  a  nickel  was  worth  5  cents  instead  of  being  worth  2.5  or  3 
cents,  the  common  stock  in  your  company  would  be  worth  more 
than  50  cents  on  the  dollar,  would  it  not  ? 

Mr.  DRAPER.  It  might.  There  is  this  to  be  taken  into  considera- 
tion: that  if  we  could  return  to  former  conditions  on  the  following 
scale,  and  we  cut  down  the  scale,  there  would  be  a  much  larger 
accumulation  into  the  reserve  fund. 

Commissioner  SWEET.  Now,  if  I  understand  3rou  right,  Mr.  Draper, 
your  position  is  this:  that  there  are  certain  things  in  the  arrange- 
ment made  in  Cincinnati  that  you  think  might  be  improved,  from 
the  standpoint  of  the  stockholders  of  the  company  ? 

Mr.  DRAPER.  Yes. 

Commissioner  SWEET.  But  I  do  not  understand  you  to  express  any 
disapproval  of  the  system  under  which  you  are  operating,  the  service- 
at-cost  system? 

Mr.  DRAPER.  No;  I  think  not. 

Commissioner  SWEET.  But  if  the  amendments  which  you  think 
should  be  made  were  made,  you  would  regard  it  as  pretty  nearly 
an  ideal  arrangement;  is  that  right? 

Mr.  DRAPER.  Well,  in  regard  to  this  one  thing.  There  are  two 
or  three  other  things  that  we  would  like  to  have  different;  but  let 
me  answer  your  first  question. 

Commissioner  SWEET.  Yes. 

Mr.  DRAPER.  And  say  this 

Commissioner  SWEET.  Yes. 

Mr.  DRAPER.  That  this  incentive,  this  division,  that  might  remain 
after  the  requirements  are  taken  care  of,  was  one  of  the  things  that 
we  discussecl  more  than  any  other  one  point  with  the  city.  We  in- 
sisted that  there  should  be  some  consideration  given,  no  matter  what 
the  rate  of  fare  was;  that  if  the  rate  of  fare  went  up,  it  was  not 
our  fault,  under  this  plan,  but  it  was  due  to  conditions,  and  that 
we  were  entitled  to  consideration  with  a  high  rate  of  fare,  the  same 
as  we  were  with  a  low  rate  of  fare,  at  least  something;  but  in  order 
that  we  might  be  given  this  spur  to  try  to  get  faros  down  by  economi- 
cal operation,  we  recognized  the  fairness  of  getting  less  in  case  tho 
fare  was  high  than  we  would  get  in  case  the  fare  was  low. 

As  to  other  points  in  the  franchise,  we  felt  that  the  matter  of 
the  budget  is  something  that  is  a  little  more  theoretical  than  we 
1GOG430— 20 33 


506       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

would  like  to  see  it.  It  is  almost  impossible  to  anticipate  as  far 
ahead  as  we  ha.ve  to  under  this  franchise  what  our  expenditures 
are  going  to  be. 

Commissioner  SWEET.  But  there  is  some  elasticity  in  that,  as  ex- 
plained by  Mr.  Culkins,  is  there  not? 

Mr.  DRAPER.  There  is  some  elasticity,  but  notwithstanding  that 
there  is  a  feeling  on  the  part  of  the  director  and  city  administration 
that,  by  the  very  fact  that  we  are  asking  for  an  additional  allow- 
ance, we  are  not  operating  quite  as  economically  and  carefully  as 
we  should,  unless  it  does  have  some  specific  thing — take,  for  example, 
the  increase  in  wages.  Of  course,  you  can  measure  that  very  ac- 
curately. 

Commissioner  SWEET.  Are  there  any  objections  now  that  you  have 
to  the  arrangement  that  you  have  made  with  the  city  ? 

Mr.  DRAPER.  None  vital;  no. 

Commissioner  GADSEX.  What  about  the  limited  time  as  against 
the  indeterminate? 

Mr.  DRAPER.  We  could  scarcely  avoid  that. 

Commissioner  GADSEN.  But  if  you  were  drawing  another  one. 
That  is  what  Commissioner  Sweet  wants  to  know. 

Mr.  DRAPER.  The  Ohio  law  is  not  such  as  will  allow  the  exchange 
of  a  term  franchise  for  an  indeterminate  franchise.  If  it  were,  we 
would,  of  course,  prefer  the  indeterminate. 

Commissioner  SWEET.  But  these  matters  that  you  speak  of  now  by 
way  of  criticism  relate  to  detail  in  the  arrangement  that  might 
easily  be  avoided  in  another  city,  for  instance.  For  instance,  if  it 
should  adopt  the  service-at-cost  plan,  the  whole  arrangement  with 
regard  to  the  reserve  fund,  with  regard  to  the  various  points  of  which 
the  company  should  get  a  part  of  the  earnings,  could  all  be  changed 
as  a  matter  of  detail,  and  you  did  try  to  get  certain  things  dif- 
ferent from  what  you  did  get? 

Mr.  DRAPER.  That  is  true. 

Commissioner  SWEET.  Now,  in  another  city,  the  company  might 
get  the  very  things  that  you  tried  to  get  and  failed  to  get,  but  with 
those  details  somewhat  changed,  you  think  exceedingly  well  of  the 
system ;  is  not  that  correct  ? 

Mr.  DRAPER.  We  think  very  well  of  it,  with  the  exception  of  the 
details,  which  you  might  call  local  details,  and  which  are  not  funda- 
mental. For  example,  starting  at  5  cents.  While  we  agreed  to  that, 
that  was  purely  and  solely  to  try  to  satisfy  a  group  that  was  bent 
on  taking  the  matter  before  the  people  for  another  vote. 

Commissioner  SWEET.  Yes. 

Mr.  DRAPER.  The  principles  of  this  had  already  been  voted  upon 
at  a  previous  election,  and  the  only  change  that  was  made  was  a 
change  really  dictated  by  the  Supreme  Court,  saying  that  we  could 
not  carry  out  a  certain  form.  That  was  purely  a  local  condition, 
howevei. 

Commissioner  SWEET.  Yes. 

Mr.  DRAPER.  That  might  not  come  up  in  another  city. 

Commissioner  SWEET.  So  that  this  afternoon  we  had  Mr.  Culkins's 
statement  representing  the  city,  and  without  any  personal  interest  in 
the  company  whatever,  favorable  to  the  service-at-cost  plan ;  and  wo 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION".      507 

have  your  statement,  from  another  standpoint,  so  far  as  the  general 
principles  involved  in  the  plan  are  concerned 

Mr.  DRAPER.  You  are  safe  in  saying  that;  yes,  sir. 

Commissioner  GADSDEX.  Mr.  Draper,  what  solution  to  this  prob- 
lem occurs  to  you,  other  than  the  service-at-cost  planJ 

Mr.  DRAPER.  You  mean  a  permanent  solution? 

Commissioner  GADSDEX.  Yes;  of  the  industry. 

Mr.  DRAPER.  The  only  other  solution  that  I  can  see  is  to  give  the 
State  commission  such  power  that  it  can  regulate  fares  from  time 
to  time  as  the  necessity  would  require. 

Commissioner  GADSDEX.  Do  you  think  that  is  going  to  restore 
the  credit  of  this  industry  ? 

Mr.  DRAPER.  It  would  not  immediately.  It  would  tend  very  largely 
to  do  so,  just  as  the  fact  that  this  franchise  was  dead  helped  us  very 
materially.  It  did  not  help  us  to  finance,  because  the  matter  was 
tried  out  in  the  courts,  but  it  enabled  us  to  borrow  money  for  certain 
things  that  we  had  to  do. 

Commissioner  GADSDEX.  Here  is  the  thought  that  I  wanted  to  bring 
out:  Whether  you  entertained  the  view  that  some  of  them  enter- 
tained, and  testified  to  before  the  commission,  that  the  alternative 
presented  to  the  industry  at  this  time  in  order  to  permanently  restore 
its  credit  is  either  some  well  worked  out  service-at-cost  plan  or 
municipal  ownership? 

Mr.  DRAPER.  You  say  it  would  restore  its  credit? 

Commissioner  GADSDEX.  I  asked  you  whether  you  think  there  is 
any  other  alternative  besides  those  two. 

Mr.  DRAPER.  I  say,  if  you  give  the  public-utilities  commission 
power  to  regulate  rates  as  the  necessity  would  require,  you  would 
restore  its  credit,  if  you  were  assured  that  it  could  be  worked  out. 

Commissioner  GADSDEX.  Why,  then,  do  we  find  companies  operat- 
ing in  States  where  the  public-service  commissions  have  full  powers 
in  just  as  bad  shape  as  the  others? 

Mr.  DRAPER.  Well,  as  I  say,  because  it  does  not  work  out.  The 
theory  is  all  right,  but  it  is  pretty  hard  to  get  at  in  practice.  If  you 
fix  something  that  is  automatic,  as  the  cost-of-service  plan,  then  you 
have  it  settled.  You  do  not  have  to  depend  upon  a  human  agency 
at  all. 

Commissioner  SWEET.  But  the  important  element  in  this,  which 
everybody  agrees  to,  is  public  approval.  If  the  people  of  Cincinnati 
Were  not  favorable  to  this  scheme,  it  is  easily  conceivable  that  your 
income  might  have  failed  to  show  any  increase  of  gross  revenue  by 
making  an  increase  of  fare.  The  fooling,  as  in  some  other  places, 
might  have  been  such  as  to  fully  offset  the  increase  in  the  gross 
revenues  that  might  be  expected  from  an  increase  of  fare;  is  not 
that  true? 

Mr.  DRAPER.  That  is  true. 

Commissioner  SWEET.  So  that  public  sentiment  has  a  groat  deal 
to  do  with  it,  has  it  not? 

Mr.  DRAPER.  It  has.  In  our  case,  we  wore  very  careful  to  jyive  the 
public  and  those  who  wore  authorized  to  secure  information  tho 
fullest  possible  opportunity  that  they  could  have. 

Commissioner  SWEET.  Tlon't  you  think  that  in  any  servioc-at-oost 
plan  there  is  something  that  appeals  to  tho  public,  makes  it  easier 


508      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

to  convince  the  public  as  to  the  need  of  the  increased  fare,  and  has 
a  tendency  to  allay  suspicions  and  prejudices?  Don't  you  think 
there  is  something  in  that  ? 

Mr.  DRAPER.  Undoubtedly.  There  are  two  things.  In  the  first 
place,  it  appeals  to  them  as  fair,  and,  in  the  second  place,  the  fact 
that  the  city  can  not  only  control  the  situation,  but  can  come  in  and 
determine  what  the  situation  is,  appeals  to  them. 

Commissioner  SWEET.  Yes. 

Mr.  DRAPER.  That  was  our  experience  in  conducting  the  negotia- 
tions. 

The  CHAIRMAN.  Are  you  familiar  with  the  effect  that  the  war  has 
had  upon  the  rates  of  service  of  similar  utilities  in  European 
countries? 

Mr.  DRAPER.  No;  I  am  not,  Mr.  Chairman. 

The  CHAIRMAN.  You  have  said  that  you  favor  the  cost-of-service 
plan  with  a  few  modifications.  One  of  them  which  you  have  em- 
phasized is  that  the  city  has  real  control  over  the  management  and 
supervision  of  the  industry.  What  is  your  relation  to  Mr.  Culkins? 

Mr.  DRAPER.  Our  relations  with  Mr.  Culkins  are  very  friendly.  He 
has  been  in  public  life  in  Cincinnati  for  a  good  many  years,  and  he 
had  the  confidence  of  the  people  at  large  before  he  took  the  position. 
He  conducted  negotiations  in  the  second  revision.  First,  as  I  ex- 
plained before,  by  reason  of  the  fact  that  it  was  declared  unconsti- 
tutional, and  having  to  work  it  out,  he  became  thoroughly  familiar 
with  it,  and  giving  pretty  full  information  on  it  to  the  public,  they 
felt  that  it  was  fair,  and  it  started  us  off  on  the  right  basis. 

The  CHAIRMAN.  He  has  as  broad  powers  as  those  usually  enjoyed 
by  State  regulating  commissions,  over  both  your  service  and  other 
matters  ? 

Mr.  DRAPER.  Yes ;  broader  powers  than  our  State  commission  has. 

The  CHAIRMAN.  Now,  of  course,  in  view  of  the  close  relationship 
existing  between  you  and  Mr.  Culkins,  and  the  fact  that  he  is  a 
broad-gauge  man,  you  are  getting  along  all  right.  Let  us  suppose, 
for  a  moment,  that  you  had  a  man  in  there  who  preferred  to  play 
politics  and  made  orders  affecting  service  and  the  maintenance  of 
streets  and  repairs  and  equipment  and  things  of  that  kind,  which 
would  be  very  burdensome  to  the  company,  and  be  more  or  less 
exasperating;  then  how  would  you  get  along  under  that  cost-of- 
service  plan? 

Mr.  DRAPER.  It  would  not  be  very  burdensome  on  the  company.  It 
would  be  burdensome  on  the  car  rider.  I  do  not  think  anybody  could 
dare  do  that.  He  might  make  it  disagreeable  for  you ;  he  might  make 
you  work  24  hours  instead  of  18,  and  insist  on  a  lot  of  information 
that  was  not  necessary,  but  he  would  not  dare  do  anything  that  is 
going  to  add  to  the  burden  of  the  passengers. 

The  CHAIRMAN.  In  other  words,  his  responsibility  would  be  to  the 
public  and  not  to  the  company  under  this  plan? 

Mr.  DRAPER.  Absolutely. 

The  CHAIRMAN.  So  that  it  would  not  make  any  difference,  would 


Mr.  DRAPER.  Well,  there  is  a  dividing 

The  CHAIRMAN  (continuing).  How  costly  the  service  would  be- 
come, the  man  who  had  invested  his  capital  in  the  company  would 
be  secure  at  all  times? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      509 

Mr.  DRAPER.  Yes ;  if  the  base  on  which  you  make  the  rate  and  on 
which  you  provide  for  purchase  represents  the  amount  that  he  has 
invested  in  the  property. 

The  CHAIRMAN.  None  of  the  surplus  that  is  accumulated  from 
operation  can  in  anywise  go  to  officers  of  this  company?  That  goes 
to  the  stockholders? 

Mr.  DRAPER.  Not  necessarily.  The  company  itself  has  to  dispose 
of  that.  That  is  a  corporate  matter  of  its  own. 

The  CHAIRMAN.  Have  you  found  any  tendency  on  the  part  of 
employees  to  lay  down  on  the  service  since  you  adopted  the  new 
plan  ? 

Mr.  DRAPER.  You  mean  trainmen  or  the  higher-up  employees? 

The  CHAIRMAN.  No ;  trainmen — employees  in  the  shops  and  cars. 

Mr.  DRAPER.  No,  sir;  we  have  not.  And  I  will  say  that  wre  have 
not  found  any  tendency  of  that  sort  all  the  way  up  the  line. 

The  CHAIRMAN.  Do  you  believe  that  under  this  plan  you  will  get 
just  as  high  quality  of  service  as  3-011  will  under  the  plan  where  the 
employees  are  largely  subservient  to  the  management  and  must  do  as 
directed? 

Mr.  DRAPER.  He  is  still  subservient  to  the  management.  The  city 
does  not  attempt  to  dictate  in  any  manner  of  form  whatever  between 
us  and  pur  employees,  and  the  employees,  I  think,  will  continue  to 
do  the  best  they  can,  just  as  they  always  have,  or  better. 

The  CHAIRMAN.  Is  there  anything  in  the  contract  which  prevents 
an  employee  from  striking? 

Mr.  DRAPER.  Not  in  this  contract.  We  have  in  our  contract  with 
the  trainmen's  organization  an  arbitration  provision. 

The  CHAIRMAN.  Did  your  company  really  promote  this  cost-of- 
service  plan? 

Mr.  DRAPER.  It  was  a  growth.  The  thing  started  in  1013 — three 
years  before  the  period  for  revision,  when  council  passed  a  resolu- 
tion requesting  the  Public  Utilities  Commission  of  Ohio  to  make  a 
valuation  of  our  property.  The  public-utilities  commission  then  is- 
sued an  order  to  the  company,  compelling  us  to  file  an  inventory  and 
appraisal.  It  then  checked  it.  It  checked  every  bit  of  wire  and 
counted  the  bolts  and  measured  the  track  and  made  its  own  valua- 
tion. It  took  about  two  years  for  us  to  make  our  inventory  and  ap- 
praisal and  have  the  State  to  check  it.  A  valuation  was  handed 
down  by  the  public-utilities  commission  as  a  tentative  valuation, 
nnd  both  the  company  and  the  city  appealed  for  a  rehearing.  Be- 
fore that  rehearing  could  be  held,  the  time  was  proceeding  so  rap- 
idly that  the  city,  desiring  to  go  ahead  with  this  rapid-transit  line, 
which  was  a  feature  in  the  first  revision,  decided  that  if  we  could 
get  together  on  some  valuation  that  it  would  not  wait  for  the  re- 
hearing before  the  public-utilities  commission,  and  consequently 
there  was  an  agreed  valuation  very  largely  based  upon  the  valuation 
handed  down  by  the  public-utilities  commission. 

Mr.  Culkins  did  not  touch  on  that  because  he  was  really  not  fa- 
miliar with  the  negotiations  at  that  time. 

It  may  be  interesting  to  point  out  that  the  final  valuation  found  by 
the  company's  engineers  and  bv  the  public-utilities  commission  were 
practicallv  tho  s:\ino.  about  $-27,000,000.  to  which  an  allowance  was 
made  by  the  public-utilities  commission  for  superseded  values,  bring- 


510      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

ing  the  public-utilities  commission's  tentative  valuation  to  about 
$30,141,000,  and  that  is  the  basis  that  Was  used  in  this  franchise. 

The  CHAIRMAN.  Is  it  not  rather  an  unusual  situation,  to  find  the 
public  utilities  commission  and  the  utility  agreeing  upon  the  valua- 
tion of  the  plant? 

Mr.  DRAPER.  Not  on  the  physical  valuation,  I  think,  Mr.  Chair- 
man. I  think  that  is  a  matter  that,  if  the  work  has  been  done  prop- 
erly on  both  sides,  they  ought  to  agree  upon. 

The  CHAIRMAN.  There  is  more  or  less  dispute  as  to  overhead  ex- 
penses, contingencies^  and  other  things ;  is  there  not  ? 

Mr.  DRAPER.  Yes;  we  requested  the  franchise  value,  which  they 
did  not  allow.  We  requested  the  paving  value}  which  they  did  not 
allow,  and  on  that  subject  I  might  say  that  the  city  hired  an  engineer 
to  make  the  valuation,  and  he  made  a  depreciated  valuation  of  $12,- 
000,000.  So,  you  see,  there  are  discrepancies  occasionally. 

Commissioner  SWEET.  How  did  this  physical  valuation  compare 
with  your  paper  valuation? 

Mr.  DRAPER.  The  book  valuation  at  that  time  was  $29,029,000. 

Commissioner  S\VEET.  What  did  that  cover  ?    Give  the  items. 

Mr.  DRAPER.  That  covered  purely  the  physical  valuation.  In 
other  words,  the  Cincinnati  Street  Railway  Co.  is  the  company  that 
built  this  property  and  leased  it  to  the  Cincinnati  Traction  Co.  in 
1901.  The  capital  stock  of  the  Cincinnati  Street  Railway  Co.  in 
1901  was  $18,738,950,  which  historically  represents  money  that  went 
into  the  property.  We  can  trace  it  very  carefully  to  show  that  was 
the  real  value,  and  that  was  recognized  by  the  city  when  it  approved 
the  lease  from  the  old  company  to  the  present  operating  company. 

Commissioner  SWEET.  Yes. 

Mr.  DRAPER.  Taking  that  as  the  basis,  and  then  taking  the  amount 
that  we  have  expended  on  the  property  ourselves,  dollar  for  dollar — 
not  the  securities  issued  to  provide  money,  but  the  money  that  went 
into  the  property — it  brings  it  up  to  $29,029,000.  Now,  adding  to 
that  what  we  are  entitled  to,  the  cost  of  procuring  that  money,  be- 
cause you  can  not  go  and  get  a  hundred  cents  on  each  dollar  in- 
vested, that  would  bring  it  very -nearly  to  the  valuation  that  was 
found  by  the  public  utilities  commission  and  by  our  own  engineer 
and  put  in  the  franchise. 

Commissioner  SWEET.  That  is  about  $30,000,000  ? 

Mr.  DRAPER.  About  $30,000,000. 

Commissioner  SWEET.  What  was  that  $416.000  that  you  spoke 
about,  and  which  Mr.  Culkins  spoke  about,  too? 

Mr.  DRAPER.  The  $416,000  is  a  little  less  than  the  amount  necessary 
to  pay  the  5  per  cent  on  the  preferred  stock — $8,500,000  preferred 
stock.  The  money  went  into  the  property,  but  the  city,  when  it 
came  to  go  into  the  whole  matter,  decided  that  this  interiirban  line 
that  Mr.  Culkins  spoke  of  a  little  while  ago — he  did  not  treat  that 
fully — should  be  brought  in  as  a  part  of  the  city  proper.  The  reason 
it  did  that  was  because  that  line,  under  this  franchise,  was  within 
the  city.  Within  the  city,  including  the  former  villages  that  were 
annexed  to  the  city  under  this  old  franchise,  it  was  entitled  to 
charge  a  10-cent  fare.  We  had  voluntarily  reduced  the  fare  some- 
what, but  the  city  wanted  the  same  rates  of  fare  for  these  communi- 
ties which  had  been  taken  into  the  city  as  for  the  rest  of  the  city.  So, 
at  that  time,  this  interurban  line  was  making  a  little  money,  but 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      511 

inasmuch  as  the  city  wanted  to  bring  it  in  as  a  part  of  the  city  proper 
and  reduce  the  rate,  we  did  it  in  order  to  get  the  whole  thing  cleaned 
up  at  that  time,  which  reduced  the  earnings  on  that  property  to  a 
point  where  we  did  lose  money,  but  that  was  on  account  of  the  fact 
that  we  extended  the  city  fare  zone  out  to  include  these  annexed 
villages. 

Now,  the  $416,000  was  arrived  at  in  a  peculiar  way.  In  cleaning 
the  whole  thing  up,  $425,000  was  the  amount  that  should  have  been 
allowed  to  take  care  of  preferred  stock.  The  amount  of  money  that 
the  Mill  Creek  Valley  line  lost  in  the  year  that  we  put  in  this  re- 
duced rate  of  fare  was  $9,000,  and  some  of  the  very  careful  nego- 
tiators on  the  other  side  said,  "  Well,  we  are  not  going  to  separate 
that  loss,  so  we  will  take  it  off  for  $425,000."  That  accounts  for  that 
unusual  figure. 

Commissioner  SWEET.  Well,  how  'were  you  to  pay  the  $425,000 
before  the  $9,000  was  taken  out  to  meet  the  interest  on  the  preferred 
stock? 

Mr.  DRAPER.  That  was  to  come  from  the  operation  of  the  prop- 
erty, the  same  as  any  other. 

Commissioner  SWEET.  As  in  any  other  instance? 

Mr.  DRAPER.  Yes. 

Mr.  WARREX.  It  was  a  part  of  the  return  on  the  investment. 

Mr.  DRAPER.  That  is  the  return  before  the  $350,000  for  the  city. 

The  CHAIRMAX.  From  the  standpoint  of  operation,  what  is  the 
substantial  difference  between  the  cost-of-service  plan  and  public 
ownership  and  operation  ? 

Mr.  DRAPER.  The  essential  difference  is  that  you  have  a  group  of 
men — employees— operating  the  property  that  nave  had  experience. 
As  far  as  operation  itself  is  concerned.  I  think  a.  private  company 
can  always  operate  more  efficiently  and  economically  than  a  city 
administration,  which  is  subject  to  change,  and  however  well  the  city 
affairs  are  conducted,  it  is  always  subject  to  political  influences. 

The  CHAIRMAN.  Do  you  believe  that  this  plan  will  naturally  lead 
to  government  ownership  in  Cincinnati? 

Mr.  DRAPER.  I  do  not.     I  think  it  tends  the  other  way. 

The  CTIAIRMAX.  Suppose  the  rate  should  be  increased  to  7  cents; 
then  what  would  be  the  effect  on  the  public  mind? 

Mr.  DRAPER.  If  the  rate  is  increased  to  7  cents,  it  may  be  necessary 
or  advisable  to  go  a  little  more  in  detail,  so  far  as  the  figures  are 
concerned.  They  have  not  asked  so  far  for  details.  They  are  satis- 
fied with  the  showing  that  we  have  made  and  by  the  increase  that 
they  know  of.  In  other  words,  the  rate  to  our  men,  the  trainmen, 
a  year  ago  last  April  was  30  cents.  It  was  increased  to  48  cents  by 
the  award  of  the  War  Labor  Board,  and  the  same  proportionate  in- 
crease, as  in  all  other  awards  of  the  board,  was  allowed  to  the  other 
employees.  The  people,  knowing  about  that,  could  easily  see  that 
an  increase  of  practically  $1,000,000  a  year  in  our  pay  roll  made 
higher  fares  under  a  nlan  of  this  kind  necessary. 

There  is  pretty  full  and  free  publicity  of  the  operation  of  the, 
company's  propertv  right  along,  and  there  is  a  feeling  in  Cincinnati 
that  is  often  voiced  in  public  meetings  and  otherwise  that  they  want 
service,  and  as  an  evidence  of  how  they  feel,  during  the  war  the  Fuel 
Administration  ordered  us  to  install  the  skip-stop  plan,  which  \vo 
did.  When  the  treaty  was  signed,  although  the  President  has  not 


512      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

vet  made  the  proclamation  of  peace,  the  people  said,  "  Now,  the  war 
is  over;  let  us  abolish  the  skip-stop  plan."  There  was  considerable 
argument  pro  and  con,  and  they  said,  "  If  it  was  well  for  us  to  save 
$08,000  in  coal  and  something  like  $25,000  or  $30,000  in  other  inci- 
dentals during  the  war,  it  is  just  as  well  for  us  to  save  that  now  that 
the  war  is  over."  But  the  people  said,  "No;  if  we  are  paying  a 
higher  rate  of  fare,  and  are  willing  to  pay  for  the  service,  we  ought 
to  get  the  kind  of  service  that  we  want."  That  was  the  expression 
that  was  used. 

The  CHAIRMAN.  What  has  been  done  during  the  war  to  keep  up 
your  maintenance? 

Mr.  DRAPER.  "We  have  kept  up  our  maintenance,  except  the  streets. 
As  anybody  else,  we  could  not  get  the  rail  or  materials.  Neither 
the  city  nor  ourselves  could  do  any  work  in  the  street  until  this  year. 

The  CHAIRMAN.  Have  you  run  up  a  large  item  of  deferred  main- 
tenance? 

Mr.  DRAPER.  We  are  doing  more  work  in  the  streets  this  year 
than  we  have  in  several  years  past  in  any  one  year. 

The  CHAIRMAN.  Are  you  able  to  get  that  out  of  your  operating 
revenues  ? 

Mr.  DRAPER.  Yes;  all  of  that  is  in  the  budget,  with  the  exception 
of  about  $70,000,  which  we  expect  to  save  on  some  other  items. 

The  CHAIRMAN.  Have  you  kept  your  cars  well  repaired  ? 

Mr.  DRAPER.  Our  cars  are  in  very  fair  shape,  except  about  180 
small-truck  cars  that  we  are  going  to  abandon  as  soon  as  we  get  the 
105  new  cars. 

The  CHAIRMAN.  Are  you  purchasing  new  equipment  ? 

Mr.  DRAPER.  Yes;  we  are  adding  105  cars  to  the  total. 

The  CHAIRMAN.  How  much  will  that  add  to  your  capital  account '? 

Mr.  DRAPER.  It  will  add  $1,200,000,  at  6  per  cent. 

The  CHAIRMAN.  Have  3Tou  worked  out  any  economies  in  opera- 
tion? 

Mr.  DRAPER.  Yes.  We  have  attempted  some  rerouting,  which  wre 
expect  to  put  through,  and  we  have  also  started  all  the  way  down 
the  line,  as  far  as  the  employees  are  concerned,  toward  getting  more 
and  efficient  help  nowT  &iat  the  wage  is  such  as  will  attract  the 
better  class  of  men  in  the  service,  and  we  are  adopting  a  great  many 
efficiency  plans,  such  as  street  railways  do  when  they  can  and  which 
everybody  had  to  drop  during  the  war. 

The  CHAIRMAN.  What  do  you  expect  to  save  by  the  rerouting 
scheme  ? 

Mr.  DRAPER.  Well,  by  the  rerouting  scheme  wre  wyill  probably  save 
about  $100,000  a  year. 

The  CHAIRMAN.  Have  you  discussed  the  one-man  car? 

Mr.  DRAPER.  Mr.  Culkins  has.    We  have  not. 

The  CHAIRMAN.  What  is  your  idea  upon  that  q uestion  ? 

Mr.  DRAPER.  WG  are  peculiarly  located  in  Cincinnati.  In  the  first 
place,  we  have  hills  and  narrow  streets  in  excess,  I  think,  of  prob- 
ably any  other  city,  unless  it  be  Pittsburgh  or  Kansas  City,  and  wre 
have  three  inclined  planes  over  which  we  operate  three  different 
lines.  Those  inclined  planes  can  be  operated  only  so  frequently; 
you  can  not  make  closer  headway  than  a  certain  headway,  neces- 
sitating oi*r  using  larger  units  instead  of  smaller  units.  In  addition 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      513 

to  that,  the  congestion  in  the  downtown  district,  with  the  narrow 
streets,  is  such  that  we  have  not  so  far  found  that  we  could,  in  our 
opinion,  save  money  by  going  into  a  smaller  unit  and  more  frequent 
operation  than  by  having  the  larger  units  and  not  so  close  together. 

The  CHAIRMAN.  As  I  understand  it,  you  make  these  one-man  cars? 

Mr.  DRAPER.  Well,  the  Cincinnati  Car  Co.,  an  affiliated  company 
with  us. 

The  CHAIRMAN.  Are  you  able  to  make  any  economies  in  your  over- 
head expenses? 

Mr.  DRAPER.  No  much.  The  tendency,  of  course,  all  the  way 
through  the  salary  list  is  toward  increasing  the  pay.  None  of  the 
officials  of  the  company  have  had  any  increase  in  pay.  It  is  nec- 
essary to  increase  the  clerks  and  bookkeepers  and  people  in  the  ac- 
counting department  and  others  in  the  general  office,  as  well  as 
outside,  which  has  made  it  impossible  to  reduce  the  overhead  ex- 
penses very  much. 

The  CHAIRMAN.  That  is  all. 

Mr.  WARREN.  What  is  the  gross  operating  revenue,  roughly,  Mr. 
Draper,  of  vour  company  ? 

Mr.  DRAPER.  In  1918  'it  was  about  $5,250,000. 

Mr.  WARREN.  How  many  passengers  did  you  carry  in  that  year? 

Mr.  DRAPER.  Pardon  me  just  a  moment.  And  for  the  present 
year,  our  estimates,  considering  the  increase  of  7  cents,  it  will  be 
slightly  under  seven  million. 

Mr.  WARREN.  And  how  many  passengers  did  you  carry,  roughly  ? 

Mr.  DRAPER.  We  carried  about  106,000,000  last  year.  That  'is, 
revenue  passengers,  and  about  35.000,000  transfer  passengers. 

Mr.  WARREN.  The  powers  of  your  commission  in  Ohio  are  not 
very  extensive,  are  they? 

Mr.  DRAPER.  Not  as  far  as  street  railway's  are  concerned. 

Mr.  WARREN.  Not  as  far  as  street  railways  are  concerned  ? 

Mr.  DRAPER.  No;  the  law  is  so  drawn  that  their  jurisdiction  prac- 
tically does  not  extend  to  street  railways,  unless  in  case  of  certain 
appeals — appeals  under  certain  conditions. 

Mr.  WARREN.  Yes. 

Mr.  DRAPER.  And  they  have  constantly  refused  to  take  jurisdic- 
tion in  cases  of  any  franchise  rates.  In  other  words,  they  won't  step 
in  and  determine  a  rate,  or  have  anything  to  do  with  rates,  where 
they  are  fixed  by  franchises? 

Mr.  WARREN.  So,  as  a  matter  of  fact,  a  good  many  of  the  powers 
which  are  given  to  the  director  of  street  railways  in  Cincinnati  are 
taken  from  the  commission  and  given  to  him ;  but  they  do  not  exist 
anywhere,  except  as  that  agreement  sets  them  out  ? 

Mr.  DRAPER.  That  is  true. 

Mr.  WARREN.  That  is  all,  Mr.  Draper. 

Commissioner  GADSDEN.  Just  a  question,  Mr.  Draper: 

The  city  has  an  option  to  purchase  the  property,  has  it  not? 

Mr.  DRAPER.  Yes. 

Commissioner  GADSDEN.  In  the  franchise? 

Mr.  DRAPER.  Yes. 

Commissioner  GADSDEN.  That  is  practically  true  of  all  these  serv- 
ice-at-cost  plans,  is  it  not? 


PROCEEDINGS  OP  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  DRAPER.  Well,  it  is  essential.  There  would  be  no  way  of  the 
city's  getting  any  changed  condition  unless  it  was  privileged  to 
purchase. 

Commissioner  GADSDEN.  That  is  what  I  wanted  to  find  out. 

Mr.  WARREN.  That  is  all,  Mr.  Draper. 

The  CHAIRMAN.  We  will  adjourn  until  to-morrow  morning  at  10 
o'clock. 

(Whereupon,  at  4.55  o'clock  p.  m.,  the  further  hearing  of  this  case 
was  adjourned  until  to-morrow,  Tuesday,  July  22,  1919,  at  10  o'clock 
a.  m.) 

11  ••• 

WASHINGTON,  D.  C.,  July  82,  1919. 

Met  pursuant  to  adjournment.    10  o'clock  a.  m. 

Present :  Parties  as  before. 

The  CHAIRMAN.  You  may  proceed,  Mr.  Warren. 

Mr.  WARREN.  Mr.  Pellissier,  take  the  stand. 

The  CHAIBMAN.  You  did  not  complete  Mr.  Nash's  testimony  ? 

Mr.  WARREN.  No ;  I  did  not.  I  am  going  to  put  Mr.  Nash  on,  but 
I  want  to  put  on  Mr.  Pellissier  'for  just  one  point,  may  it  please  the 
Chairman. 

STATEMENT  OF  MR.  LOUIS  PELLISSIER. 

Mr.  WARREN.  Your  full  name? 

Mr.  PELLISSIER.  Louis  Pellissier. 

Mr.  WARREN.  You  are  President  of  the  Holyoke  Street  Railway? 

Mr.  PELLISSIER.  Yes. 

Mr.  WARREN.  You  are  also  general  manager  of  the  Northampton 
Street  Railway  Co.? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  Both  Massachusetts  companies? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  You  are  in  charge  of  the  operations  of  both  com- 
panies ;  are  you  not  ? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  What  sort  of  a  franchise  do  you  have  on  those  prop- 
erties? 

Mr.  PELLISSIER.  Indeterminate  franchise. 

Mr.  WARREN.  Indeterminate? 

Mr.  PELLTSSIER.  Yes. 

Mr.  WARREN.  That  is  a  franchise  during  good  behavior. 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  What  power  has  the  commission  in  Massachusetts 
.over  rates? 

Mr.  PELLISSIER.  They  have  the  absolute  power  over  rates. 

Mr.  WARREN.  It  is  unlimited? 

Mr.  PELLISSIER.  It  is  unlimited;  yes,  sir. 

Mr.  WARREN.  Is  there  any  limitation  in  the  franchise  on  what 
rates  you  can  charge  ? 

Mr.  PELLISSIER.  No,  sir. 

Mr.  WARREN.  That  means,  does  it,  that  you  can  charge  any  rates 
which  the  public-service  commission  approves? 

Mr.  PELLISSIER.  Yes,  sir. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       515 

Mr.  WARREN.  Have  you  had  occasion  to  increase  your  rates  on 
either  or  both  of  these  properties? 

Mr.  PELLISSIER.  Yes ;  we  have  on  both. 

Mr.  WARREN.  On  both? 

Mr.  PELLISSIER.  Yes. 

Mr.  WARREN.  Take  the  Northampton  Co.  first.  How  did  you  in- 
crease the  rates  there? 

Mr.  PELLISSIER.  There  we  increased  the  unit  from  5  cents  to  7 
cents. 

Mr.  WARREN.  And  that  indicated  a  theoretical  increase  of  40  per- 
cent? 

Mr.  PELLISSIER.  Forty  per  cent ;  yes,  sir. 

Mr.  WARREN.  Was  that  increase  taken  before  the  public-service 
commission  ? 

Mr.  PELLISSIER.  Yes. 

Mr.  WARREN.  And  approved  by  them? 

Mr.  PELLISSIER.  Yes,  sir;  and  approved  by  the  public.  When  we 
went  before  the  commission  the  representatives  of  the  public  were 
there  and  they  told  the  commission  that  if  they  thought  we  needed  a 
7-cent  fare  they  were  perfectly  willing  to  paj*  it;  and  that  they 
needed  the  service  and  were  willing  to  pay  what  it  cost. 

Mr.  WARREN.  And  you  put  it  in  effect? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  When  did  you  put  it  in  effect? 

Mr.  PELLISSIER.  February  1,  this  year. 

Mr.  WARREN.  What  has  been  the  result  ?  Theoretically,  you  might 
have  gained  40  per  cent? 

Mr.  PELLISSIER.  Yes. 

Mr.  WARREN.  And  what  did  you  actually  gain? 

Mr.  PELLISSIER.  Thirty  per  cent. 

Mr.  WARREN.  You  are  still  getting  that? 

Mr.  PELLISSIER.  Yes;  about. 

Mr.  WARREN.  So  you  gained  three-fourths  of  the  actual  possibility? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  On  the  Holyoke  Street  Railway,  what  did  3Tou  do? 

Mr.  PELLISSIER.  There  we  shortened  some  of  the  zones  and  re- 
mained on  the  5-cent  fare,  with  the  exception  of  a  central  zone  that 
the  commission  decided  they  would  increase  the  unit  in  the  central 
zone  from  5  to  7  cents. 

Mr.  WARREN.  What  was  the  theoretical  increase  there  in  per  cent  ? 

Mr.  PELLISSIER.  About  35  per  cent. 

Mr.  WARREN.  About  35  per  cent? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  And  what  was  your  experience  with  it? 

Mr.  PELLISSIER.  We  are  getting  between  25  and  30  per  cent. 

Mr.  WARREN.  Between  25  and  30  per  cent? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  Has  that  been  in  effect  several  months? 

Mr.  PELLISSIER.  Since  the  1st  of  January,  this  year. 

Mr.  WARRKX.  You  say  that  the  public  was  not  unfriendly? 

Mr.  PELLISSIER.  Not  at  all. 

Mr.  WARREN.  Do  you  think  that  helped  the  immediate  result? 

Mr.  PELLISSIER.  Yes,  sir;  I  do. 


516      PROCEEDINGS  OF  FEDERAL  ELECTRIC.  RAILWAYS  COMMiSSIOISr. 

Mr.  WARREN.  What  is  your  opinion  as  a  street-railway  operator  of 
the  ultimate  effect  of  increasing  fares,  regardless  of  the  attitude  of 
the  public?  Suppose  the  public  were  opposed  to  it. 

Mr.  PELLISSIER.  It  increases  the  revenue. 

Mr.  WARREN.  It  increases  the  revenue? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  And  as  time  goes  on  does  it  increase  it  very  much? 

Mr.  PELLISSIER.  Yes,  sir.  As  time  goes  on  that  loss  of  traffic  does 
come  back  to  a  large  extent. 

Mr.  WARREN.  So  that  in  your  opinion  an  increase  in  fare,  even 
though  the  public  does  not  understand  it  or  is.  even  hostile  to  it,  pro- 
duces some  immediate  increased  revenue  and  ultimately  a  large  in- 
crease ? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  Your  stock  in  the  Holyoke  Street  Railway  Co.  was 
all  issued  for  cash? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  And  under  the  Massachusetts  law  was  a  premium 
paid  in  on  it? 

Mr.  PELLISSIER.  Yes,  sir.  For  every  share  of  $100  there  is  $120 
of  property  behind  it. 

Mr.  WARREN.  So  that  the  company  has  realized  $120  a  share? 

Mr.  PELLISSIER.  Yes,  sir. 

Mr.  WARREN.  That  is  all  I  want  to  ask  this  witness,  Mr.  Chairman. 

The  CHAIRMAN.  What  is  the  effect  of  this  increased  rate  upon  the 
short-haul  traffic  ? 

Mr.  PELLISSIER.  Well,  in  the  city  of  Northampton  the  community 
is  more  or  less  of  an  interurban  community;  that  is,  the  city  of 
Northampton  itself  is  only  a  city  of  20,000,  but  the  suburbs  are 
about  3  miles  away  from  the  center.  There  is  very  little  short- 
haul  riding.  There  we  increased  the  unit  because  of  the  fact  that 
there  was  practically  no  short-haul  riding  and — 

The  CHAIRMAN.  There  many  people  are  obliged  to  ride? 

Mr.  PELLISSIER.  Yes,  sir. 

The  CHAIRMAN.  And  the  increased  fare  would  not  affect  the  num- 
ber of  passengers  hauled? 

Mr.  PELLISSIER.  No,  sir. 

The  CHAIRMAN.  What  can  you  tell  us  of  your  experience  in  a  more 
congested  territory? 

Mr.  PELLISSIER.  In  the  more  congested  territory  the  increasing  of 
the  unit  does  affect  the  short-haul  riders  to  some  extent. 

The  CHAIRMAN.  To  what  extent? 

Mr.  PELLISSIER.  Well,  I  do  not  know  just  how  much,  but  probably 
as  high  as  10  per  cent. 

The  CHAIRMAN.  Have  you  made  any  study  for  the  purpose  of 
finding  out  how  many  less  passengers  you  carry  within  a  certain 
zone,  a  congested  zone,  since  this  fare  went  into  effect? 

Mr.  PELLISSIER.  No;  we  have  not. 

The  CHAIRMAN.  AVas  that  10  per  cent  shrinkage  in  the  number  of 
passengers  observed  immediately  after  the  increase  went  into  effect? 

Mr.  PELLISSIER.  Yes,  sir. 

The  CHAIRMAN.  Has  there  been  an  increase  in  the  number  of  pas- 
sengers as  time  has  gone  on? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       5 IT 

Mr.  PELLISSIER.  Yes,  sir;  it  has.  It  has  been  coming  back  to  some 
extent. 

The  CHAIRMAN.  About  what  is  the  effect  at  the  present  time? 

Mr.  PELLISSIER.  The  effect  at  the  present  time,  in  my  best  judg- 
ment, is  about  10  per  cent,  but — 

The  CHAIRMAN.  What  was  it  when  it  first  went  in  ? 

Mr.  PELLISSIER.  Well,  it  was  10  per  cent,  but  the  reason  of  that 
is  jitney  competition.  I  think,  if  the  jitneys  were  not  allowed  to 
operate  for  5  cents  where  .we  are  obliged  to  charge  7  cents  under 
the  ruling  of  the  public-service  commission,  that  it  would  probably 
not  be  over  5  per  cent. 

The  CHAIRMAN.  Did  the  jitneys  take  advantage  of  this  increased 
charge  ? 

Mr.  PELLISSIER.  Yes,  sir. 

The  CHAIRMAN.  Are  there  any  larger  number  of  jitneys  in  service? 

Mr.  PELLISSIER.  Well,  there  is  not  a  very  large  number,  but  there 
are  probably  in  our  town — it  is  not  a  very  large  town,  70,000 — there 
are  20  to  30  operating  now  when  there  were  only  1  or  2,  I  think,, 
before. 

The  CHAIRMAN.  What  character  of  vehicle  is  used  in  the  jitney 
service  ? 

Mr.  PELLISSIER.  There  are  several  motor  buses  with  a  carrying 
capacity  of  about  12  to  16,  I  think,  and  then  there  are  a  number  of 
touring  cars  with  a  capacity  of  5  to  7. 

The  CHAIRMAN.  Does  the  commission  have  any  control  over  the 
fare  charged  by  jitne.ys? 

Mr.  PELLISSIER.  I  do  not  think  so. 

Mr.  WARREN.  I  think  not,  Mr.  Chairman. 

The  CHAIRMAN.  Does  the  municipality? 

Mr.  PELLISSIER.  Yes;  I  think  the  municipality  can  fix  the  rate. 

The  CHAIRMAN.  Has  it  fixed  the  rate? 

Mr.  PELLISSIER.  Well,  in  a  way  it  has.  I  think  in  the  ordinance 
it  states  that  it  will  not  be  more  than  that  charged  by  the  street- 
railway  company. 

Mr.  WARREN.  Has  that  ordinance  been  adopted  in  Holyoke? 

Mr.  PELLISSIER.  Yes,  sir. 

The  CHAIRMAN.  Does  the  7-cent  fare  bring  you  in  money  enough 
to  pay  all  your  operating  expenses  and  fixed  charges  ? 

Mr.  PELLISSIER.  Well,  the  combination  of  the  two  on  that  systemr 
5  and  7  cents  does ;  yes,  sir. 

Mr.  WARREN.  That  is  on  the  Holyoke  system? 

Mr.  PELLISSIER.  That  is  on  the  Holyoke  system. 

Mr.  WARREN.  How  is  it  on  the  other  system,  where  you  have  the 
straight  7-cent  fare? 

Mr.  PELLISSIER.  On  that  we  are  doing  very  well. 

The  CHAIRMAN.  I  did  not  get  clearly  in  my  mind  where  you  were 
charging  the  5-cent  fare. 

Mr.  PELLISSIER.  Well,  on  the  Holyoke  system  we  charge  a  5-cent 
fare  on  the  greater  part  of  the  system,  in  the  central  zone.  That  is, 
it  takes  the  congested  section  of  the  city— we  charge  7  cents  there. 
That  has  a  diameter  of  4  miles,  and  they  ride  for  7  cents.  All  the 
other  zones  are  on  practically  a  2-mile  basis,  and  in  those  zones  we 
charge  5  cents. 


518      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

The  CHAIRMAN.  You  stated  that  the  public  approved  of  this  in- 
crease. In  what  way  did  they  make  that  approval  manifest? 

Mr.  PELLISSIER.  Well,  on  the  Holyoke  system  they  were  not  quite 
as  unanimous  in  their  approval  of  it  as  they  were  in  Northampton ; 
there  was  some  objection  on  the  Holyoke  system  by  the  public. 

The  CHAIRMAN.  How  was  the  approval  indicated  ? 

Mr.  PELLISSIER.  Well,  oh  the  Northampton  system .  it  was  indi- 
cated by  the  representatives  of  the  cities  and  towns  before  the  com- 
mission stating  that  if  the  company  needed  a  7-cent  fare  to  operate 
its  business  successfully,  they  were  perfectly  willing  to  pay  it,  that 
they  wanted  the  service  and  they  knew  they  could  not  have  it  without 
paying  for  it. 

The  CHAIRMAN.  Had  they  attempted  in  some  way  to  get  an  ex- 
pression of  the  opinion  of  the  community  before  they  made  that  ex- 
pression before  the  commission? 

Mr.  PELLISSIER.  I  presume  so.  These  were  selectmen  of  the  town 
who  represented  their  people. 

The  CHAIRMAN.  Had  they  had  some  sort  of  a  New  England  town 
meeting  to  discuss  the  question? 

Mr.  PELLISSIER.  I  do  not  think  they  had  a  town  meeting  but  they 
had  a  meeting  of  some  committees. 

Mr.  WARREN.  The  average  New  England  selectman  can  sense  the 
opinion  of  his  community  pretty  rapidly,  Mr.  Chairman. 

The  CHAIRMAN.  He  keeps  his  ear  near  the  ground,  does  he? 

Mr.  WARREN.  Very  hear  the  ground  all  the  time. 

The  CHAIRMAN.  Tell  us  something  about  the  sentiment  of  tlie 
other  community  on  the  other  system. 

Mr.  PELLISSIER.  Well,  oh  the  Holyoke  system  we  attempted  to  re- 
duce the  zones  to  2  miles,  and  of  course,  that  immediately  threw 
some  of  the  people  that  were  formerly  in  the  inner  zone  into  the 
outer  zone.  In  that  case  they  were  obliged  to  pay  7  cents  where  they 
were  paying  5  cents.  Those  people  objected  to  that  increase. 

The  CHAIRMAN.  What  is  the  charge  from  one  zone  into  another 
zone  ? 

Mr.  PELLISSIER.  It  is  12  cents. 

The  CHAIRMAN.  Twelve  cents? 

Mr.  PELLISSIER.  Yes ;  7  in  one  and  5  in  the  other. 

The  CHAIRMAN.  So  that  your  trip  from  one  zone  into  another  is 
the  sum  of  the  two  local  charges,  is  it  ? 

Mr.  PELLISSIER.  Yes,  sir. 

The  CHAIRMAN.  The  5-cent  zone  is  in  the  congested  part  of  the 
city? 

Mr.  PELLISSIER.  No;  the  7-cent  zone  is  in  the  congested  part  of 
the  city. 

The  CHAIRMAN.  Where  is  the  5-cent  zone? 

Mr.  PELLISSIER.  Oh  the  outer  zone,  adjacent  to  the  inner  zone. 

The  CHAIRMAN.  Does  not  that  rather  reverse  the  rule  of  the  zone 
charge  ? 

Mr.  PELLISSIER.  Yes;  a  little,  I  think. 

Mr.  WARREN.  Your  idea  was  to  make  the  inner  zone  smaller  and 
charge  5  cents  there? 

Mr.  PELLISSIER.  Yes;  that  was  the  idea,  with  the  idea  of  retain- 
ing the  short-haul  passenger. 

The  CHAIRMAN.  Why  did  you  not  stick  to  that  idea? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      519 

Mr.  PELLISSIER.  We  did,  but  the  commission  ruled  against  us. 
The  people  that  made  the  objection  to  the  5-cent  fare,  or  the  shorten- 
ing of  the  zone,  rather,  preferred  a  flat  increase  in  the  unit  rather 
than  shortening  the  zone. 

The  CHAIRMAN.  What  justification  is  there  for  charging  a  lower 
fare  in  the  sparsely  settled  section  of  your  line  and  a  higher  fare 
in  your  congested  portion? 

Mr.  PELLISSIER.  The  only  justification  is  this,  that  the  zones  of 
course  in  the  outer  sections  are  only  2  miles,  so  that  the  limit  of  the 
ride  is  2  miles  for  5  cents,  which  makes  2^  cents  a  mile,  but  in  the 
inner  zone  the  diameter  is  4:  miles,  so  the  possible  ride  is  4  miles 
for  7  cents,  and  the  short  ride  of  course  is  anything  that  it  may 
be — several  blocks. 

The  CHAIRMAN.  What  is  your  combined  mileage? 

Mr.  PELLISSIER.  In  the  system  ? 

The,  CHAIRMAN.  Yes. 

Mr.  PELLISSIER.  Seventy  miles  in  the  Holyoke  system  and  30  miles 
in  the  Northampton  system. 

The  CHAIRMAN.  That  is  all. 

Mr.  WARREN.  What  the  commission  really  did  was  to  enlarge  that 
inner  zone  and  enlarge  the  fare  upon  it  from  5  to  7  cents? 

Mr.  PELLISSIER.  Yes. 

Mr.  WARREN.  Your  idea  being  to  make  it  a  smaller  zone  and 
charge  5  cents  and^  preserve  the  snort  ride  ? 

Mr.  PELLISSIER.  Yes. 

Mr.  WARREN.  That  is  all. 

(Witness  excused.) 

Mr.  WARREN.  Mr.  Hedges,  will  you  kindly  take  the  stand? 

STATEMENT  OF  MR.  JOB  E.  HEDGES. 

Mr.  WARREN.  Your  full  name? 
Mr.  HEDGES.  Job  E.  Hedges. 
Mr.  WARREN.  You  are  receiver- 


Mr.  HEDGES.  Receiver  of  the  New  York  Railways. 

Mr.  WARREN.  How  long  have  you  been  receiver,  Mr.  Hedges? 

Mr.  HEDGES.  Since  the  20th  of  March. 

Mr.  WARREN.  Will  you  kindly  tell  the  commission  how  you  came 
to  be  receiver  and  what  your  experience  has  been  as  receiver  in 
operating  those  lines? 

Mr.  HKIMJES.  Modesty  compels  me  to  withhold  my  real  reason  for 
appointment.  I  think  it  was  the  intelligence  of  the  judge,  but  it 
was  a  surprise  to  me,  because  I  have  never  been  in  this  or  had  any- 
thing to  do  with  railways  before. 

I  was  appointed  on  the  20th  of  March  in  an  equity  suit  to  preserve 
the  properties  of  the  railways,  there  being  many  unpaid  debts  and 
taxes  and  the  actual  physical  operation  of  the  road  being  in  jeopardy 
and  two  foreclosures  imminent,  dependent  upon  the  payment  of 
approaching  coupons. 

Now,  since  then  I  have  been  personally  occupied  largely  in  learn- 
ing the  mechanism  of  it,  and  I  have  not  any  particular  technical 
knowledge  of  the  detail  of  it,  except  I  have  possibly  some  observa- 
tions as  this  struck  me  as  I  first  saw  it. 


520      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

When  I  went  in  there,  and  up  to  now,  it  takes  part  of  the  capital 
of  the  road  all  the  time  to  run  the  road.  There  are  no  rentals  being 
paid  at  all — all  the  rentals  are  in  default.  One  of  the  roads,  the 
Eighth  Avenue,  has  applied  for  a  severance,  and  an  order  has  been 
entered  on  that  and  there  will  be  a  separate  operation  on  the  1st  of 
August. 

Within  a  month  an  application  before  Public  'Service  Commis- 
sioner Nixon  was  made  for  authority  to  charge  for  transfers.  The 
law  seems  to  be  in  New  York  that  a  public-service  commissioner 
has  authority  over  transfers,  but  it  has  been  in  dispute  as  to  whether 
he  has  over  a  flat  rate.  And  in  the  recent  case  in  Buffalo  it  is 
analyzed  both  ways;  some  people  say  it  just  applies  to  the  local  con- 
dition under  which  it  aro^e  and  others  generally — the  public-service 
commission  counsel  in  New  York  holding  that  it  does  give  the 
public-service  commissioner  authority  to  raise  or  lower  the  flat  rate 
and  the  counsel  to  the  city,  the  corporation  counsel,  saying,  naturally, 
it  does  not.  And  under  direction  of  the  mayor  the  corporation  coun- 
sel has  been  told  to  fight  this  rate  to  the  last  ditch,  as  I  read  it  in 
the  paper. 

Mr.  WARREN.  This  transfer? 

Mr.  HEDGES.  This  transfer — on  the  ground  that  the  public  is  being 
robbed.  So  the  issue  in  New  York  at  the  present  moment  is  sustain- 
ing the  order  of  the  public-service  commission  providing  for  a  paid 
transfer  as  against  an  admitted  declaration  that  there  .shall  be  no 
money  added  for  transportation  than  the  5  cents,  and  that  that  is 
enough.  And  the  corporation  counsel  within  a  week  took  the  posi- 
tion that  this  2  cents  was  not  justified  because  of  excessive  rentals, 
and  therefore  the  public-service  commissioner  went  beyond  his 
jurisdiction  either  as  to  fact  or  law. 

Mr.  WARREN.  As  I  understood  you,  you  are  not  paying  your 
rentals. 

Mr.  HEDGES.  And  so  I  wrote  the  corporation  counsel  and  suggested 
that  he  was  all  right  except  as  to  his  facts — that  the  rentals  could 
not  be  a  part  of  a  composite  condition  because  we  were  not  paying 
them. 

Now,  there  is  one  thing  perfectly  certain  in  New  York,  in  my  judg- 
ment— am  I  too  discursive,  Mr.  Warren? 

Mr.  WARREN.  No ;  that  is  just  what  I  want. 

Mr.  HEDGES.  Because  I  am  quite  ingenuous  in  some  features  of 
this 

Mr.  WARREN.  No ;  because  you  are  not  a  street-railway  man,  and  I 
want  the  commission  to  hear  your  experience. 

Mr.  HEDGES.  Unless  the  railways  get  relief — and  in  any  event  it 
may  be  that  this  2-cent  charge  for  a  transfer  will  not  satisfy,  and  if 
it  does  not,  every  one  of  those  lines  will  be  severed  from  the  general 
system  except  the  five  they  own.  All  the  rest  are  leased  lines. 

The  CHAIRMAN.  Except  the  what? 

Mr.  HEDGES.  There  are  five  where  they  have  the  controlling  interest 
in  the  stock.  The  rest  are  all  leased  lines.  The  railway  system  is 
in  default  to  the  Sixth  Avenue  line,  to  the  Fourth  Avenue  line,  and 
the  Eighth  Avenue  is  gone,  and  it  is  in  default  to  the  Ninth  Avenue. 
Now,  my  observation,  wrhile  it  is  limited,  is  this,  among  other  things : 
Even  the  short-haul  traffic  on  the  New  York  railways  has  been  in- 
terfered with  in  two  ways — by  the  difficulty  of  expediting  their  cars 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      521 

on  the  street,  owing  to  congested  vehicular  traffic,  and  the  fact  that  in 
many  cases  either  the  elevated  or  the  subway  parallel  the  surface 
line.  And  therefore  it  is  just  a  matter  of  expedition  in  New  York — 
New  York  living  on  the  fashion  to  get  from  one  place  £o  another  be- 
fore somebody  else  gets  there. 

Now,  outside  entirely  of  the  question  of  remuneration  by  way  of 
a  charge,  these  street  railways,  apparently,  from  my  limited  observa- 
tion, have  arrived  at  their  highest  point  of  passenger  traffic.  That 
was  reached  somewhere  in  1913;  I  saw  in  some  figures  furnished 
me,  and  that  was  a  high-water  mark.  Since  then,  with  varying  con- 
ditions as  to  finances  and  otherwise,  we  have  gone  up  and  down  dur- 
ing the  war  and  after  the  war  and  are  rather  approaching  that  1913 
figure,  but  will  never  go  above  it  probably.  Therefore  the  logic  of 
it  is  very  simple.  If  $2,500,000  has  been  added  at  a  computed  rate 
to  the  expenses  of  the  road — assuming  it  is  running  at  a  full  rate 
of  car  equipment  and  conductors  and  motormen — and  they  are  run- 
ning behind  and  do  not  earn  even  that,  it  is  just  a  question  of  the 
date  of  burial  of  the  road.  It  is  not  a  question  of  rate  or  the 
earning  at  all,  because  we  are  not  even  within  the  penumbra  of 
discussion  of  what  the  roads  ought  to  earn.  In  some  way  they  have 
got  to  be  put  in  a  position  to  have  enough  physical  strength  left 
to  discuss  how  much  they  ought  to  earn  finally  in  the  reorganiza- 
tion. Now,  that  is  not  rhetorical  intensity  at  all.  The  discussion 
before  the  public  in  New  York  has  lately  veered  to  the  question  of 
certain  rentals  which,  to  my  mind,  logically  have  nothing  to  do 
with  it.  These  roads  were  organized  by  a  combination  of  ownership 
plus  rentals.  Those  rentals  were  made  up  at  the  time  of  what  was 
the  best  guess  as  to  what  they  ought  to  earn.  Now.  at  the  present 
writing,  according  to  the  way  you  make  a  computation,  the  rate  of 
a  rental  has  a  rhetorical  value.  I  do  not  know  anything  about  street 
railways,  but  if  you  pay  $100,000  a  year  for  rental  on  a  capitaliza- 
tion of  a  million  or  a  capitalization  of  the  same  property  at  two 
million,  with  that  being  possible  in  the  growing  of  time,  the  question 
is  not  a  per  cent  but  the  relationship  of  that  rental  to  the  value  of 
the  property  by  way  of  use.  Now.  this  severed  line  of  the  Eighth 
Avenue  the  other  day  was  a  street-car  line.  When  it  was 

The  CHAIRMAN.  Was  it  under  your  control? 

Mr.  HEDGES.  Yes,  sir;  it  came  through  the  New  York  Railways, 
following  the  old  Metropolitan  system  there,  and  therefore  to  me 
as  receiver. 

Mr.  WARREX.  By  a  street-car  line  you  mean  a  horse  railroad  ? 

Mr.  HEDGES.  I  mean  at  the  time  it  was  first  taken  over  as  a  horse- 
car  line,  and  the  agreement  as  to  lease  as  a  price  was  $215,000 — 
stating  just  from  memory — plus  taxes  and  some  other  charges,  city 
charges,  and  an  agreement  that  they  should  electrify  the  road. 
Since  then  the  road  has  been  electrified:  some  three  or  four  million 
dollars  have  been  added  to  it,  according  to  the  covenant,  and  the 
computation  as  I  can  make  it  out  is  twelve  and  a  fraction  per  cent 
on  all  the  property  used  by  the  public.  The  mayor,  who  seems  to 
be  my  rhetorical  antagonist  at  the  moment,  divides  215,000  into  a 
million  and  lets  it  go  at  that,  because  2GJ  per  rent  has  a  great  deal 
better  conversational  value  in  opposing  an  increase  in  rate  than  has 
12£  per  cent. 

160643°— 20 34 


522       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Now,  without  any  desire  to  express  my  private  opinion  or  a  desire 
to  flaunt  my  suggestions,  and  having  in  mind  the  question  the 
chairman  asked  the  gentleman  who  was  on  here  before  me,  I  would 
very  modestly, suggest  this:  The  chairman  asked  the  gentleman  how 
he  knew  that  the  public  accepted  something  or  acquiesced  in  some- 
thing in  this  increased  rate.  I  know  nothing  about  Northampton 
or  Holyoke,  but  I  do  know  something  about  the  people  of  New  York 
City.  New  York  City  can  get  up  a  protest  on  any  side  of  any  topic 
overnight,  with  any  number  of  people  protetsing,  usually  the  same, 
and  with  any  intensity  of  vocalizing  required  by  the  situation. 
Therefore  there  is  no  question  settled  in  New  York  primarily,  eco- 
nomically, or  legislatively  successfully  until  the  facts  are  told  the 
citizens. 

My  observation  through  some  35  years,  including  one  unfortunate 
year,  is  that  the  public  of  New  York,  made  up  of  the  tremendous 
varieties  of  intelligence,  will  understand  a  fact.  The  average  man 
and  woman  on  the  streets  of  New  York  will  face  a  fact  and  acquiesce 
in  it.  What  confuses  them  is  when  they  see  a  discussion  carried  on 
by  deductions  from  inferences,  and  then  they  know  nothing  about  it. 
"  Now,  there  is  no  disposition  in  New  York,  Mr.  Chairman,  I  think, 
regarding  these  fares  other  than  to  believe  that  they  have  got  to  be 
increased.  As  I  make  a  nonprofessional  deduction,  it  would  have 
been  wise  instead  of  giving,  had  there  been  authority,  a  2-cent  trans- 
fer charge  as  a  tentative  thing,  to  raise  the  flat  rate  a  cent,  if  you 
are  just  going  to  experiment.  I  think  the  average  person  on  the 
street  looks  on  a  cent  now  as  a  means  of  a  fractional  way  to  deter- 
mine something.  It  used  to  be  the  minimum  charge  for  something. 
Now,  it  is  5  cents.  Then,  I  think,  there  is  an  instinct  that  whatever 
you  get  where  you  do  not  show  a  physical  commodity  as  a  result  of 
it,  you  think  you  are  entitled  to  get  for  nothing ;  and  therefore  what 
is  in  the  mind  of  the  average  person — the  working  person  there,  we 
will  say — is  to  get  from  their  residence  to  their  place  of  work. 

Now,  they  are  being  carried  across  one  of  the  Brooklyn  bridges  at 
a  reduced  rate,  at  a  loss ;  one  of  the  arguments  there  why  there  should 
not  be  a  raise,  being  that  a  small  corporation  there  for  operating 
that  bridge  service  is  earning  a  substantial  per  cent,  more  than  any- 
one ought  to  earn  who  has  not  money;  the  fact  being  that  they  or- 
ganized a  little  bit  of  a  tentative  corporation,  if  I  recollect  right, 
something  like  $10,000,  just  to  have  a  corporation,  so  that  the  people 
in  Brooklyn  and  New  York  and  the  operating  companies  could  each 
have  half  of  it.  Therefore,  in  the  plentitude  of  present-day  wisdom 
they  compute  what  the  earnings  would  be  by  way  of  a  dividend  on  a 
$10,000  corporation,  leaving  out  for  mental  and  physical  fatigue  the 
question  of  whether  it  earned  anything  or  whether  the  thing  was 
run  at  a  loss  except  for  that  capitalization. 

Now,  the  question  has  got  to  be  continued  there.  This  decision  of 
Commissioner  Nixon  will  probably  go  to  the  court  of  appeals,  and 
pending  that  the  problem  of  my  receivership  is:  Do  I  get  enough 
money  as  receiver  to  discontinue  the  use  of  capital  with  which  to 
operate  those  roads.  The  receivership  owes  to-day  about  a  million 
dollars'  worth  of  taxes,  with  the  penalties  beginning  to  accrue.  I 
assumed  in  the  neighborhood  of  half  a  million  dollars  of  postponed 
necessary  reproduction  in  the  streets  and  maintenance  of  way  and 
whatever  those  things  may  be.  So  that  I  am  at  the  present  moment 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      523 

personifying  the  New  York  Railways,  at  least,  between  one  and  a 
half  and  two  millions  of  dollars  behind,  before  I  get  to  the  point  of 
the  question  of  whether  the  operating  receipts  meet  operating  ex- 
penses. 

Now,  that  discussion  is  all  carried  on  in  the  atmosphere  which  is 
within  the  penumbra  of  what  is  the  best  for  the  common  people. 

One  side  is  appealing  for  the  maintenance  and  the  physical  exist- 
ence of  a  piece  of  property  and  the  other  side  is  appealing  to  what  is 
for  the  interest  of  somebody  else  who  does  not  know  what  it  is  all 
about  and  would  like  to,  and  I  think  is  more  intelligent  than  their 
advocate ;  and  all  of  which  is  colored  by  the  collateral  discussions  of 
municipal  ownership  and  the  proximity  of  elections  which  are  never 
further  off  in  New  York  City  than  12  months. 

Now  I  believe  that  the  people  of  New  York — and  I  do  not  know 
whether  this  is  pertinent,  I  only  suggest  it  because  your  chairman 
asked  it — there  will  always  be  people  in  New  York  City  who  will 
protest  against  anything  except  an  annuity.  And  they  will  protest 
against  anything  new  and  revile  anything  that  is  old.  But  the  pub- 
lic in  New  York — if  they  understand  this  situation,  and  it  can  be 
explained  to  them — will  make  no  protest  against  a  proposition  that 
to  make  a  railroad  live  on  its  capital  is  public  larceny,  and  they  will 
not  be  a  party  to  it.  But  as  long  as  the  discussion  is  kept  within 
the  range  of  who  can  say  the  most  for  something  while  doing  some- 
thing to  them,  the  thing  will  never  be  solved. 

Now.  any  specific  data  that  the  commission  wants — and  I  feel  I 
have  taken  too  long — I  will  get  for  them  if  I  can.  There  are  two 
mortgages  under  foreclosure  there  now:  a  4  per  cent  mortgage  in- 
volving, as  I  recall  it,  something  around  $16,000,000  or  $18,000,000, 
and  another  involving  I  think  something  like  $50,000.000  and  a 
mortgage  predicated  on  income.  If  nothing  is  done  there  the  $50,- 
000,000  mortgage  becomes  a  memory,  because  if  the  first  mortgage 
forecloses  and  sells,  the  later  bonds  have  only  a  conversational  me- 
morial value.  If  the  first  bonds  do  not  sell  and  the  public-service 
authorities  permit  the  receiver  to  have  an  income,  why,  there  should 
be  a  reorganization,  otherwise  all  these  lines  will  divide.  That  is 
just  the  observation  of  a  layman.  Later  I  will  know  more  about  it. 

Mr.  WARREN.  Mr.  Hedges,  you  spoke  of  the  commissioner  having 
authority  to  change  transfers. 

Mr.  HEDGES.  Yes;  to  permit  a  charge  for  transfer. 

Mr.  WARREN.  To  permit  a  charge  lor  transfer? 

Mr  HEDGES.  Yes. 

Mr.  WARREN.  But  not  an  increase  in  fare.  That  of  course  means 
where  the  franchise  itself  limits  the  fare. 

Mr.  HEDGES.  Y*es,  sir. 

Mr.  WARREN.  Because  in  many  parts  of  New  York  the  fare  is  in- 
creased owing  to  the  silence  of  the  franchise. 

Mr.  HEDGES.  Yes;  that  is,  you  mean  where  it  is  a  part  of  the  origi- 
nal contract  in  the  franchise  itself. 

Mr.  WARREN.  And  that  is  the  situation  in  New  York  franchises 
generally? 

Mr.  HEDGES.  Yes,  sir.  Now,  the  Buffalo  case,  as  the  commission 
probably  knows,  came  up  from  a  legislative  ratification  of  the  con- 
tract between  the  city  and  the  company. 


524      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  And  there  the  court  held  that  the  legislature  had 
delegated  the  commission  its  own  power  to  change  the  rate. 

Mr.  HEDGES.  Yes.  Now,  the  legal  discussion  is  whether  that  carried 
anything  other  than  the  Buffalo  case. 

Mr.  WARREN.  The  court  having  previously  decided  the  Quinby 
case 

Mr.  HEDGES.  Yes ;  in  which  they  said  they  had  no  authority. 

Mr.  WARREN.  You  spoke  of  the  congestion  in  the  streets  as  retard- 
ing and  slowing  up  the  cars. 

Mr.  HEDGES.  Yes. 

Mr.  .WARREN.  Do  you  know  whether  there  is  any  effort  made  by 
the  municipal  authorities  to  give  the  cars  any  right  of  way  over  the 
tracks  ? 

Mr.  HEDGES.  Not  that  I  know  of. 

Mr.  WARREN.  There  is  in  some  cities. 

Mr.  HEDGES.  Yes.  Every  once  in  a  while  there  will  be  an  effort 
made  to  divert  traffic  to  another  street,  like  the  widening  of  what  is 
now  Lafayette  Place,  but  I  know  of  no  method  generally. 

Mr.  WARREN.  Trying  to  keep  the  traffic  off  the  rails  themselves? 

Mr.  HEDGES.  Yes. 

Mr.  WARREN.  That  is  all,  Mr.  Hedges.  I  think  perhaps  the  com- 
missioners would  like  to  ask  you  some  questions. 

The  CHAIRMAN.  Have  you  had  any  prior  experience  in  the  railroad 
business? 

Mr.  HEDGES.  No,  sir;  not  the  slightest. 

The  CHAIRMAN.  The  immediate  problem  seems  to  be  to  secure 
revenue  enough  to  operate  the  railroad. 

Mr.  HEDGES.  Yes,  sir. 

The  CHAIRMAN.  You  have  no  immediate  concern  in  the  return 
upon  capital  invested? 

Mr.  HEDGES.  That  is  not  within  my  activity. 

The  CHAIRMAN.  The  New  York  Railways  which  you  represent  con- 
sist of  all  of  the  surface  lines? 

Mr.  HEDGES.  All  of  the  green-car  surface  lines;  not  all  of  Man- 
hattan Island,  because  there  is  another  system  called  the  Third  Ave- 
nue system — and  the  Second  Avenue. 

The  CHAIRMAN.  Any  connection  with  the  subways? 

Mr.  HEDGES.  No. 

The  CHAIRMAN.  Or  the  overhead? 

Mr.  HEDGES.  Do  you  mean  the  system  I  represent  ? 

The  CHAIRMAN.  Yes. 

Mr.  HEDGES.  No,  sir;  except  this:  that  there  were  three  corpora- 
tions, the  Interborough,  the  New  York  Railways,  and  an  overhead 
corporation  know  as  the  Interborough  Consolidated,  which  owned 
the  stock  of  these  two  other  companies;  and  the  physical  service  of 
the  two  companies,  the  Interborough  and  the  New  York  Railways, 
is  performed  in  large  part  by  the  same  administrators  or  executives 
with  an  allocated  remuneration. 

The  CHAIRMAN.  From  your  study  do  you  believe  that  the  rentals 
which  are  being  paid  to  these  subsidiary  companies  are  fair? 

Mr.  HEDGES.  I  think,  as  far  as  I  know,  approximately.  I  do  not  see 
how  that  can  finally  be  determined  on  that,  I  dp  not  see  why  the  New 
York  Railways  had  not  a  right  to  make  an  original  contract.  I  can 
see  that  there  might  be  a  desirability  to  change  the  rate.  For  in- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      525 

stance,  the  rate  of  return  on  the  Eight  Avenue  on  their  capital  is  12 
and  a  fraction  per  cent,  on  the  capital  involved.  Now,  if  the  question 
of  the  physical  life  of  a  railroad  has  got  to  be  considered  exclusively 
as  to  a  final  reorganization  earning  price  there  will  never  be  any 
solution  of  it. 

The  CHAIRMAN.  If  you  could  consolidate  all  the  surface  lines  into- 
one  corporation,  could  you  perfect  such  saving  in  the  overhead  and 
other  costs  as  to  pay  your  fixed  charges  and  operating  expenses  on  a. 
5-cent  fare? 

Mr.  HEDGES.  No,  sir. 

The  CHAIRMAN.  It  could  not  be  done  ? 

Mr.  HEDGES.  No,  sir. 

The  CHAIRMAN.  Then  that  is  not  the  solution  ? 

Mr.  HEDGES.  No,  sir.  I  think  I  can  sa}'  with  as  much  accuracy  a.s 
a  layman  could  give  that  the  operating  expenses  have  been  reduced 
to  a  minimum,  from  necessity  if  for  no  other  reason,  during  the  past 
three  or  four  years. 

The  CHAIRMAN.  Have  your  wages  been  increased  during  the  past 
year  ? 

Mr.  HEDGES.  Yes,  sir — not  the  past  year,  but  a  year  ago,  as  I 
recollect  it. 

The  CHAIRMAN.  Were  they  increased  before  the  War  Labor  Board  ? 

Mr.  HEDGES.  The  New  York  Railways  did  not  come  up  during  the 
war.  I  think  it  was  just  before  the  war. 

The  CHAIRMAN.  What  was  the  increase  in  dollars? 

Mr.  HEDGES.  It  would  have  amounted,  if  the  road  was  running  ta 
its  proper  capacity,  as  I  recollect,  to  about  two  million  four  hundred 
or  two  million  five  hundred  thousand  dollars. 

The  CHAIRMAN.  What  is  your  present  scale? 

Mr.  HEDGES.  I  can  not  give  you  that  from  memory.  I  will  be  very 
glad  to  furnish  it  to  you. 

The  CHAIRMAN.  Are  you  operating  the  roads  as  economically  as 
it  is  possible  to  do  consistent  with  reasonable  service  to  the  public  ? 

Mr.  HEDGES.  I  think  very  close  to  the  danger  line.  The  question 
of  accidents  in  New  York  is  very  serious,  and  they  are  in  arrears  in 
keeping  up  their  paving  contracts  and  keeping  up  their  maintenance 
of  right  of  way. 

The  CHAIRMAN.  Have  you  at  your  fingers'  ends  the  per  cent  of  the 
operating  cost — that  is,  the  per  cent  which  the  claims  paid  bear  to 
the  operating  cost  of  the  railroad  ? 

Mr.  HEDGES.  Do  you  mean  the  accident  claims? 

The  CHAIRMAN.  Yes. 

Mr.  HEDGES.  No;  but  I  can  give  you  that. 

The  CHAIRMAN.  Is  it  a  large  amount? 

Mr.  HEDGES.  It  is  quite  a  substantial  amount — much  larger  propor- 
tionately than  the  Interborough. 

The  CHAIRMAN.  Do  you  also  have  paving  obligations? 

Mr.  HEDGES.  Very  serious  ones. 

The  CHAIRMAN.  What  per  cent  of  the  operating  cost  is  borne  by 
the  paving  items? 

Mr.  HEDGES.  I  can  not  give  it  from  memory,  but  I  will  send  it  to 
you. 

The  CHAIRMAN.  I  wish  you  would. 

Mr.  HEDGES.  I  will  be  very  glad  to,  and  any  other  data. 


526      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

The  CHAIRMAN.  Will  you  send  us  a  statement  showing  the  amount 
of  claims  paid,  the  paving  obligations  and  other  assessments  made 
against  the  property  1 

Mr.  HEDGES.   Yes. 

The  CHAIRMAN.  And  work  it  out  on  a  percentage  basis. 

Mr.  HEDGES.  Yes.  I  will  say  regarding  the  $200,000  that  was  sup- 
posed to  have  been  cleared  over  operating  expenses  in  the  past  six 
months  that  that  was  exclusive  of  the  luck — that  they  did  not  happen 
to  have  to  expend  $200,000  for  snow  removal  last  year,  so  that  up  to 
the  present  writing  it  can  literally  be  said  that  the  road  is  running 
on  capital  expenditure. 

The  CHAIRMAN.  Will  the  2-cent  transfer  charge  divert  much 
traffic  to  the  subways  or  the  overhead  lines? 

Mr.  HEDGES.  My  own  judgment  is  that  it  will  be  appreciable.  I  do 
not  know.  I  think  that  is  experimental,  and  I  do  not  know  that 
anyone  can  tell  definitely.  The  experts  on  the  road  figured  out  that 
there  would  be  a  falling  off  of  40  per  cent  in  transfers  themselves, 
even  by  an  increase  of  2  cents,  and  that  th«t  would  cause  people  to 
walk  or  otherwise,  but  the  slowness  of  the  movement  of  the  surface 
cars  has  already  diverted  traffic  to  the  subways  and  the  elevated. 

The  CHAIRMAN.  In  your  judgment — 

Mr.  HEDGES.  And  I  think  more  will  go  with  the  transfer,  especially 
in  those  places  where  the  subway  approximately  parallels  the  sepa- 
rate road.  Take,  for  instance,  the  Brooklyn  Rapid  Transit.  It  now 
goes  up  Broadway  to  Fifty-seventh  Street  before  it  veers  off  through, 
going  under  the  East  River.  In  other  words  that  parallels  the  green 
cars  all  the  way  to  Fifty-seventh  Street. 

The  CHAIRMAN.  Will  the  transfer  charge  add  to  or  take  from  the 
gross  revenues  of  your  lines? 

Mr.  HEDGES.  I  think,  hope,  and  pray  it  will  add  to  it. 

The  CHAIRMAN.  What  is  your  judgment? 

Mr.  HEDGES.  Mv  judgment  is  that  of  the  experts  who  know  more 
about  it,  that  it  will  add  something  in  the  neighborhood  of  six  hun- 
dred or  seven  hundred  thousand  dollars,  as  I  recall  the  figures. 

The  CHAIRMAN.  Will  that  take  up  the  slack  in  your  operating  ex- 
penses ? 

Mr.  HEDGES.  No,  sir. 

The  CHAIRMAN.  Then  you  have  got  to  have  some  relief  other  than 
a  transfer  charge? 

Mr.  HEDGES.  Yes;  there  has  to  be  a  flat  rate;  and  I  think  the  flat 
rate  would  be  less  objectionable  to  the  public  in  its  ordinary  every- 
day human  activities,  where  you  pay  it  all  at  once  and  get  it  off 
your  mind  than  to  pay  it  apparently  in  two  amounts. 

The  CHAIRMAN.  Now,  you  proposed  a  flat-rate  increase  of  1  cent? 

Mr.  HEDGES.  No;  I  say  that  a  tentative  increase  of  1  cent  on  a 
flat  rate  would  have  been  a  better  test  than  a  2-cent  transfer  charge. 

The  CHAIRMAN.  Do  you  believe  that  the  6-cent  fare  would  enable 
you  to  operate  the  railroad  satisfactorily  ? 

Mr.  HEDGES.  I  doubt  it.  I  do  not  think  it  would;  it  would  take 
a  very  great  period  of  time  with  that  even  to  approximate  the  pay- 
ment of  arrears  of  taxes  and  maintenance  and  things  that  had 
fallen  off. 

The  CHAIRMAN.  That  would  represent  a  20  per  cent  increase  in 
gross  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      527 

Mr.  HEDGES.  Yes,  sir. 

The  CHAIRMAN.  What  do  you  think  the  actual  increase  would  be 
on  .a  flat  1-cent  raise? 

Mr.  HEDGES.  I  do  not  know,  sir;  I  have  not  the  slightest  idea. 

The  CHAIRMAN.  No  way  of  telling? 

Mr.  HEDGES.  No;  the  only  way  they  could  tell  that  would  be  for 
the  men  in  the  company  who  have  followed  it  to  make  their  best 
guess  from  human  experience  along  the  developing  of  new  lines,  or 
where  it  has  fallen  off  owing  to  the  subway  or  elevated. 

The  CHAIRMAN.  Would  the  6-cent  fare  tend  to  divert  a  great  deal 
of  traffic  to  the  other  lines  and  also  force  a  great  many  people  to 
walk  in  the  congested  territory  ? 

Mr.  HEDGES.  I  think  not  so  much  as  a  2-cent  transfer. 

The  CHAIRMAN.  It  would  not? 

Mr.  HEDGES.  That  is  just  my  layman's  guess. 

The  CHAIRMAN.  What,  in  your  judgment,  is  the  ultimate  solution 
of  the  railroad  problems  in  New  York  ? 

Mr.  HEDGES.  The  first  step,  to  my  mind,  would  be  the  human  step 
of  letting  the  public  know  what  the  facts  were. 

The  CHAIRMAN.  That  is  your  job? 

Mr.  HEDGES.  So  far  as  it  is  not  interfered  with  by  the  authorities. 
But  I  have  got  to  persuade  the  authorities  to  tell  the  facts,  and  then 
between  us  we  will  tell  them  to  the  public.  Now,  the  public  will  be 
reconciled,  in  my  judgment,  except  the  protesting  professional  mi- 
nority, to  any  proposition  that  officialdom  declares  is  the  substan- 
tially just  thing  to  do.  I  have  a  higher  opinion  of  the  public  in  that 
respect  than  I  did  a  few  years  ago,  from  personal  experience. 

The  CHAIRMAN.  Well,  undoubtedly  you  have  to  nave  the  proper 
psychology. 

Mr.  HEDGES.  Absolutely. 

The  CHAIRMAN.  And  that  can  only  be  secured  by  giving  to  the 
public  the  real  facts,  so  they  will  understand  them  and  believe  them? 

Mr.  HEDGES.  Absolutely. 

The  CHAIRMAN.  And  assuming  that  the  public  have  the  facts,  what 
is  vour  solution  ? 

Mr.  HEDGES.  An  increase  of  remuneration  for  the  service  rendered. 

The  CHAIRMAN.  Do  you  require  a  reorganization  of  your  plant  if 
you  get  an  increase  in  fare? 

Mr.  HEDGES.  Do  you  mean  in  the  manning  of  it? 

The  CHAIRMAN.  Yes. 

Mr.  HEDGES.  The  only  question  I  could  see  involved  now  would  bo 
whether  the  New  York  Railways  were  severed  from  the  joint  me- 
chanical operation.  That  would  mean  the  installing  of  power  else- 
where. The  New  York  Railways  buys  its  power  from  the  Inter- 
borough,  and  I  think  gets  it  at  a  cheaper  rate  than  it  could  through 
an  independent  company. 

The  CHAIRMAN.  Suppose  there  was  a  consolidation  of  all  the  sur- 
face, subway,  and  overhead  lines;  could  you  then  operate  on  a  5-cent 
fare  so  as  to  pay  operating  costs  and  fixed  charges? 

Mr.  HEDGES.  I  have  not  professional  knowledge  to  know  that,  but 
I  have  not  the  slightest  doubt  that  it  could  not  be. 

The  CHAIRMAN.  That  it  could  not  be? 

Mr.  HEDGES.  No. 


528       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  CHAIRMAN.  How  much  of  a  saving  in  overhead  cost  and  other 
expenses  could  be  made  by  perfecting  a  complete  consolidation  of  all 
lines  in  New  York  City? 

Mr.  HEDGES.  A  very  inappreciable  amount,  in  my  judgment,  so  far 
as  my  observation  goes. 

The  CHAIRMAN.  You  think  it  would  not  be  substantial? 

Mr.  HEDGES.  I  can  not  conceive  of  anything  being  more  compact 
than  it  is  now.  I  can  conceive  that  a  man  may  have  so  much  to  do 
by  way  of  executive  function  that  he  scatters.  But,  as  it  is  now, 
everything  is  made  about  as  composite  as  it  could  be.  I  do  not  know 
anything  about  the  Third  Avenue. 

The  CHAIRMAN.  There  are  all  sorts  of  franchises  existing  in  New 
York  City,  are  there  not  ? 

Mr.  HEDGES.  Yes. 

The  CHAIRMAN.  Different  terms  and  different  conditions? 

Mr.  HEDGES.  Yes,  sir ;  some  of  them. 

The  CHAIRMAN.  How  many  of  the  companies  are  included  in  your 
system  ? 

Mr.  HEDGES.  My  recollection  is  something  like  14.  I  think  there 
are  five  owned  and — 

The  CHAIRMAN.  Do  you  believe  that  the  situation  would  be  helped 
some  if  you  could  have  a  uniform  franchise  for  all  of  the  railways 
in  your  system? 

Mr.  HEDGES.  I  do  not  believe  the  form  of  franchise  would  af- 
fect it. 

The  CHAIRMAN.  I  beg  pardon  ? 

Mr.  HEDGES.  I  do  not  see  how  the  form  of  the  franchise  would 
affect  it  unless  it  provided  a  living  rate. 

The  CHAIRMAN.  Then  you  do  not  think  there  are  provisions  in 
the  franchise  which  are  against  the  public  interest  ? 

Mr.  HEDGES.  None  that  I  know  of,  sir. 

The  CHAIRMAN.  Are  there  any  that  are  against  the  interests  of  the 
corporation  'I 

Mr.  HEDGES.  There  are  certain  transfer  points  required  by  cer- 
tain franchise  provisions  now  where  there  can  not  be  any  charge 
for  transfer. 

The  CHAIRMAN.  How  about  your  paving  charges? 

Mr.  HEDGES.  I  think  that  is  a  burden — well,  I  do  not  know  how 
that  started,  but  I  think  that  is  a  burden  that  the  roads  should  not 
bear,  certainly  not  exclusively,  because  what  is  reproduced  by  them 
for  the  city  is  not  destroyed  by  them  in  their  own  service. 

The  CHAIRMAN.  Would  it  be  possible  in  a  new  franchise  to  elimi- 
nate that  feature? 

Mr.  HEDGES.  You  can  do  it  without  a  franchise. 

The  CHAIRMAN.  Has  the  council  the  right  to  do  it? 

Mr.  HEDGES.  I  think  so. 

The  CHAIRMAN.  The  franchise  is  a  contract. 

Mr.  HEDGES.  Yes,  sir.  I  think  the  council  can  contribute  that  if 
it  wants  to  in  some  way. 

The  CHAIRMAN.  Has  that  proposition  been  advocated? 

Mr.  HEDGES.  It  has  been  suggested  in  the  public  prints.  I  have 
never  participated  in  a  discussion,  but  I  doubt,  Mr.  Chairman,  dur- 
ing the  present  official  situation  in  New  York,  if  it  would  provoke 
other  than  noise. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      529 

The  CHAIRMAN.  There  is  a  very  considerable  sentiment  for  mu- 
nicipal ownership  there,  is  there  not? 

Mr.  HEDGES.  There  is  a  very  intense  feeling  for  it  in  certain  limited 
localities.  It  is  being  advocated  in  one  daily  publication  and  is. 
advocated  from  the  city  hall  up  to  the  point  of  their  not  having 
any  money  to  buy  with. 

The  CHAIRMAN.  Do  you  believe  it  would  be  possible  for  the  mu- 
nicipality to  operate  the  surface  line  on  a  5-cent  charge  ? 

Mr.  HEDGES.  No,  sir;  I  do  not  believe  they  could  operate  it  within 
a  substantial  per  cent  of  the  rate  private  ownership  can ;  and  I 
make  that  observation  with  considerable  conviction,  because  I  was 
once  secretary  to  a  mayor  in  New  York.  It  is  physically  impos- 
sible, in  my  judgment,  with  an  unrestricted  franchise — the  same 
man  being  the  recipient  of  what  comes  from  the  casting  of  a  ballot — 
to  administer  a  function  unmindful  of  that,  and  that  is  regardless 
of  party  or  anything  else. 

The  CHAIRMAN.  We  have  heard  a  good  deal  here  the  past  week 
about  the  cost-of-service  plan.  Are  you  familiar  with  that? 

Mr.  HEDGES.  A  cost  of  service? 

The  CHAIRMAN.  Yes;  a  cost-of-service  franchise,  such  as  they 
have  in  Cleveland  or  Cincinnati. 

Mr.  HEDGES.  I  am  not  familiar  with  it.  I  have  heard  it  dis- 
cussed, but  I  have  not  any  judgment  about  it. 

The  CHAIRMAN.  Then  you  are  not  prepared  to  discuss  that  as  to 
its  applicability  to  the  New  York  system? 

Mr.  HEDGES.  No,  sir;  but  it  is  quite — wTell— 

The  CHAIRMAN.  I  have  an  appointment  at  11  o'clock.  If  you  will 
pardon  me,  you  may  proceed. 

Mr.  WARREN.  You  are  not  prepared  to  discuss  it  further  than 
that  you  would  like  to  see  the  limitation  of  5  cents  removed  so  that 
the  rates  could  go  up,  if  they  are  to  go  up  ? 

Mr.  HEDGES.  I  do  not  know  anything  about  this  other  theory  you 
mentioned,  Mr.  Warren,  but  I  am  confirmed  in  my  own  mind  that 
if  the  rates  do  not  go  up,  the  roads  will  go  out,  not  down. 

Mr.  WARREN.  And  that  that  provision  of  the  franchise  ought  to 
be  changed  by  some  method  so  that  the  rates  can  be  changed? 

Mr.  HEDGES.  Yes;  but  I  have  not  any  fruitful  opinion  as  to  how 
to  do  it. 

Commissioner  SWEET.  I  understood  you  to  say  that  you  had  not 
had  previous  street-railroad  experience. 

Mr.  HEDGES.  Yes. 

Commissioner  SWEET.  You  are  an  attorney  at  law? 

Mr.  HEDGES.  Yes,  sir. 

Commissioner  SWEET.  And  have  been  practicing  for  quite  a  good 
many  years  in  New  York  City? 

Mr.  HEDGES.  Since  1886,  sir. 

Commissioner  SWEET.  You  have  also  been  giving  some  attention 
to  public  affairs  all  your  life,  have  you  not? 

Mr.  HEDGES.  All  my  life — and  tried  to  officially. 

Commissioner  SWEET.  You  refer  by  that  to  your  candidacy  for 
Governor  of  New  York? 

Mr.  HEDGES.  Yes,  sir. 


530       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Commissioner  SWEET.  I  believe  you  were  born  in  Livingston 
County,  N.  Y.,  were  you  not? 

Mr.  HEDGES.  I  came  from  there ;  my  people  came  from  there. 

Commissioner  SWEET.  "Were  you  not  born  there  ? 

Mr.  HEDGES.  No,  sir;  I  was  born  in  New  Jersey,  but  my  father 
came  from  Danville. 

Commissioner  SWEET.  Without  going  over  the  ground  you  have 
been  over,  with  regard  to  the  detail  of  the  New  York  system  and  your 
present  very  difficult  problems,  in  your  study  of  public  questions, 
your  mind  undoubtedly  has  rested  frequently  and  with  more  or  less 
care  upon  the  question  of  the  public  utilities^ 

Mr.  HEDGES.  Yes. 

Commissioner  SWEET.  Were  you  present  in  New  York  when  for- 
mer-President Taft  appeared  before  this  commission? 

Mr.  HEDGES.  I  was  in  the  city,  but  not  at  the  hearing. 

Commissioner  SWEET.  He  made  a  statement  before  the  commis- 
sion that  he  had  taken  up  the  general  study  of  the  subject  of  street 
railways  as  a  member  of  the  War  Labor  Board  in  connection  with 
wages,  and  that  as  a  war  measure  it  became  exceedingly  important 
that  the  electric  railways  on  lines  over  which  workmen  in  factories 
doing  war  work  were  transported  from  their  homes  to  the  factories — 
that  it  was  important  that  these  lines  be  kept  in  operation.  He  also 
stated  that  wages  were  raised  on  the  basis  of  needs — the  general  in- 
crease throughout  the  country  of  what  we  call  the  cost  of  living — 
and  that  not  so  much  consideration  was  given  to  the  ability  of  the 
railroads  to  pay  those  wages.  Of  course,  you  know  as  a  citizen  and 
also  as  receiver  of  these  companies  that  wages  have  been  raised  to 
a  very  high  point  as  compared  to  the  prewar  rates.  You  also  know 
that  everything  that  a  railroad  has  to  buy — steel,  equipment  of  all 
kinds,  electrical  apparatus,  and  everything — is  very  high ;  is  not  that 
true? 

Mr.  HEDGES.  Yes,  sir;  very  high. 

Commissioner  SWEET.  Now,  former-President  Taft  took  the  posi- 
tion that  something  had  got  to  be  done  to  help  the  general  systems 
of  railroads  throughout  the  country — not  New  York  City  alone,  but 
all  over  the  United  States — to  continue  in  operation,  and  that  their 
incomes  had  to  be  very  materially  increased  or  expenses  very  mate- 
rially reduced.  He  also  expressed  the  opinion  that  expenses  could 
not  be  very  well  reduced,  or  to  any  material  extent,  in  the  immedi- 
ate future.  He  thought  the  purchasing  power  of  money  had  been 
reduced  and  that  it  was  a  condition  that  had  come  to  stay — -that 
had  some  degree  of  permanency.  Is  that  your  opinion  ? 

Mr.  HEDGES.  Only  in  degree.  I  think  that  the  cost  of  maintaining 
these  roads,  the  cost  of  living,  has  very  largely  increaased,  abnormally 
increased.  I  think  a  measure  of  it  will  continue  for  a  period  of  time.  I 
think  prices  are  inflated  as  a  result  of  the  war  plus  an  added  amount 
imposed  upon  a  purchaser  by  virtue  of  not  knowing  how  much  the 
article  cost.  I  think  we  are  still  making  the  war  as  an  excuse,  and 
I  do  not  think  it  has  gotten  back  yet  to  an  approach  to  economic 
propositions;  but  I  think  it  will  continue  some  time,  and  I  think 
that  the  price  of  material  and  the  price  of  wages  have  each  forced 
the  other  up — whichever  took  the  first  step,  it  had  to  be  responded  to. 

Commissioner  SWEET.  In  matters  of  that  kind  it  is  very  often 
difficult  to  tell  which  is  cause  and  which  is  result,  is  it  not? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      531 

Mr.  HEDGES.  Yes ;  they  are  each  both. 

Commissioner  SWEET.  But  they  have  moved  along  in  parallel 
lines  to  a  certain  extent? 

Mr.  HEDGES.  It  seems  to  me,  Mr.  Sweet,  they  have,  competed  with 
each  other  for  raises,  with  the  general  public  standing  by  as  the 
object  lesson. 

Commissioner  SWEET.  Each  one  affording  a  certain  measure  of 
justification  for  the  raise  in  the  other? 

Mr.  HEDGES.  Yes. 

Commissioner  SWEET.  You  say  you  do  not  quite  agree  with  Presi- 
dent Taft  that  this  situation  has  some  degree  of  permanency — or  a 
considerable  degree  of  permanency? 

Mr.  HEDGES.  Where  I  would  differ,  with  modesty,  would  be  as  to 
the  period  of  time  before  we  begin  to  recover.  The  period  of  time, 
in  my  judgment,  would  be  shortened  by  the  courage  of  intellectual 
men  in  discussing  things  as  they  are;  and  the  public  will  respond 
to  that,  and  conditions  will  become  more  normal  from  an  accurate 
knowledge. 

Commissioner  SWEET.  I  assume,  Mr.  Hedges,  that  you  would  not 
like  to  state  exactly,  or  with  any  degree  of  exactness,  the  period  that 
you  think  these  conditions  will  continue. 

Mr.  HEDGES.  My  knowledge  would  not  have  any  value. 

Commissioner  SWEET.  Well,  would  anybody's? 

Mr.  HEDGES.  According  the  value  they  placed  upon  their  own 
judgment. 

Commissioner  SWEET.  In  their  own  minds. 

Mr.  HEDGES.  In  their  own  minds. 

Commissioner  SWEET.  They  might  have  some  value,  but  in 
fact 

Mr.  HEDGES.  In  fact,  I  think  it  is  a  guess,  sir. 

Commissioner  SWEET.  But  this  is  not  a  guess,  is  it,  Mr.  Hedges, 
that  unless  .these  railroad  companies  that  are  now  generally,  through- 
out the  country  operated  at  a  loss,  defaulting  in  the  payment  of  in- 
terest upon  their  bonds,  paying  nothing  to  their  stockholders — un- 
less that  condition  is  changed,  these  companies  are  going  practically 
out  of  existence  ? 

Mr.  HEDGES.  They  will  cease  to  be  a  part  of  community  life  en- 
tirely? 

Commissioner  SWEET.  Exactly  so. 

Mr.  HEDGES.  They  will  pass  from  the  realm  of  actuality. 

Commissioner  SWEET.  And  whether  the  purchasing  power  of  the 
dollar  is  going  to  be  restored  in  six  months  or  a  year  or  two  years 
is  not  so  important  for  this  immediate  consideration  as  the  fact 
that  these  railroad  companies  can  not  exist  until  the  purchasing 
power  of  the  dollar  is  restored,  in  your  judgment? 

Mr.  HEDGES.  Absolutely  not.  That  is  a  matter  of  years.  The  life 
of  these  companies,  so  far  as  I  have  observed,  is  a  matter  of  months. 

Commissioner  SWEET.  So  far  as  the  question  that  President  Taft 
presented  is  concerned,  that  is  the  real  essential  feature  of  it  as  ap- 
plied to  this  situation,  is  it  not? 

Mr.  HEIXJKS.  Absolutely,  the  question  of  the  period  of  time  is  the 
point  of  view  and  tho  degree  of  human  experience  the  man  has  had 
in  observation  who  utters  the  opinion. 


532       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  But,  so  far  as  the  railroads  are  concerned^ 
they  must  have  what  we  might  call  immediate  relief  in  order  to  live. 

Mr.  HEDGES.  Absolutely ;  and  in  New  York,  Mr.  Sweet,  it  is  pathetic 
the  way  the  matter  is  discussed  publicly. 

Commissioner  SWEET.  Not  only  in  New  York  but  everywhere. 

Mr.  HEDGES.  I  mean  wherever  it  is  discussed.  The  reason  is  thisr 
sir,  if  I  may  volunteer  a  suggestion:  The  'discussion  of  the  street 
railways,  a  part  of  the  everyday  life,  is  made  the  bonus  of  a  request 
for  advantage  and  public  approval  by  giving  to  somebody  something 
that  some  one  else  has  paid  for  and  claiming  a  reward  in  the  next 
few  months,  usually  falling  in  about  November.  And  I  am  com- 
pelled to  say  with  entire  truthfulness,  as  a  man  from  the  same 
locality  with  which  you  are  familiar,  that  that  weakness  is  not  en- 
tirely chargeable  to  any  one  line  of  political  faith. 

Commissioner  SWEET.  No;  that  is  true.  Is  it  not  your  experi- 
ence, Mr.  Hedges,  in  connection  with  your  observation  and  partici- 
pation in  public  affairs,  that  politicians  have  made  a  sort  of  football 
of  public  utilities  and  have  frequently  found  it  to  their  immediate 
advantage,  perhaps  in  the  way  of  getting  into  office,  to  bring  a 
great  many  charges  against  public  utilities  that  were  unjust? 

Mr.  HEDGES.  Yes,  sir.  I  think  that  many  of  these  intellectual 
opinions  that  people  arrive  at  they  reach  for  their  rhetorical  possi- 
bilities. 

Commissioner  SWEET.  Beyond  any  question  of  doubt. 

Mr.  HEDGES.  Yes. 

Commissioner  SWEET.  Can  you  tell  the  commission  what,  in  your 
judgment,  it  can  do,  or  the  interested  railroads  can  do,  to  change 
public  sentiment  in  that  regard? 

Mr.  HEDGES.  You  are  not  asking  now  regarding  some  particular 
legislative  way  or  legislative  feature? 

Commissioner  SWEET.  No ;  I  think  it  will  have  to  go  back  of  that. 
I  think  the  legislative  measures  would  follow  a  change,  in  public 
sentiment. 

Mr.  HEDGES.  I  think  this,  Mr.  Sweet :  I  think  the  country  is  more 
and  more  responding  to  the  officialdom  of  Washington  as  to  an  ex- 
pression of  opinion.  I  think  if  there  should  come  from  this  com- 
mission a  succinct  statement  that  the  present  management  and 
handling  of  these  roads  as  between  them  and  municipalities  is  result- 
ing in  plain  ordinary  theft — the  taking  of  property  without  re- 
muneration— it  would  cause  people  to  think  about  it.  I  think  the 
more  the  facts  of  it  can  be  promulgated,  and  they  come  with  greater 
force  when  sent  from  Washington — here  is  a  Federal  commission 
discussing  a  great  question  which  goes  into  the  jurisdiction  of  States 
as  well 

Commissioner  SWEET.  You  think  that  would  reach  the  public  con- 
science ? 

Mr.  HEDGES.  I  think  it  would  help  very  greatly.  Now,  of  course, 
there  are  questions — this  political  question — I  think  you  have  touched 
on  pretty  nearly  the  sore  spot  very  largely.  It  is  impossible  to  have 
an  accurate,  wholesome  public  opinion  when  men  of  intellect  will 
appeal  for  public  rewards  by  an  inaccurate  and  dishonest  statement 
of  fact;  not  deliberately  making  it  but  making  deliverances.  Now, 
for  instance,  we  are  discussing  in  New  York  the  question  of  munic- 
ipal ownership;  that  is  gradually  passing  out  of  discussion.  Aca- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      533 

demically,  municipal  ownership  is  perfectly  sound  if  predicated  on 
two  propositions — I  am  giving  my  own  opinion — that  all  people  who 
cast  a  ballot  are  of  equal  status  mentally  and  morally.  There  is  no 
way,  in  my  judgment,  to  get  away  from  the  logic  of  that,  if  that 
were  the  fact,  because  it  is  predicated  upon  that.  Now  it  does  not 
happen  to  be  the  fact  and  in  the  providence  of  God  was  never  in- 
tended to  be  the  fact.  Now,  then,  we  go  to  the  further  proposition : 
What  is  the  duty  of  a  thoughtful  man,  official  or  otherwise,  in  bridg- 
ing over  the  gap  between  a  fact  and  an  intelligent  but  uninformed 
mind  in  coming  to  a  conclusion  ? 

Now,  I  believe — if  this  is  not  taking  the  time  of  the  commis- 
sion— we  talk  about  the  people  and  the  relation  of  government  to 
them:  the  real  question  is  whether  government  is  a  thing  to  live 
on  or  under.  Now  what  is  the  relation  of  government  to  an  indi- 
vidual? Not  to  bribe  his  mind  by  a  pretended  favor.  The  public, 
Mr.  Sweet,  at  this  moment — I  am  speaking  beyond  the  ultraigiiorant 
public — is  yearning  for  a  statement  of  fact.  For  20  years  facts  have 
been  gradually  eliminated  from  the  discussion  of  public  questions 
in  the  United  States,  in  my  judgment. 

Commission  SWEET.  You  are  speaking  of  public  questions  gener- 
ally? 

Mr.  HEDGES.  Of  public  questions  generally.  Now,  here  is  one  that 
comes  very  intimate;  here  is  a  community  that  builds  a  road — I  am 
speaking  as  an  amateur — the  people  on  that  road  are  people  right 
from  that  community,  some  of  them,,  the  motorman,  the  conductor; 
it  is  a  part  of  the  life  of  that  community.  But  at  the  same  time,  while 
it  visualizes  the  car  and  the  conductor  and  the  motorman,  the  corpo- 
rate entity  is  not  there ;  they  do  not  see  it  because  it  is  an  intangible 
thing.  They  know  that  somebody  connected  with  it,  an  official  or  a 
majority -holding  stockholder,  has  more  money  than  somebody  else 
has.  Now  it  is  perfectly  human  nature  to  display  mental  heights 
by  criticizing  somebody  else  or  something ;  therefore  it  is  vented  on 
this,  and  no  one  to  speak  back.  I  think  the  roads  and  corporations 
generally  have  been  rather  cowardly  about  it  in  not  going  before  the 
public;  and  I  can  understand  their  reasons  for  it.  They  have  a  local 
condition  to  meet  and  they  may  give  an  opponent  an  advantage  by 
arguing  for  themselves.  That  would  only  be  temporary.  For  in- 
stcfnce,  at  the  moment — if  you  will  pardon  the  personal  reference — • 
I  am  counsel  for  the  Association  of  Life  Insurance  Presidents  of  New 
York.  The  companies  own  volumes  of  railroad  securities,  steam,  and 
otherwise.  Those  securities  represent  policyhoklers,  of  course.  Those 
securities  are  the  reserves  to  substantiate  those  policies.  For,  away 
in  the  background  beyond  this  little  childish  petty  discussion  about 
a  specific  rate  and  a  specific  locality,  when  those  people  begin  to 
know  about  it  and  the  official  in  a  petty  office  begins  to  know  that 
his  constituents  in  his  ward  know  it,  he  will  begin  to  do  business 
intelligently.  Now,  somebody's  business  it  is  to  do  that. 

Now,  it  is  for  the  individual  citizen  .to  present  the  discussion.  It 
is  for  the  public  official  to  tell  the  truth.  It  is  the  position  of  a  com- 
mission like  this,  if  you  will  pardon  me,  to  state  the  facts  and  give 
their  reasoning  for  them,  with  the  scalpel  cut  right  down,  to  mako 
the  whole  thing  impersonal- 
Commissioner  SWEET.  You  need  not  beg  the  pardon  of  the  com- 
mission for  offering  any  advice  or  suggestion. 


534      PROCEEDINGS  OF  FEDEKAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  HEDGES.  I  only  say  that  because  I  am  so  conscious  of  my 
ignorance. 

Commissioner  SWEET.  That  is  exactly  what  we  want. 

Mr.  HEDGES.  I  am  ignorant  of  the  technique  of  the  rate,  but  I  have 
general  impressions. 

Commissioner  SWEET.  That  is  the  idea.  Now,  you  seem  to  think- 
that  by  presenting  the  facts  to  the  public  just  exactly  as  they  arc. 
whether  it  is  brought  to  their  consciousness  by  this  commission  or  ir> 
other  means,  that  the  public  conscience  in  any  way  will  be  reached 
and  the  fact  that  injustice  is  being  done  to  the  railroad  corporations 
will  be  impressed  upon  the  public  mind. 

Mr.  HEDGES,  I  think  it  will  be  a  very  great  gain  for  a  tremendous 
commission  like  this  sitting  here  to  state  to  the  public  that  there  is 
such  a  thing  as  American  justice  as  between  an  impersonal  thing 
known  as  a  corporation  and  a  human  vitalized  thing  like  an  indi- 
vidual. 

Commissioner  SWEET.  Now,  then,  aside  from  the  matter  of  con- 
science that  would  be  involved  in  what  you  have  spoken  of,  would 
there  not  be  two  other  very  important  considerations:  One  the  fact 
that  you  alluded  to  with  regard  to  investors  being  composed 
throughout  the  country  of  people  of  moderate  means  and  of  the 
moneys  invested  by  insurance  companies,  for  instance,  protecting  life 
insurance  throughout  the  country  of  all  classes  of  people  who  insure, 
so  that  aside  from  the  question  of  conscience  involved,  there  is  the 
matter  of  doing  what  is  right  for  their  own  benefit  and  selfish  inter- 
est, on  the  part  of  the  community  as  a  whole  involved  in  protecting 
life-insurance  companies  and  protecting  themselves  in  their  invest- 
ments— widows  and  orphans  who  directly  or  through  trustees  have 
invested  in  these  securities?  But  in  addition  to  that,  is  there  not  a 
still  larger  question,  and  that  is  the  matter  of  providing  in  some  way 
for  the  necessity,  not  merely  the  convenience,  but  the  absolute  neces- 
sity of  the  public  for  these  services  rendered  by  corporations  of  this 
kind,  which  will  be  either  cut  off 'entirely  or  transformed  into  some 
other  position  with  regard  to  the  public  which  may  not  be  anywhere 
near  as  convenient  as  at  present  ? 

Mr.  HEDGES.  Why,  somewhere,  Mr.  Sweet,  a  high  legislative 
authority,  or  whatever  kind  of  authority  it  is,  has  got  to  give  some- 
body official  permission  to  meet  the  situation  as  it  is  and  give  a  rhte 
that  will  preserve  property.  Now,  you  take  as  illustrating  what  }7ou 
were  saying  a  moment  ago  about  a  political  coloring:  Here  is  the 
situation  in  New  York — and  I  am  speaking  just  because  I  am  here — 
of  a  public-service  commission  of  the  same  political  faith  as  a  city 
administration.  The  moment  an  official  opinion  is  rendered  it  is  at- 
tacked. The  party  to  which  I  belong  had  a  commission  of  five,  neces- 
sarily well-ordained  men  mentally  but  without  any  spines;  and  so 
they  rested  for  a  year  lest  they  be  misunderstood,  and  they  were  not 
misunderstood.  That  is  the  reason  the  condition  changed,  by  virtue 
of  which  they  resumed  labor.  The  proposition  is  finding  a  mind 
and  a  spine  that  will  synchronize  and  a  man  who  will  come  to  his 
intellectual  conclusions  and  wait  for  the  conclusions  to  justify  his 
utterance  rather  than  a  claque.  The  question  of  breathing  self-manu- 
factured incense  is  one  of  the  greatest  outdoor  sports  known  to  man, 
but,  in  my  judgment,  I  think  headlines  have  destroyed  more  men 
than  obituary  notices. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      535 

Commissioner  SWEET.  You  do  think,  Mr.  Hedges,  there  is  a  very 
clear,  definite  interest  on  the  part  of  the  public  in  the  proper  solu- 
tion of  this  railway  question,  do  you  not? 

Mr.  HEDGES.  I  think,  Mr.  Sweet — not  as  even  advocating  anything 
for  the  roads  I  represent — I  think  the  public  is  yearning  to  have 
this  thing  decided  rightly.  They  understand  it;  they  understand 
that  there  is  trouble  here.  To  the  last  minute  they  are  going  to 
enjoy  5-cent  fares  or  4-cent  fares.  It  was  suggested  by  an  expert 
in  New  York  City  for  the  city  the  other  day,  in  the  hearing  before 
Commissioner  Nixon,  that  the  New  York  Hail  ways  would  make  more 
money  by  reducing  fares.  The  coroner  was  not  called,  because  the 
thing  was  going  on  all  the  time,  you  know. 

The  fact  is  that  there  are  two  governments  under  our  form :  One 
is  the  man  who  has  official  office,  charged  with  the  particular  re- 
sponsibility under  the  statute.  The  other  is  the  tremendous  numeri- 
cal majority  of  people  who  do  not  hold  it.  Neither  one  of  them  can 
get  along  without  the  other,  and  public  opinion  is  the  umbilical  cord 
that  ties  them  together.  The  conscription  act  could  not  have  been 
put  over  if  the  public  had  not  acquiesced  in  it;  there  were  not  enough 
soldiers  here  to  enforce  it.  Now,  the  intelligent  part  of  the  com- 
munity owes  more  than  its  numerical  obligations  to  the  rest  of  them ; 
and  therefore  there  is  no  way  to  divide  individual  responsibility 
mathematically. 

Now,  I  think — I  do  not  know  enough  about  it,  but  it  is  my  infer- 
ence— I  think  that  these  corporations  in  past  years  have  erred  by  not 
instructing  the  public  as  far  as  they  could  while  they  were  going  on. 
Now,  I  assume  they  attempted  to;  I  assume  that  was  mixed  up  by 
the  diversion  of  local  opinion  for  individual  opinion,  and  everybody 
likes  to  be  preferred.  A  man  who  says  he  docs  not  like  applause  is 
an  ordinary  liar.  The  test  is  what  will  he  do  to  get  it.  The  test  is 
whether  his  principle  is  weaker  than  his  personality.  My  observa- 
tion is  that  when  a  man  assumes  that  his  personality  has  become  a 
proposition  of  conduct,  his  mind  has  begun  to  decay  without  his 
knowing  it,  because  the  Almighty  never  intended  us  to  be  personal 
and  impersonal  at  the  same  time. 

Commissioner  SWEET.  It  seems  to  be  admitted,  Mr.  Hedges,  by 
the  people  who  have  appeared  before  us  and  those  connected  with 
the  railroad  business  as  well  as  others,  that  there  was  a  time  in  the 
history  of  the  country  when  practices  that  were  not  strictly  honest 
or  honorable  were  indulged  in  by  the  street-railroad  companies  in 
various  communities  and  that  these  practices  had  something  to  do 
with  the  creation  of  the  prejudice  which  has  existed  and,  to  some 
extent,  still  exists  against  the  companies. 

Mr.  HEDGES.  I  have  no  doubt  that  is  literally  true,  sir. 

Commissioner  SWEET.  Now,  then,  to  eradicate  prejudice  and  to 
place  before  the  people  the  exact  facts  and  to  secure  acquiescence  in 
measures  that  must  be  adopted  in  order  to  bring  about  a  healthy 
condition  with  regard  to  these  companies  is  certainly  no  boy's  job, 
is  it? 

Mr.  HEDGES.  It  is  not  only  no  boy's  job,  but  it  will  take  a  consider- 
able period  of  time,  sir,  and  with  continuous  effort. 

Commissioner  SWEET.  Now,  during  the  period  that  will  be  required 
to  bring  that  about,  if  it  is  ever  brought  about,  if  nothing  is  done  for 
the  relief  of  the  companies,  they  are  going  by  the  board,  are  they  not  I 


536      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  HEDGES.  They  are  going  by  the  board,  and  discussion  of  railway 
matters  will  be  as  to  what  would  have  happened  in  the  past  if  some- 
thing had  been  different. 

Commissioner  SWEET.  Now,  then,  can  you  make  any  suggestions  or 
offer  any  helpful  thought  on  the  subject  as  to  what  might  be  done  by 
this  commission,  if  it  saw  fit  and  had  the  real  good  of  the  public  at 
heart  as  well  as  of  the  companies,  as  a  remedial  measure  to  keep  the 
patient  alive  before  the  final  administration  of  the  remedial  cure? 

Mr.  HEDGES.  I  can  not  intelligently  or  illuminatingly  answer  that 
question,  except  so  far  as  for  the  moment  to-  say  officially  that  the 
keeping  alive  of  these  tilings  requires  an  increased  fare  and  giving 
reasons  for  it,  and  then  meanwhile  looking  for  some  legislative  way 
to  do  it.  I  have  not  reflected  enough  to  answ er  your  question. 

Commissioner  SWEET.  Don't  you  think  that  even  to  get  the  full 
benefit  of  an  increased  fare  a  certain  degree  of  education  is  necessary 
on  the  part  of  the  public  to  avoid  a  diminution  of  patronage  to  a 
certain  extent? 

Mr.  HEDGES.  Yes ;  but  I  think  the  public  as  a  matter  of  protest  and 
principle  will  not  physically  inconvenience  itself. 

Commissioner  SWEET.  You  think  the  public  would  acquiesce  in  the 
recommendation  for  a  general  increase  of  fares  ? 

Mr.  HEDGES.  There  is  a  difference  between  acquiescing  in  it  and  not 
physically  protesting  against  it,  Mr.  Sweet. 

Commissioner  SWEET.  Yes ;  in  other  words,  they  pay  the  fare. 

Mr.  HEDGES.  They  pay  tlie  fare;  and  if  there  is  no  mob  violence, 
they  have  relatively  acquiesced. 

Commissioner  SWEET.  That  is  right. 

Mr.  HEDGES.  In  other  words,  the  public,  in  my  judgment,  thinks 
anti,  not  pro.  A  small  minority  think  pro. 

Commissioner  SWEET.  But  if  there  were  no  direct  affirmative  oppo- 
sition, you  think  the  wheels  would  keep  turning. 

Mr.  HEDGES.  I  have  not  the  slightest  doubt  about  it,  providing  they 
had  enough  money  to  turn  them,  and  I  have  not  the  slightest  doubt 
about  it  that  after  the  public  mind  had  adjusted  itself  to  that  by  a 
physical  everyday  habit  they  would  curse  the  people  that  did  not  help 
bring  it  about. 

Commissioner  SWEET.  And  the  way  to  keep  the  wheels  turning,  if 
I  understand  you  right,  is  by  an  increase  of  income,  especially  because 
you  think  that  a  diminution  of  expenses  is  not  to  be  expected  in  the 
immediate  future. 

Mr.  HEDGES.  Oh,  not  near  enough  to  apply  to  this  solution,  not  at 
all,  and  I  think  all  that  can  be  done  is  to  substitute  money  for  rhetoric. 

Commissioner  SWEET.  That  is  all. 

Mr.  WARREN.  Just  one  minute,  Mr.  Hedges.  You  could  have,  could 
you  not,  immediate  increase  of  fares  if  the  city  government,  which 
represents  the  other  side  of  the  contract,  assented  ? 

Mr.  HEDGES.  In  New  York  the  board  of  estimate  and  apportionment 
can  give  it. 

Mr.  WARREN.  So  if  this  commission  saw  fit  in  its  wisdom  to  recom- 
mend as  an  intermediate  remedy,  while  more  permanent  remedies  were 
being  considered,  an  increase  in  rate,  places  like  New  York,  which  are 
tied  up  with  contracts,  could  give  that  relief  if  the  public  representa- 
tives chose  to  do  so  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      537 

Mr.  HEDGES.  I  have  not  any  doubt  that  they  could,  and,  further- 
more, that  they  would;  and' then,  everything  having  gone  along 
rightly,  they  can  say,  "  We  acquiesce  in  a  higher  authority  " ;  and 
that  lets  them  out  from  local  conversational  effect;  and  then,  later, 
they  can  say,  when  the  embroglio  is  somewhat  forgotten,  "I  shall 
never  forget  how  glad  I  was,  recommending  the  commission  to 
do  it," 

Mr.  WARREX.  And  as  regards  those  States  where  the  State  com- 
missions have  authority,  and  cases  in  New  York  where  they  have 
authority,  the  commissions  themselves  could  grant  immediately  ou 
the  application  of  the  company  such  increases  as  seemed  necessary 
to  tide  the  companies  over? 

Mr.  HEDGES.  I  have  not  any  doubt  about  it,  and  I  have  but  little 
doubt  that  they  would. 

Mr.  WARREN.  If  this  commission  made  the  recommendation? 

Mr.  HEDGES.  Yes ;  and  then  express  regret  that  the  commission 
had  not  done  it  sooner. 

Mr.  WARREN.  Thank  you  very  much,  Mr.  Hedges. 

(Witness  excused.) 

Mr.  WARREN.  Mr.  Chairman,  I  would  like  to  ask  the  indulgence 
of  the  commission  to  postpone  a  little  longer  Mr.  Nash's  testimony. 

The  CHAIRMAN.  Very  well;  suit  yourself. 

Mr.  WARREX.  Because  we  have  other  witnesses  called  for  to-day. 

The  CHAIRMAN.  All  right. 

Mr.  WARREX.  I  will  ask  Mr.  Bertron  to  take  the  stand. 

STATEMENT  OF  MR.  SAMUEL  READING  BERTRON. 

Mr.  WARREN.  Your  full  name,  Mr.  Bertron? 

Mr.  BERTRON.  Samuel  Reading  Bertron. 

Mr.  WARREN.  And  you  are  a  banker,  I  believe. 

Mr.  BERTRON.  Yes,  sir. 

Mr.  WARREX.  Your  firm  is — 

Mr.  BERTRON.  Bertron,  Griscom  &  Co.,  of  New  York  and  Phila- 
delphia. 

Mr.  WARREN.  And  what  experience  have  you  had  in  street  rail- 
ways, Mr.  Bertron? 

Mr.  BERTRON.  Well,  I  regret  to  say,  sir,  that  we  have  made  a 
specialty  of  handling  public-service  securities  for  about  25  years. 

Mr.  WARREX.  Including  a  great  many  street  railways? 

Mr.  BERTROX.  Including  a  great  many  street  railways. 

Mr.  WARREX.  And  are  the  street-railway  securities  broadly  dis- 
tributed, in  your  judgment? 

Mr.  BERTRON.  Yes;  I  think  next  to  steam  railways,  more  so  than 
any  other  security  that  we  have  to  offer  in  this  country. 

Mr.  WARREN.  Is  it  also  true  that  many  of  the  companies,  in  order 
to  make  necessary  extensions,  betterments,  and  improvements,  need 
capital  beyond  the  amount  which  they  can  obtain  locally? 

Mr.  BERTRON.  A  very  few  communities  absorb  their  own  securi- 
ties— at  least  on  the  initial  issue. 

Mr.  WARREN.  Yes. 

Mr.  BERTRON.  Very  often  they  gradually  get  back  and  are  dis- 
tributed locally. 

160643°— 20 35 


538       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN,  As  a  result  of  that,  credit,  general  credit,  is  necessary 
in  order  to  enable  the  companies  to  get  money? 

Mr.  BERTRON.  Absolutely. 

Mr.  WAI{RE>T.  To  get  credit  in  the  financkl  centers? 

Mr.  BERTRON.  Yes. 

Mr.  WARREN.  And  now,  without  my  questioning  you  right  along. 
Mr.  Bertron,  will  you  state  to  the  commission  your  view  of  that 
situation  ? 

Mr.  BERTRON.  I  will  take  pleasure  in  doing  so,  but  I  fear  I  will 
repeat  a  good  deal  that  has  been  said  already  by  others,  and  I  will 
be  as  brief  as  possible. 

Mr.  WARREN.  You  may  state  first  some  of  the  companies  with 
which  you  have  had  personal  experience. 

Mr.  BERTRON.  Well,  we  have  financed  the  International  Traction 
Co.,  of  Buffalo,  the  New  Orleans  Co.,  Memphis,  Birmingham, 
Wiikes-Barre,  Harrisburg.  Oh,  we  have  had  about,  I  suppose,  close 
to  50  companies  since  I  have  been  in  the  business. 

There  are,  as  you  know,  6  billions  of  street-railway  securities  in  the 
hands  of  the  public,  as  against  19  billions  of  steam-railway  securi- 
ties. Many  of  us  thought  that  well -selected  securities  of  steam 
railroads  and  street  railways  offered  the  safest  investment  that  could 
be  had,  because  they  supplied  an  absolute  necessity;  and  that  was 
demonstrated  by  the  fact  that  good  street-railway  bonds  sold  on  a 
very  low  interest  return  basis.  They  are  very  largely  held  by  sav- 
ings banks,  by  trust  funds,  by  insurance  companies;  and  there  are 
very  few  investors,  I  think,  who  have  not  some  public-service 
securities. 

When  the  war  came,  although  this  particular  industry  was  re- 
garded as  doing  a  war  service  equal  to  that  of  the  steam  railroads, 
and  it  was  so  stated  by  the  highest  officials,  yet  it  is  the  only  in- 
dustry, I  think,  that  received  no  support  and  was  unable  in  any 
way  to  pass  on  the  increased  costs  of  labor  and  material  to  the 
consumer. 

It  was  said  by  the  officials  here  that  it  was  a  local  problem  and 
should  be  handled  locally,  although  the  causes  which  have  brought 
disaster  to  the  companies  were  widespread  and  due  to  the  "war. 

Only  a  few  local  municipalities  responded  promptly,  and  hardly 
any  sufficiently,  in  raising  rates  so  as  to  maintain  the  credit  of  these 
companies  and,  as  a  result,  it  is  practicaljy  impossible  for  anyone 
to  sell  any  street-railway  security  to  any  investor — anything  else, 
but  not  a  street-railway  security;  an  oil  stock,  or  any  old  thing, 
but  no  street-railway  securities;  and,  as  a  result,  it  is  impossible  to 
raise  money,  because  they  have  no  credit. 

That  presents,  apart  from  the  enormous  losses  that  have  been 
entailed  to  widows  and  orphans  and  to  institutions  and  every  in- 
vestor— -many  o;f  them  have  their  all  in  these  properties — apart  from 
that  phase  of  it,  the  public  service  is  going  to  be  seriously  jeopard- 
ized and,  in  some  cases,  actually  suspended. 

When  'the  problem  has  been  put  up  to  a  local  municipality  as  to 
giving  a  rate  sufficient  to  offset  the  extraordinary  costs,  it  has  rarely 
been  done  in  a  comprehensive  way,  so  that  the  average  citizen  said, 
"Oh,  well,  they  have  gotten  along;  they  will  go  on.  If  these  people 
don't  run  them,  somebody  else  will  run  them."  They  have  not  come 
face  to  face  with  a  suspension  of  the  service. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      539 

Xo\v.  there  is  not  an  intelligent  or  semi-intelligent  citizen  who 
won't  realize  that  without  the  service  his  municipality  can  not  exist. 
They  can  not  conduct  business  unless  they  have  the  transportation 
means,  but  that  has  not  been  brought  home  to  him. 

The  lack  of  intelligent  publicity  is  excessively  great.  I  think, 
as  Mr.  Hedges  remarked,  possibly  the  majority  of  our  people  would 
act  intelligently  and  wisely  if  tne  problem  were  brought  home  to 
them  with  sufficient  clearness,  and  the  others  would  act — the  un- 
intelligent and  the  selfish — provided  they  thought  they  would  have 
to  walk  instead  of  ride.  They  do  not  realize  that. 

Then,  one  of  the  great  drawbacks  has  been  the  injection  of  this 
business  into  politics.  To  use  a  vulgar  expression  which,  to  my 
mind,  is  effective,  they  have  not  the  "  guts  "  to  stand  up  and  do  what 
thjeY  know  to  be  right. 

Xow,  these  companies  ought  not  to  be  in  politics.  It  is  a  great 
economic  problem.  It  is  not  a  political  problem.  And  I  think  that 
your  commission,  which  we  all  hoped  would  have,  been  appointed 
two  years  earlier,  will  be  very  effective  in  bringing  that  home  to  the 
people  of  the  municipalities. 

You  need  intelligent  publicity  and  the  realization  that  these  com- 
panies must  be  taken  out  of  politics,  ft  is  an  economic  problem  and 
nothing  else,  and  the  whole  life  of  municipalities  is  dependent  upon 
the  proper  handling  of  their  public  utilities.  How  best  it  can  be 
effected,  of  course,  is  a  big  problem,  but  I  do  not  think  it  is  beyond 
the  possibility  of  your  devising  a  formula  which  can  be  applied 
generally.  To  handle  each  specific  case  would  take  a  very,  very 
long  time. 

For  instance,  I  know  one  city  where  a  6-cent  fare  has  produced 
a  20  per  cent  increase  instead  oJ  20  per  cent.  There  are  other  com- 
munities where  a  6-cent  fare  does  not  produce,  over  a  5  per  cent 
increase.  That  is  dependent  upon  local  conditions  very  largely, 
and  it  would  be  very  difficult  for  you  to  analyze  each  one  separately. 

The  CHAIRMAN.  Where  did  the  6-cent  fare  produce  a  29  per  cent 
increase? 

Mr.  BERTROX.  At  the  moment,  it  is  doing  that  in,  New  Orleans. 

Mr.  WARREX.  A  29  per  cent  increase? 

Mr.  BERTROX.  Yes;  from  25  to  29  per  cent.     One  month  it  was  29. 

Mr.  WARREN.  Yes. 

The  CHAIRMAN.  Where  did  that  .">  per  cent  increase  come  in? 

Mr.  BERTRON.  That  has  been  pretty  general.  There  are  a  number 
of  places  where  they  have  not  had  even  a  5  per  cent  increase,  in  some 
cities. 

You  are  not  going  to  be  able  to  raise  money  to  operate  these  prop- 
erties unless,  in  the  public  estimation,  their  credit  is  substantial 
and  is  going  to  continue  so.  A  temporary  adjustment  is  not  going 
to  help,  because  people  are  not  going  to  buy  any  more  securities  of 
street  railways  in  such  a  temporary  expedient. 

Mr.  WARREN.  A  temporary  expedient  might  save  ithe  companies 
while  the  permanent  one  was  bein<*  adopted? 

Mr.  BERTRON.  It  would  be  essential  to  increase  fares  generally,  and 
that  should  be  immediate.  Otherwise,  most  of  the  remaining  ones 
would  go  into  the  hands  of  a  receiver. 

Mr.  WARREN.  It  would  be  a  post-mortem  otherwise! 


540       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  BERTRON.  Indeed  so.  But  that  should  be  recognized  as  a  tem- 
porary expedient  pending  a  valuation  of  the  properties  and  the 
granting  of  a  fair  return  on  that  valuation  by  some  elastic,  easily 
adjustable,  automatic  system;  and  that  is  what  I  think  should  be 
striven  for.  You  will  save  many  of  these  companies  from  receiver- 
ships and  enable  them  to  pay  at  least  their  bond  interest  by  a  6-cent 
fare  at  the  moment.  That  is  not  going  to  be  enough  generally,  I 
fear.  Prices  rise — 

The  CHAIRMAN.  What  fare  is  that? 

Mr.  BERTRON.  Six  cents. 

Then  the  politicians  have  brought  in  this  question  of  watered 
stocks,  bonds,  and  so  forth.  All  of  that  has  passed.  It  probably 
was  done  often  in  the  old  days,  but  everybody  should  be  satisfied  with 
a  fair,  honest  valuation  of  the  property,  and  in  many  States  rules 
have  been  established  for  making  such  a  valuation.  There  is  a  field 
that  I  hope  you  can  enlighten  the  people  with  reference  to.  And 
when  3rou  have  a  fair  valuation,  let  there  be  definitely  a  fair  return 
on  that  valuation ;  and  Avhen  that  is  established  the  credit  of  the  com- 
panies will  be  reestablished  and  the  service  will  be  able  to  be  main- 
tained. 

Now,  to  my  mind,  there  is  only  one  alternative — two  alternatives. 
The  first,  is  the  business  going  to  pieces,  and  the  people  not  be 
able  to  get  the  service  ?  That  means  walking.  The  other  is  munici- 
pal ownership. 

Now,  personally,  while  I  may  not  be  in  accord  with  many  of  my 
friends,  I  am  not  so  averse  to  municipal  ownership  as  some  people 
are.  of  these  properties. 

The  objection  to  it  is  that  these  companies  would  be  run  for  politi- 
cal purposes.  I  do  not  think  that  that  follows  at  all.  A  plan  can  be 
devised  in  each  municipality,  by  which  the  merchants'  associations, 
the  banks,  the  chambers  of  commerce  could  cooperate,  and  have  a 
business  board,  with  labor  represented,  and  they  could  handle  this 
as  a  great  economic  problem  and  not  as  a  political  problem. 

Many  years  ago  wrater  companies  gradually  became  municipalized. 
A  great  many  people  looked  upon  that  with  a  great  deal  of  hesi- 
ta.ncy  and  dread.  It  has  worked  well,  as  a  rule;  and  I  do  not  think, 
as  a  rule,  there  are  any  politics  in  it.  It  has  one  distinct  advantage, 
and  that  is  that  a  municipally  guaranteed  security  will  be  placed 
at  a  lower  rate  than  any  other,  and  therefore  the  money  necessary 
to  maintain  these  properties  can  be  secured  on  the  lowest  possible 
basis. 

Mr.  WARREN.  Mr.  Bertron,  might  not  that  result  be  served,  to  a 
certain  extent,  if  privately  owned  securities  were  guaranteed,  or 
substantially  so? 

Mr.  BERTRON.  I  think  if  the  valuation  were  recognized  by  the 
public  service  commission  or  the  city,  as  the  case  may  be,  and  ap- 
proved as  increased  expenditures  occurred,  and  a  definite  return  on 
that  capital  were  assured  by  the  city  through  an  automatic  plan, 
in  which  the  fares  would  increase  if  the  earnings  were  not  sufficient 
to  pay  that,  and  decrease  if  they  were  too  high,  and  act  speedily. 
The  great  trouble  is  that  they  do  not  act  for  six  months  or  a  year 
and  then  the  company  is  busted,  and  to  restore  confidence,  it  has 
to  be  something  that  moves  at  once. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      541 

Mr.  WARREN.  When  investors  feel  that  they  will  get  a  fair  re- 
turn  

Mr.  BERTRON.  Whatever  return,  it  is  there  to  get  it. 

Mr.  WARREN.  As  soon  as  expenses  require  it,  it  will  go  up  ? 

Mr.  BERTRON.  That  is  it. 

Mr.  WARREN.  What  about  the  limitations  in  the  franchises  now? 
Are  there  pretty  generally  fare  limitations? 

Mr.  BERTRON.  In  my  experience,  there  are  very  generally.  They 
are  limitations  that  are  bad  for  the  municipality  and  bad  for  the 
finances  of  the  company,  and  if  you  had  just  one  kind  of  franchise 
for  a  whole  lot  of  them,  they  would  all  be  better  off. 

Mr.  WARREN.  And  that  makes  an  absolute  obstacle  to  increasing 
the  fare,  without  the  city's  authorities  giving  permission? 

Mr.  BERTRON.  In  some  cases;  not  always.  The  Public  Service 
Commission  in  New  York  State  has  increased  the  fares  to  a  num- 
ber of  cities.  In  the  case  of  Buffalo,  it  did  not  do  so,  by  reason  of 
an  old  agreement,  called  the  Middleburn  agreement,  which  had  been 
in  existence  for  some  time,  and  in  which  a  5-cent  fare  was  assured 
the  municipality  in  consideration  of  the  abolition  of  transfers. 

Mr.  WARREN.  And  the  opponents  of  the  increased  fares  claimed 
that  that  was 

Mr.  BERTRON.  A  fixture. 

Mr.  WARREN  (continuing).  A  practical  limitation? 

Mr.  BERTRON.  And  the  public-service  commission  refused  to  take 
the  case  under  consideration  for  that  purpose,  for  the  purpose  of 
adjusting  fares.  The  case  was  presented  to  all  of  the  courts  of  the 
State  and  finally,  a  day  or  two  ago,  the  highest  court  of  the  State 
unanimously  determined  it  was  a  right  and  duty  of  the  public- 
service  commission  to  take 

Commissioner  SWEET.  Determined  what?  I  did  not  catch  that. 
You  said  the  Court  of  Appeals  of  New  York  determined  wrhat? 

Mr.  BERTRON.  Decided  that  the  public-service  commission  should 
take  cognizance  and  had  a  perfect' right  to  increase  fares. 

Commissioner  SWEET.  A  perfect  right  to  raise- the  fares? 

Mr.  BERTRON.  And  the  case  is  being  presented  to  it  to-day. 

Mr.  WARREN.  Then  these  fare  limitations  in  franchises  would  be 
almost  the  first  step 

Mr.  BERTRON.  Where  they  exist. 

Mr.  WARREN.  Where  they  exist,  in  some  way  must  be  eliminated; 
and  your  suggestion  is  to  substitute  for  them  this  automatic  scale  of 
the  rates  going  up  and  down  in  accordance  with  the  expenses  of  the 
company? 

Mr.  BERTRON.  Yes, 

Mr.  WARREN.  And  you  think  that  that,  coupled  with  the  fair  val- 
uation, would  ultimately  restore  the  credit  of  the  companies? 

Mr.  BERTRON.  It  is  essential  that  you  have  a  valuation  first. 

Mr.  WARREN.  Yes;  I  say  based  on  a  valuation. 

Mr.  BERTRON.  Based  on  a  just  valuation;  and  that  is  not  difficult 
in  these  times. 

Mr.  WARRKN.  How  long  would  it  take  to  restore  the  credit,  in  your 
judgment,  Mr.  Bertron? 

Mr.  BERTRON.  If  the  municipality  took  over  the  street  railway  and 
lent  it  credit,  its  credit  would  be  that  of  the  municipality. 

Mr.  WARREN.  I  did  not  mean  that. 


542      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BERTRON.  If*  the  other  plan  went  into  effect  the  mei*e  public 
statement  put  in  a  circular  offering  the  security  of  that  company, 
with  a  statement  of  the  agreement  with  the  city,  which  convinced  the 
investor  that  his  investment  was  safeguarded,  it  would  enable  you  to 
finance  at  once. 

Mr.  WARREN.  So  it  would  depend  largely  on  how  long  the  authori- 
ties might  require  to  be  satisfied  with  the  utility  and  satisfied  with 
the  adoption  of  the  scale? 

Mr.  BERTROX.  Well,  a  temporary  increase  in  fates  could  be  estab- 
lished, pending  the  working  out  of  that  plan. 

Mr.  WARREN.  Yes;  I  understand  that  that  would  be  necessary  any- 
way. 

Mi-.  BERTRON.  Yes. 

Mr.  WARREX.  Without  that  there  is  no  use  discussing  the  other. 

Mr.  BERTROX.  You  would  hot  get  much  credit  on  the  temporary 
line,  of  procedure, 

Mr.  WARREX.  Xo;  I  assume  not, 

Mr.  BERTROX.  No. 

Mr.  WARREX.  But  it  is  necessary  to  take  care  of  the  company  while 
tlie  other  matter  is  being  considered  ? 

Mr.  BERTROX.  Absolutely.  You  have  that  or  wholesale  bank- 
ruptcy. 

Mr.  WARREX.  Yes. 

Mr.  BERTROX.  And  what  they  do  not  realize  is  that  that  means 
practically  a  suspension  of  service.  It  has  not  been  brought  home  to 
them  that  the  tracks  are  wearing  out  and  the  cars  are  going  to  pieces 
and  they  can  not  buy  new  stock.  They  take  it  out  in  damning  the 
company,  and  the  company  can  not  help  it. 

Mr.  WARREX.  Don't  people  have  the  impression  that  a  company 
will  continue  to  run  just  as  well  under  a  receivership  as  otherwise? 

Mr.  BERTROX.  Yes ;  that  is  the  lack  of  intelligent  publicity. 

Mr.  WARREX.  Because  that  is  not  the  fact? 

Mr.  BERTROX.  It  certainly  is  not. 

Mr.  WARREN.  In  your  judgment,  then,  a  receivership  means  a  con- 
stantly deteriorating  service  and,  in  many  cases,  would  mean  a  sus- 
pension of  service? 

Mr.  BERTROX.  In  a  great  many,  cases.  We  have  actually  recom- 
mended the  tearing  up  of  tracks — the  abolishing  of  service  altogether. 
A  temporary  expedient,  one  that  they  can  exist  under  for  a  time,  on 
which  the  investor  does  not  make  anything  on  his  investment,  and  he 
is  eager  for  payments,  when  things  are  so  high 

Commissioner  SWEET.  Will  you  speak  a  little  louder  ? 

Mr.  BERTROX.  That  does  not  help  the  investor  who  bought  these 
securities,  expecting  a  remedy,  and  gets  none. 

Mr.  WARREX.  Have  you  given  any  study  to  the  abandonments  of 
any  of  the  railways? 

Mr.  BERTROX.  Well,  t  know  of  a  number  ofc  cases  in  which  it  has 
been  recommended  and,  I  am  sorry  to  say,  one  or  two  that  I  financed. 

Mr.  WARREX.  But,  speaking  generally,  you  would  say  that  these 
companies  were  performing  an  essential  service? 

Mr.  BERTROX.  I  think  there  is  no  doubt  on  that  point,  sir. 

Mr.  WARREX.  That  service  must  be  rendered  in  some  way  by  some- 
body. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.     543 

Mr.  BERTROX.  The  highest  officials  of  our  Government  have  recog- 
nized that  and  have  so  stated,  and  I  think  there  is  satisfaction  in 
that  thought. 

Mr.  WARREX.  That  is  all,  Mr.  Bertron,  unless  you  think  of  some- 
thing more  that  you  want  to  say. 

Mr.  BERTROX.  I  think  not.  I  am  afraid  you  have  heard  all  of  this 
before. 

The  CHAIRMAN.  You  have  been  handling  securities  for  about  25 
years? 

Mr.  BERTROX.  Or  more. 

The  CHAIRMAN.  Consisting  of  stocks,  as  well  as  bonds? 

Mr.  BERTROX.  Principally  bonds. 

The  Chairman.  Principally  bonds? 

Mr.  BERTROX.  Yes. 

The  CHAIRMAN.  What  per  cent  of  your  business  has  been  the  han- 
dling of  stocks,  or  securities,  I  will  say? 

Mr.  BERTROX.  Our  business  has  been  principally  that  of  handling 
bonds.  We  have  handled  preferred  stocks  and  some  investment 
stocks. 

The  CHAIRMAN.  Have  you  ever  handled  stocks  separate  from  the 
bonds? 

Mr.  BERTRON.  Oh,  yes. 

The  CHAIRMAN.  In  a  case  of  that  kind,  do  you  undertake  to  find 
out  whether  or  not  there  is  real  value  behind  the  stock  issue? 

Mr.  BERTROX.  We  endeavor  to  find  that  out. 

The  CHAIRMAN.  What  investigation  do  you  make  before  you  sell 
your  stocks? 

Mr.  BERTROX.  Well,  we  always  have  engineers  go  over  it  and  make 
a  valuation,  and  we  ascertain  what  the  earnings  have  been  for  a  num- 
ber of  years,  and  the  chances  of  earnings  being  continued,  showing 
a  handsome  margin  over  the  security,  etc. 

The  CHAIRMAX.  Have  you  ev«r  sold  stocks  at  a  premium  ? 

Mr.  BERTROX.  Oh,  yes. 

The  CHAIRMAN.  Frequently? 

Mr.  BERTROX.  Well,  I  do  not  know  of  any  stocks  of  public-service 
companies  that  we  have  sold  at  a  premium  lately.  I  think  not. 

The  CHAIRMAX.  Have  you  sold  many  lately  much  below  par? 

Mr.  BERTRON.  Well,  if  they  sold  at  all,  they  were  sold  below  par 
now.  The  fact  is  that  they  are  unsalable. 

The  CHAIRMAX.  You  stated  that  there  is  practically  no  market  for 
these  securities  at  the  present  time.  Is  that  statement  based  upon 
your  experience? 

Mr.  BERTRON.  Absolutely. 

The  CHAIRMAN.  What  have  you  done  in  the  last  year  or  two  to 
sell  securities?  What  has  been  your  experience? 

Mr.  BERTRON.  You  mean  quite  recently? 

The  CHAIRMAN.  Yes;  in  the  last  two  years,  or  during  the  war. 

Mr.  BERTRON.  We  have  never  offered  anv  public-service  securities 
in  the  hist  two  years,  because  there  were  hardly  any  that  could  be 
sold,  in  our  judgment. 

The  CHAIRMAN.  You  have  had  no  actual  experience  in  the  last 
two  years? 

Mi-.  BEHTHON.  Well,  naturally,  there  is  a  little  going  on.  The 
bond  rates  are  very  low,  and  some  man  will  say,  "  Well,  I  will  take 


544       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

a  chance  on  that  bond ;  it  is  very  low,"  and  he  will  buy  it.  But  that 
is  a  speculative  investment. 

The  CHAIRMAN.  And  have  those  bonds  that  you  have  sold  been 
new  bond  issues  or  old  bond  issues  ? 

Mr.  BERTRON.  There  are  very  few  instances  where  new  bond 
issues  are  sold. 

The  CHAIRMAN.  Have  you  sold  any  new  bonds  in  the  last  two 
years  ? 

Mr.  BERTRON.  No;  not  of  street-railway  companies. 

The  CHAIRMAN.  As  a  matter  of  fact,  is  not  the  public  looking  with 
rather  eager  expectation  to  the  purchase  of  a  le>t  of  these  bonds  that 
are  now  selling  at  a  large  discount? 

Mr.  BERTRON.  I  do  not  think  you  could  say  that  the  investing 
public  does.  As  a  rule,  the  investing  public  does  not  buy  any  until 
it  is  sure — 

The  CHAIRMAN.  Who  does  it? 

Mr.  BERTRON.  There  is  a  class  of  people — usually  it  is  the  rich 
man  who  takes  a  flier  in  buying  a  cheap  security,  and  he  does  not 
buy  it  on  the  advice  of  anybody,  because  we  would  not  advise  a 
client  to  buy  a  security  that  was  not  sure  of  a  return. 

The  CHAIRMAN.  You  stated  that  these  securities  are  held  by  in- 
surance companies,  trust  companies,  and  bankers,  generally  speak- 
ing? 

Mr.  BERTRON.  Very  generally. 

The  CHAIRMAN.  About  what  percentage  of  the  securities  of  the 
country — the  public-utilities  securities — are  held  by  investors  other 
than  the  corporations  that  you  have  named  ? 

Mr.  BERTRON.  Do  you  mean  to  ask  what  percentage  of  the  street- 
railway  bonds  are  held 

The  CHAIRMAN.  Other  than  by  trust  companies,  insurance  com- 
panies, and  bankers. 

Mr.  BERTRON.  Well,  this  is  more  or  less  of  a  guess.  I  have  not  the 
figures  with  me,  but  I  have  the  figures  of  the  holding  companies  and 
the  savings  banks  in  these  securities.  Probably  one-fifth  of  the  se- 
curities outstanding,  or  maybe  more,  are  held  by  institutions,  sav- 
ings banks,  and  insurance  companies. 

The  CHAIRMAN.  Would  it  embarrass  you  to  supply  us  with  the 
figures  showing  the  amount  of  bonds  and  stock  held  by  trust  com- 
panies and  insurance  companies? 

Mr.  BERTRON.  Xot  at  all.  It  is  a  public  record.  The  Comptroller 
of  the  Currency — I  made  the  statement,  and  you  are  familiar  with 
it.  Mr.  Gadsden,  last  year,  giving  the  details  which  we  had  worked 
.up  for  him.  Mr.  Gadsden  has  that  data. 

The  CHAIRMAN.  Well,  will  you  supply  us  with  the  record? 

Mr.  BERTRON.  I  will,  if  he  has  it  not  at  hand ;  yes,  with  pleasure. 

The  CHAIRMAN.  Do  you  recall  just  where  the  market  center  for 
this  money  is  to  be  found  ? 

Mr.  BERTRON.  Well,  of  course,  the  East  is  usually  the  market  for, 
and  has  been,  this  class  of  securities.  Later  on  the  market  broad- 
ened, and  the  West  bought  a  lot.  Farmers  became  prosperous,  and 
they  bought  the  securities  of  public-service  corporations. 

The  CHAIRMAN.  Do  they  come  to  New  York  in  this  particular 
business? 

Mr.  BERTRON.  If  it  is  a  large  issue ;  yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      545 

The  CHAIRMAN.  What  do  you  regard  as  a  large  issue  —  one  that 
would  require  them  to  come  here  ? 

Mr.  BERTRON.  Well,  they  could  have  the  capital  in  San  Francisco 
to  finance  any  issue,  but  I  do  not  think  you  would  see  an  issue  of  any 
considerable  size  that  was  not  offered  in  New  York  and  locally. 

The  CHAIRMAN.  What  size  would  the  issue  have  to  be  before  it 
proved  attractive  to  New  York? 

Mr.  BERTRON.  Well,  there  is  no  limit  to  that,  sir.  Large  banking 
houses  rarely  bother,  with  a  very  small  issue,  because  they  handle  a 
large  issue  with  the  same  facility  and  at  the  same  expense  of  looking 
up  as  a  small  issue.  It  is  just  as  great  in  the  case  of  a  small  issue  as 
in  a  large  one. 

The  CHAIRMAN.  Well,  generally  speaking,  what  must  the  size  of 
the  issue  be  before  an  eastern  bank  will  handle  it? 

Mr.  BERTRON.  There  is  no  limit.  You  see  them  advertise  a  $200,- 
000  issue  at  times,  and  at  other  times  a  $20,000,000  issue. 

The  CHAIRMAN.  Is  that  the  practice  in  most  of  these  companies 
going  to  New  York  for  money? 

Mr.  BERTRON.  The  public  offerings  are  usually  made  in  New  York, 
and  then  they  are  absorbed  over  the  country. 

The  CHAIRMAN.  When  a  western  issue  comes  to  New  York,  how 
thoroughly  does  the  New  York  banker  investigate  that  security  be- 
fore he  handles  it? 

Mr.  BERTRON.  That  depends  on  the  banker.  There  was  a  time,  I 
think,  when  those  things  were  taken  upon  faith  more  than  they  are 
to-day.  You  will  find  that  there  is  a  most  rigid  investigation  to- 


The  CHAIRMAN.  Are  there  many  bonds  that  are  maturing,  or 
about  to  mature,  this  year? 

Mr.  BERTRON.  Oh,  a  great  many. 

The  CHAIRMAN.  What  is  to  be  done  with  those  bonds? 

Mr.  BERTRON.  In  default. 

The  CHAIRMAN.  I  beg  your  pardon  ? 

Mr.  BERTRON.  In  default. 

The  CHAIRMAN.  A  great  many  of  them? 

Mr.  BERTRON.  A  great  many  of  them. 

The  CHAIRMAN.  Does  that  usually  result  in  the  line's  going  into 
the  hands  of  a  receiver? 

Mr.  BERTRON.  It  usually  does;  not  in  all  cases. 

The  CHAIRMAN.  Have  you  handled  any  refunding  bonds  in  the 
past  two  years? 

Mr.  BERTRON.  No. 

The  CHAIRMAN.  Do  you  know  of  any  that  have  been? 

Mr.  BERTRON.  Yes. 

The  CHAIRMAN.  What  have  they  been  sold  for? 

Mr.  BERTRON.  There  were  a  few  cases  in  which  street-railway 
bonds  were  sold.  I  only  know  of  one  or  two,  and  that  is  due  to 
special  circumstances  underlying  the  bonds.  They  made  an  excel- 
lent showing,  and  under  all  the  circumstances  we  will  say  on  the 
valuation  that  was  made  on  the  property,  the  property  was  well 
worth  more  than  the  bond  issue;  but  you  can  count  on  one  hand  all 
the  issues  that  have  been  offered. 

The  CHAIRMAN.  What  did  it  cost  to  handle  those  bonds? 


546       PROCEEDINGS  OP  FEDERAL  ELECtRIC  RAILWAYS  COMMISSION. 

I 

Mr.  BERTRON.  That  is  very  difficult  to  answer.  It  depends  upon 
the  investigation  that  is  made,  but  it  would  cost  anywhere,  I  should 
say,  from  2  to  5  per  cent,  depending  on  the  size  of  the  issue. 

Commissioner  GADSDEN.  What  does  it  cost  the  company,  Mr.  Ber- 
tron  ? 

Mr.  BERTRON.  Well,  you  mean  what  rate  it  would  cost?  I  haven't 
any  idea. 

'The  CHAIRMAN.  Give  us  some  illustrations. 

Mr.  BERTRON.  Well,  there  are  companies  I  know  of  that  money 
cost  them  up  to  12  per  cent. 

The  CHAIRMAN.  What  companies? 

Mr.  BERTRON.  Well,  I  should  not  mention  the  names  of  the  com- 
panies. I  can  get  you  some  and  give  them  to  you,  but  there  is  hardly 
any  company  to-day  that  can  afford  to  borrow  money  of  this  charac- 
ter and' practically  none  that  can  afford  to  borrow  it  at  what  it  costs 
them  to-day. 

The  CHAIRMAN.  Now,  when  the  banker  handles  a  bond  issue  at 
that  2  per  cent,  does  the  banker  keep  that  bond  until  he  can  sell  it  in  a 
favorable  market? 

Mr.  BERTRON.  That  depends  altogether  on  the  circumstances.  As 
a  rule,  in  these  times,  a  man  buying  a  bond  usually  wants  to  get  rid 
of  it  and  buy  something.  Of  course,  if  there  are  reasons  why  it  may 
be  worth  more  later  on  he  may  carry  it. 

The  CHAIRMAN.  That  is  purely  a  business  proposition  with  a  bank? 

Mr.  BERTRON.  And  the  conditions  surrounding  the  property. 

The  CHAIRMAN.  That  is  all. 

Commissioner  SWEET.  I  would  like  to  ask  a  question  or  two. 

Have  you  given  much  attention  to  the  service-at-cost  plan  of 
operating  street-railway  companies? 

Mr.  BERTRON.  What  do  you  mean,  please,  Mr.  Commissioner,  by 
that? 

Commissioner  SWEET.  Are  you  familiar  with  the  plan  adopted  in 
Cincinnati  ? 

Mr.  BERTRON.  Fairly  so. 

Commissioner  SWEET.  That  is 

Mr.  BERTRON.  It  is  a  term  that  is  used  very  generally. 

Commissioner  SWEET.  Yes. 

Mr.  BERTRON.  But  I  think  various  people  have  different  ideas  as  to 
just  what  it  does  mean. 

Commissioner  SWEET.  Well,  in  Cincinnati,  you  are  aware  of  the 
lact  that  an  arrangement  has  been  made  between  the  corporation  and 
the  city  whereby  fares  may  be  increased? 

Mr.  BERTRON.  Yes. 

The  CHAIRMAN.  One-half  a  cent  at  a  time. 

Mr.  BERTRON.  Yes. 

Commissioner  SWEET.  And  a  reserve  fund  is  provided  for  operat- 
ing expenses,  etc.  You  understand  the  general  principles? 

Mr.  BERTRON.  Yes. 

Commissioner  SWEET.  I  think  that  is  called  a  service-at-cost  plan. 

Mr.  BERTRON.  Yes.  What  they  mean  to  do  is  to  find  out  the  cost 
of  'service,  including  a  fair  return  on  the  capital. 

Commissioner  SWEET.  Including  a  fair  return  on  the  investment. 

Mr.  BERTRON.  That  is,  making  a  rate  that  has  a  margin  over  and 
above  that,  so  that  they  have  a  fund  to  go  upon. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      547 

Commissioner  SWEET.  Yes. 

Mr.  BERTRO^.  And  when  the  costs  rise  above  that  there  is  a  raise 
in  fare  to  meet  it,  or  if  they  go  below,  they  use  the  surplus,  etc. 

Commissioner  SWEET.  A^nd  if  sufficient  funds  are  produced  to 
meet  all  of  these  expenses  and  produce  a  fair  return  upon  the  in- 
vestment, at  a  certain  point  the  fares  would  automatically  drop? 

Mr.  BEKTROX.  Quite  so.    I  hope  so,  some  day. 

Commissioner  SWEET.  And  the  lower  the  fare,  after  it  gets  down 
to  6  cents,  or  below  6  cents,  the  holders  of  the  common  stock  would 
come  in  on  a  better  basis,  or,  at  any  rate,  the  company  itself  would 
receive  a  larger  percentage  than  it  would  under  any  other  circum- 
stances, and  if  it  saw  fit  it  could  make  a  distribution  of  profit,  then? 

Mr.  BEHTRON.  Well,  it  should  be  able  to  distribute,  as  I  under- 
tand  it^  whatever  amount,  after  properly  safeguarding  the  property—- 
with a  proper  depreciation — and  that,  by  the  way,  has  been  grossly 
underestimated  always,  in  my  judgment;  but  after  providing  for  a 
proper  depreciation  and  maintenance,  and  all  that,  and  after  a  valu- 
ation is  had,  and  after  you  have  determined  upon  what  value  should 
be  paid  upon  that  valuation,  then,  whatever  that  amount  is,  the 
company  can  distribute  it  at  will. 

Commissioner  SWEET.  Well,  without  confining  our  consideration 
now  to  any  specific  form  of  service-at-cost  plan — there  might  be 
variations  in  details,  of  course — and  without  particularly  distin- 
guishing between  the  common  stock  and  the  bonds  or  preferred 
stock,  but  simply  going  on  the  basis  that  all  moneys  actually  in- 
vested, whether  represented  by  one  form  of  security  or  another, 
ought  to  produce  a  fair  return? 

Mr.  BKRTROX.  Whether  stock  or  bonds* 

Commissioner  SWEET.  Going  on  that  principle 

Mr.  BERTROX.  Yes. 

Commissioner  SWEET.  I  want  to  ask  you  what  you  think  of  the 
plan. 

Mr.  BERTROX.  The  principle  of  it  is  good. 

Commissioner  SWEET.  Do  you  know  of  any  other,  or  have  you 
thought  of  any  other  plan  that  you  think  would  be  equally  good? 

Mr.  BERTROX.  Well,  you  know  there  are  several  of  those  plans. 
The  most  comprehensive  one  that  I  know  of  is  one  in  Montreal.  It 
is  rather  complicated- — probably  more  complicated  than  we  would 
adopt  here — but  most  comprehensive. 

Mr.  WARREN.  You  described  the  general  principle  of  that  in  your 
direct  testimony,  did  you  not? 

Mr.  BERTROX.  Quite  so;  yes. 

Commissioner  SWEET.  Yes;  I  understand  that,  but  what  I  want  to 
ask  you  now  is  this,  without  going  into  the  details  of  any  particular 
plan:  Would  the  plan  of  service-at-cost,  properly  worked  out  as 
to  detnil,  render  a  return  upon  capital  sufficiently  certain,  so  that 
you,  ns  a  banker,  could  recommend  it  to  your  clients,  that  you  could 
recommend  the  bonds? 

Mr.  BKRTROX.  That  would  depend  upon  whether  or  not  the  munici- 
pality was  a  party  to  the  agreement  and  it  was  legally  effective., 

Commissioner  SWEKT.  Well,  the  municipality  would  have  to  be 
a  party  to  the  agreement,  would  it  not,  in  any  plan  of  cost  of 
service  f 


548       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BERTRON.  By  attorneys  giving  the  opinion  that  the  amount 
agreed  upon  was  properly  safeguarded  in  that  agreement,  that  it 
was  just  and  legal,  and  the  company  would  be  put  into  the  posses- 
sion of  funds,  whatever  they  were,  that  that  plan  called  for.  That 
would  restore  credit  very  largely.  But  if  there  is  a  doubt  about  it, 
then  it  does  not  have  the  effect. 

Commissioner  SWEET.  As  I  understand  it,  Mr.  Bertron,  there 
would  be  one  element  of  doubt,  but  not  a  very  large  one,  under  the 
plan  such  as  I  think  ordinarily  would  be  adopted,  and  that  is 
whether,  having  the  right  to  increase  fares,  a  point  would  be 
reached  where  the  general  public  would  not  respond  and  where  the 
loss  of  patronage  would  perhaps  offset  whatever  might  be  gained 
by  the  increase  of  rates  and  where  an  amount  could  not  be  obtained 
that  would  be  sufficient  to  pay  the  interest  upon  the  securities. 

Mr.  BERTRON.  Yes;  that  is  quite  remote,  though. 

Commissioner  SWEET.  It  would  seem  to  me  that  that  would  be 
remote,  but  what  I  wanted  to  get  at  was  whether,  assuming  now  that 
all  steps  were  legal  and  a  good,  reasonable  plan  of  that  kind  was 
adopted,  as  an  investment  banker,  you  would  be  willing  to  recom- 
mend to  your  clients  the  purchase  of  such  securities,  without  at- 
taching too  great  or  too  serious  importance  to  the  contingency  that 
I  have  mentioned. 

Mr.  BERTRON.  Well,  we  should  like  them  to  look  at  it,  but  gen- 
erally speaking,  it  would  go  a  very  long  way  toward  restoring  credit. 
I  think  you  might  say  it  would  restore  credit  entirely.  As  far  as 
they  did  it,  it  wTas  working  out  in  a  great  many  places. 

Commissioner  SWEET.  You  understand,  I  am  asking  this  question 
so  that  the  commission  will  have  your  opinion? 

Mr1.  BERTRON.  Yes. 

Commissioner  SWEET.  As  a  practical  man? 

Mr.  BERTRON.  Yes. 

Commissioner  SWEET.  Engaged  in  this  business? 

Mr.  BERTRON.  Yes. 

Commissioner  SWEET.  As  to  the  efficacy  of  a  service-at-cost  plan, 
if  one  should  be  recommended,  in  bringing  about  the  necessary  re- 
lief with  regard  to  bringing  in  new  capital  into  the  business? 

Mr.  BERTRON.  It  would  go  a  very  long  way  toward  doing  it. 

Commissioner  SWEET.  You  think  it  would? 

Mr.  BERTRON.  You  would  have  to  pay  higher  rates  at  first  until 
you  demonstrated  that  it  was  effective,  and  afterwards  you  would 
get  some  at  a  lower  price. 

Commissioner  SWEET.  Of  course,  an  out-and-out  agreement  on  the 
part  of  the  municipality  would  avoid  even  that  contingency  ? 

Mr.  BERTRON.  Yes. " 

Commissioner  SWEET.  And  would  give  greater  relief? 

Mr.  BERTRON.  And  get  your  money  at  the  lowest  possible  cost. 

Commissioner  SWEET.  But  the  probability  is  that  it  would  be  very 
difficult  to  induce  municipalities  to  make  such  a  guaranty ;  would  it 
xiot? 

Mr.  BERTRON.  That  is  altogether  a  question  how  it  is  done  and  the 
amount  of  publicity. 

Commissioner  SWEET.  You  think  that  might  be  accomplished  ? 

Mr.  BERTRON.  If  they  realize  that  they  were  not  going  to  be 
political  footballs  and  were  going  to  have  a  business  administra- 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      549 

tion,  they  must  then  realize  that  the  money  would  be  acquired  at 
a  less  rate  of  interest  than  in  any  other  way,  and  hence  that  they 
would  pay  less  for  service. 

Commissioner  SWEET.  You  expressed  a  fairly  favorable  opinion 
of  municipal  ownership  ? 

Mr.  BERTROX.  I  personally  think  it  will  come  to  that  in  time.. 

Commissioner  SWEET.  You  think  it  will  come  to  that  ? 

Mr.  BERTROX.  Yes;  that  is  only  a  personal  opinion. 

Commissioner  SWEET.  Do  you  base  that  on  your  idea  of  the  sit- 
uation as  it  is,  especially  with  regard  to  public  sentiment,  etc.,  or 
upon  what  you  regard  as  really  the  best  for  the  public? 

Mr.  BERTROX.  Well,  there  is  a  general  disposition  on  the  part  of 
any  municipality  to  run  their  own  property.  They  dislike  having 
it  owned  and  operated  from  a  distance. 

Commissioner  SWEET.  Yes. 

Mr.  BERTROX.  They  would  like  to  have  it  operated  at  home,  very 
naturally.  Well,  it  is  not  a  far  step  from  that,  if  you  are  going  to 
operate  at  home,  to  work  out  a  business  plan  for  operating  it,  and 
they  will  not  concede  that  some  one  else,  living  at  a  distance,  has 
any  better  business  judgment  than  they  have  for  operating  the 
company,  and  they  know  that  they  will  be  able  to  get  the  money 
cheaper,  and  hence  should  get  the  service  cheaper.  Therefore,  the- 
logic  of  the  situation  is,  isnT  it,  that  it  should  come  to  that  in  these 
distinctly  local  affairs? 

Commissioner  SWEET.  Do  you  know  of  any  objection  on  the  part 
of  chambers  of  commerce  or  of  the  communities  generally  to  having 
foreign  capital  come  in  and  invest  in  industries  of  other  kinds — 
manufacturing,  for  instance? 

Mr.  BERTROX.  No,  not  so  much  that;  but  there  is  a  distinct  feeling; 
in  most  municipalities  that  they  would  like  to  be  their  own  doctors 
on  their  own  municipal  problems. 

Commissioner  SWEET.  Don't  you  think  there  is,  and  ought  to  be,, 
a  distinction  between  water  supplies  and  street  railways  in  regard 
to  ownership  by  the  city  ? 

Mr.  BERTKOX.  Somewhat. 

Mr.  WARREN.  What  is  your  answer,  Mr.  Bertron  ? 

Commissioner  SWEET.  Somewhat. 

Mr.  BERTROX.  Somewhat. 

Mr.  WARREX.  Somewhat? 

Mr.  BERTROX.  There  is  not  much  danger  of  the  water  company 
being  utilized  politically;  less  than  with  the  street  railway,  on  ac- 
count of  the  number  of  employees,  and  all  that. 

Commissioner  SWEET.  The  water  supply  is  somewhat  of  a  natural 
monopoly ;  is  it  not  ? 

Mr.  BERTROX.  Yes. 

Commissioner  SWEET.  There  is  a  disadvantage  to  the  municipality 
in  having  more  than  one  water  supply,  ordinarily? 

Mr.  BERTROX.  The  same  is  true  with  the  street  railway.  It  is  a 
natural  monopoly. 

Commissioner  SWEET.  A  natural  monopoly? 

Mr.  BEUTRON.  Yes;  and  recognized  as  such. 

Commissioner  SWEET.  Is  not  the  same  thing  true  of  telephone: 
companies? 


550       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BERTRON.  Well,  that  is  not  local  so  much.  You  have  telephone 
systems  that  are  a  part  of  great  trunk  lines  running  all  over  the 
country. 

Commissioner  SWEET.  Don't  you  think  it  is  a  nuisance  in  a  com- 
munity to  have  more  than  one  company  operating  there? 

Mr.  BERTRON.  Oh,  unquestionably. 

Commissioner  SWEET.  If  the  street-railway  company  is  a  natural 
monopoly  in  the  same  sense  that  the  water  supply  is  a  natural  mo- 
nopoly, why  did  you  make  a  distinction  between  the  two  with  regard 
to  municipal  ownership? 

Mr.  BERTRON.  The  point  I  made  was  that  there  would  be  more  ob- 
jection, probably,  on  the  part  of  citizens  to  a  municipally  owned 
street  railway  than  to  a  water  company,  fearing  lest  they  might  not 
have  as  good  business  management.  It  is  a  little  more  complicated 
problem.  They  have  engineers  on  the  outside  and  various  other 
things.  They  have  to  keep  in  touch  with  operations  in  other  cities 
and  other  developments  that  take  place. 

Commissioner  SWEET.  Yes. 

Mr.  BERTRON.  And  then,  too,  a  great  many  people  think  it  would 
be  a  mistake  to  have  such  a  large  body  of  men  who  are  employed 
upon  street  railways  subject  to  political  influence  of  various  par- 
ties. 

Commissioner  SWEET.  Don't  you  think  that  would  be  a  serious 
objection? 

Mr.  BERTRON.  I  think  it  can  be  overcome.  I  think  the  street  rail- 
ways can  be  taken  out  of  politics,  just  as  much  as  the  water  com- 
panies, and  made  an  economic  business  proposition  in  the  municipal- 
ity. I  think  it  quite  possible  to  do  it. 

Commissioner  SWEET.  You  are  rather  optimistic  with  regard  to 
city  government,  are  you  not,  then  ? 

Mr.  BERTRON.  Well,  I  think  we  are  on  the  upgrade.  I  am  a  great 
believer  in  the  honesty  of  the  American  ^people  when  they  know  the 
facts. 

Commissioner  SAVEET.  Do  you  think  the  introduction  of  the  com- 
mission form  of  city  government  has  helped  materially  in  the  quality 
and  character  of  'those  governments  ? 

Mr.  BERTRON.  That  depends  upon  the  locality.  It  has  in  some 
and  it  has  not  in  others. 

Commissioner  SWEET.  Do  you  think  at  the  present  time  there  is  a 
greater  freedom  from  bribery  and  dishonesty  than  there  was  25  years 
ago? 

Mr.  BERTRON.  I  do,  Very  much;  and  I  think  that  when  this  great 
body  of  young  men  that  we  are  demobilizing  from  the  military 
service  are  disseminated  throughout  the  country— men  who  have  had 
discipline,  who  have  had  patriotism,  and  who  have  had  experi- 
ence— I  think  they  are  going  to  be  more  public  spirited,  and  I  look 
for  a  distinct  improvement  in  our  whole  civic  morale  as  a  result  of 
what  these  young  men  have  gone  through. 

Commissioner  SWEET.  Do  you  think  the  management  under  mu- 
nicipal ownership  and  operation  would  be  as  efficient  as  under  private 
ownership  ? 

Mr.  BERTRON.  It  can  be  made  so. 

Commissioner  SWEET.  Would  it  be  likely  to  be  ? 


'PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      551 

Mr.  BERTRON.  Well,  it  can  be  made  so.  Now,  whether  it  would, 
would  depend  entirely  on  how  it  is  handled.  There  are  cities  in 
which  they  could  provide  the  arrangement  that  you  have — say,  two 
members  of  the  chambers  of  commerce  on  the  board,  a  member  of  the 
merchants'  association,  and  two  men  representing  labor,  etc. — and 
take  it  out  of  politics  and  mil  it  as  a  business  enterprise.  It  can  bo 
done,  and  I  think  the  people  will  welcome  it. 

Commissioner  SWEET.  Do  you  think  they  would  have  the  feeling 
that  it  was  their  own  business  ? 

Mr.  BERTRON.  And  they  would  take  a  pride  in  it. 

Cornmissioner'SwEET.  And  you  think  it  would  so  develop  that  they 
would  acquiesce  in  changes  of  fares  with  less  skepticism? 

Mr.  BERTRON.  Oh,  infinitely  less. 

Commissioner  SWEET.  At  the  same  time,  Mr.  Beftron,  don't  you 
know  that  up  to  date  where  municipal  ownership  has  been " tried,  it 
h:ih  not  been  as  efficient  as  private  ownership? 

Mr.  BERTRON.  Rarely. 

Commissioner  SWEET.  What? 

Mr.  BERTRON.  Very  rarely. 

Commissioner  SWEET.  Well,  as  a  rule,  it  has  not  been? 

Mr.  BERTRON.  Yes;  as  a  rule  it  has  not  been. 

Commissioner  SWEET.  Don't  you  think  your  discounting  the  future 
On  that  line  is  conservative  for  a  banker,  in  assuming  the  conditions 
are  going  to  be  better  in  the  hereafter  than  they  have  been  in  the 
past — materially  better  in  that  regard? 

Mr.  BERTRON.  I  think  it  will  come. 

Commissioner  SWEET.  Former-President  Taft,  when  he  appeared 
before  us,  expressed  the  opinion  that,  under  the  present  situation  of 
the  street:railway  companies,  they  would  come  to  municipal  owner- 
ship. 

Mr.  BERTRON.  Not  necessarily. 

Commissioner  S\VEET.  If  relief  were  not  given  to  the  companies  in 
some  way. 

Mr.  BERTRON.  Oh,  well. 

Commissioner  SWEET.  He  said  he  thought  it  would  be  an  unfor- 
tunate thing  to  have  to  adopt  municipal  ownership. 

Mr.  BERTRON.  Unless  it  was  properly  safeguarded  and  removed 
from  politics;  yes. 

Commissioner  SWEET.  Well,  that  is  the  problem,  but  you  can't  re- 
move anything  that  is  under  the  control  of  elected  officials  from  poli- 
tics. A  man  who  is  elected  to  office — the  mayor  of  a  city,  or  an 
alderman,  or  whatever  the  office  may  be — if  he  wants  reelection,  as 
most  officials  do,  is  bound  to  consider  the  methods  by  which  that  may 
be  attained,  if  he  is  an  ordinary,  everyday  human  being. 

"Mr.  BERTRON.  He  thinks  so,  but  he  makes  a  big  mistake.  I  think 
the  people  would  much  rather  vote  for  a  man  who  was  brave  enough 
to  stand  up  for  something — 

Commissioner  SWEET.  That  is  very  true. 

Mr.  BERTRON  (continuing).  Than  a  man  who  would  attempt  to  ad- 
just himself  to  what  he  thought  were  their  wishes. 

Commissioner  SWEET.  "But  those  are  his  purposes  and  those  are  his 
morals.  That  is  almost  invariably  the  case,  fie  wants  at  least  one 
reelection  as  a  sort  of  indorsement.  Now,  according  to  his  breadth, 
according  to  his  vision  will  be  the  course  that  he  will  take,  and  I 


552       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

think  you  will  agree  with  me  that  a  very  large  proportion  of  officials 
are  rather  narrow,  not  altogether  wise,  and  instead  of  taking  a 
broader  view  and  doing  what  is  right  and  depending  upon  that  for 
public  indorsement  in  reelection,  they  indulge  in  what  we  call  petty 
politics  and  seek  to  get  votes  here  and  there  by  cultivating  the  good 
will  of  this  one  or  the  other ;  is  not  that  true  ? 

Mr.  BERTRON.  Very  frequently. 

Commissioner  SWEET.  At  least,  it  has  been  true  in  the  past? 

Mr.  BERTRON.  Very  frequently. 

Commissioner  SWEET.  And  you  are  looking  now  for  a  broader 
knowledge  and  a  bigger  lot  of  public  officials— those  who  will  not  be 
controlled  by  such  narrow  methods? 

Mr.  BERTROX.  In  the  organizations,  the  removal  of  the  stock  from 
political  atmosphere  entirely.  I  think  that  can  be  done. 

Commissioner  SWEET.  One  question  more  on  this  point:  Do  you 
think  this  same  man  serving  as  an  elected  official  or  serving  at  the 
head  of  a  street  railway  company  as  an  appointee  of  an  elected  of- 
ficial would  do  as  good  work,  would  be  as  efficient  as  he  would  if  he 
were  employed  by  a  private  corporation  ? 

Mr.  BERTRON.  He  should  be. 

Commissioner  SWEET.  I  am  not  asking  what  he  should  be,  but  do 
you  think  he  would  be? 

Mr.  BERTRON.  Well,  I  think  he  would  have  as  much  or  even  more 
civic  pride  in  doing  well  for  his  community  than  he  would  for  a  cor- 
poration. It  would  depend  on  the  man,  largely.  Please  don't  mis- 
understand me  about  advocating  municipal  ownership  of  these  prop- 
erties. I  think  it  is  better  not  at  this  time.  I  think  we  can  work  out 
a  plan,  as  I  said — an  automatic  adjustment  on  a  fair  valuation — to 
give  a  fair  return,  and  that  is  the  way  it  should  be  handled;  but  I 
said  ultimately  I  think  it  will  come  to  the  other  thing,  because  it  is 
the  rational  thing  and  the  cheaper  thing. 

Commissioner  SWEET.  When  you  say  "  rational,"  you  mean  in 
theory  it  would  be  a  better  thing  ? 

Mr.  BERTRON.  Yes. 

Commissioner  SWEET.  But  in  practice  I  do  not  understand  you  to 
say  that  now,  at  the  present  time,  you  consider  that  it  is  the  better 
thing? 

Mr.  BERTRON.  I  prefer  to  see  the  other  adopted  first. 

Commissioner  SWEET.  That  is  all. 

The  CHAIRMAN.  Have  you  had  any  experience  in  dealing  with 
municipal  officers? 

Mr.  BERTRON.  No. 

The  CHAIRMAN.  Then  why  do  you  say  that  there  is  not  the  same 
degree  of  integrity  and  moral  strength  of  character  and  good  judg- 
ment observed  by  officials  in  the  conduct  of  public  affairs  as  there  is 
by  bankers  or  others  in  the  conduct  of  private  affairs  2 

Mr.  BERTRON.  I  did  not  make  that  statement. 

The  CHAIRMAN.  I  rather  assumed  that. 

Mr.  BERTRON.  Not  at  all. 

The  CHAIRMAN.  You  have  not  got  that  opinion? 

Mr.  BERTRON.  No,  sir.    I  did  not  express  it. 

The  CHAIRMAN.  That  is  all. 

Mr.  WARREN.  I  thought  Mr.  Bertron  was  going  rather  far  the 
other  way. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      553 

Mr.  BERTROX.  What? 

Mr.  WARREN.  I  say  I  thought  you  were  going  rather  far  the  other 
way. 

Mr.  BERTROX.  In  the  other  direction;  yes. 

The  CHAIRMAN.  Perhaps  I  got  the  wrong  slant. 

Mr.  BERTRON.  You  certainly  did. 

The  CHAIRMAN.  And  I  wanted  to  defend  the  public  officer,  because 
I  have  been  one  myself  pretty  long. 

Mr.  BERTRON.  I  have  a  great  respect  for  many  of  them. 

Mr.  WARREN.  Did  I  ask  you  your  opinion  of  the  term  franchise? 
I  do  not  think  I  did. 

Mr.  BERTRON.  No;  you  did  not. 

Mr.  WARREN.  In  this  plan  which  you  suggest  as  the  best  plan,  in 
your  opinion,  for  adoption,  there  would  be  involved,  would  there 
not,  the  elimination  of  these  term  franchises,  which  come  to  an  end 
and  have  to  be  reviewed  periodically? 

Mr.  BERTRON.  It  is  much  better  not. 

Mr.  WARREN.  It  should  be  during  good  behavior.? 

Mr.  BERTRON.  The  better  the  franchise  the  better  the  property  and 
the  better  the  service  the  public  will  get. 

Mr.  WARREN.  And  those  things  will  follow  if  the  people  feel  that 
the  company  is  there  during  good  behavior? 

Mr.  BERTRON.  Quite  so. 

Mr.  WARREN.  You  spoke  of  a  straight  guaranty.  Of  course,  this 
plan  that  you  are  suggesting  involves  no  real  guaranty,  does  it, 
except  the  right  to  adjust  fares  as  the  exigency  of  the  business  may 
require? 

Mr.  BERTROX.  Yes;  or  it  may  be  that  the  city  would  guarantee  a 
fair  return. 

Mr.  WARREN.  Yes;  but  that  was  not  what  you  suggested. 

Mr.  BERTRON.  Xo. 

•  Mr.  WARREN.  If  the  city  added  to  it  a  real  guaranty,  a  legal  guar- 
anty, then  I  suppose  the  securities  would  sell  just  the  same  as 
municipal  securities? 

Mr.  BERTRON.  Absolutely. 

Mr.  WARREX.  So  the  cost  of  that  particular  service  would  be  no 
more  than  it  would  be  without  the  public  control  of  the  service? 

Mr.  BERTROX.  That  is  right. 

Mr.  WARREN.  That  is  all.    Thank  you  very  much,  Mr.  Bertron. 

STATEMENT  OF  MR.  J.  K.  NEWMAN. 

Mr.  WARREX.  You  gave  your  full  name,  Mr.  Newman? 

Mr.  NEWMAX.  Yes. 

Mr.  WARREN.  What  has  been  your  streetrailway  experience? 

Mr.  NEWMAN.  I  started  in  in  the  engineering  department. 

Mr.  WARREX.  As  engineer? 

Mr.  NEWMAX.  Yes;  then  in  the  operation  department. 

Mr.  WARREX.  Of  actual  street-railway  properties? 

Mr.  NEWMAX.  Yes;  of  actual  street-railway  properties.  Also  in 
the  accounting  department ;  and  while  I  am  not  a  lawyer,  I  have 
had  to  get  very  busy  with  the  legal  department. 

Mr.  WARREN.  Most  street-railway  men  do. 

Mr.  NEWMAN.  Yes. 

160048°— 20 3C 


554       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  WARREN.  How  long  were  you  in  the  engineering  department  ? 

Mr.  NEWMAN.  Well,  I  have  never  been  out  of  it. 

Mr.  WARREN.  How  long  have  you  been  in  the  railway  business? 

Mr.  NEWMAN.  Well,  since  1895.  I  have  had  a  little  lapse  in  be- 
tween, when  I  was  out  in  business. 

Mr.  WARREN.  And  over  how  long  a  period  has  this  experience 
extended  ? 

Mr.  NEWMAN.  Twenty-four  years. 

Mr.  WARREN.  With  what  companies  have  you  had  this  practical 
experience  ? 

Mr.  NEWMAN.  With  the  Canal  &  Claiborne  in  New  Orleans,  the 
New  Orleans  &  Carrollton  at  New  Orleans,  the  Birmingham  Rail- 
way Light  &  Power  Co.,  the  Knoxville  Railway  &  Light  Co.,  Little 
Rock  Railway  &  Light  Co.,  the  Nashville  property — I  have  been  in- 
timately connected  with  the  St.  Louis  property,  with  the  Dallas 
property,  and  I  have  been  acting  in  an  advisory  way  at  times  in  the 
San  Francisco  situation. 

Mr.  WARREN.  You  have  some  pretty  definite  views  on  this  present 
street-railway  situation,  I  imagine. 

"Mr.  NEWMAN.  I  have  had  to  have. 

Mr.  WARREN.  Would  you  prefer  to  state,  without  interruption  by 
questions,  and  if  so,  will  you  state  to  the  commission  what  you  think 
of  the  present  situation  and  how  it  came  about? 

Mr.  NEWMAN.  Well,  if  the  commission  will  bear  with  me,  I  think 
I  can  throw  some  light  on  this  situation. 

The  CHAIRMAN.  Go  ahead. 

Mr.  NEWMAN.  Now,  I  am  not  going  to  take  this  from  the  street- 
railway  point  at  all.  I  would  like  to  talk  from  both  sides  of  it,  be- 
cause I  recognize  that  there  are  two  sides  to  this  question.  The  pub- 
lic have  a  very  definite  interest,  and  without  understanding  the  pub- 
lic side  of  it  it  is  impossible  to  arrive  at  a  solution  of  this  problem. 
I  do  not  take  the  stand  that  we  are  altogether  right. 

Let  us  go  back  into  the  history  a  little  bit. 

I  started  out  with  13f  cents  for  motormen  and  conductors.  I 
bought  the  first  rail  at  $20  a  ton,  ties  at  $12  a  thousand. 

Now,  the  one  thing  that  was  uppermost  in  my  mind  always  was. 
the  franchise,  and  I  wanted  to  be  sure  that  there  was  a  5-cent  fare 
in  the  franchise  and  that  I  had  a  franchise  for  as  long  a  term  as 
possible.  I  have  repeatedly  refused  to  be  interested  in  street-railwTay 
propositions  that  did  not  embody  a  5-cent  fare  and  a  long-time 
franchise.  This  franchise  gives  an  enormous  value  to  the  property 
over  and  above  its  physical  worth. 

The  bankers  were  keen  to  see  that.  I  want  to  confess  to  being  a 
banker  also,  or  I  try  to  be  a  banker. 

Taking  advantage  of  the  situation,  we  commenced  to  capitalize. 
We  capitalized  the  earning  power,  because  we  had  a  monopoly.  If 
we  did  not  have  a  monopoly,  we  went  on  and  bought  the  other  road 
and  put  them  together  as  a  basis  of  some  additional  capitalization. 

The  CHAIRMAN.  Are  you  speaking  now  about  the  bankers? 

Mr.  NEWMAN.  The  bankers  and  the  street-railway  men.  They 
work  together  always,  and  the  result  was  that  it  was  about  as  lucra- 
tive a  business  as  there  was  in  this  country.  The  public  got  the 
idea,  and  it  has  it  to-day,  that  the  street-railway  men  and  the  bank- 
ers associated  with  them  made  enormous  profits ;  and  that  is  true  only 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      555 

on  paper.  It  was  true  in  reality  in  the  early  stages  of  the  game, 
and  the  securities  became  very  desirable,  became  generally  distrib- 
uted and,  next  to  steam-railroad  securities,  are  the  most  popular 
form  of  investment  on  the  part  of  the  general  public. 

Now,  we  took  these  franchises  with  the  5-cent  fare.  We  did  not 
oiler  to  divide  any  of  that  profit  with  anyone  who  was  not  in  on  the 
game ;  but  if  we  had  too  much,  we  revised  the  capitalization ;  and  we 
got  this  reputation  of  being  big  money-makers,  and  we  got  the  repu- 
tation of  beating  the  public.  There  is  no  doubt  about  that. 

Now,  the  thing  reverses  itself  completely. 

Your  labor  has  gone  up  three  or  four  times,  and  we  have  not 
reached  the  end  of  it  yet.  Your  rails  are  up  three  times,  and  all 
other  materials  are  up  in  the  same  way.  Within  the  last  few  years 
everything  has  practically  doubled,  which  means  that  the  nickel 
is  worth  50  cents  on  the  dollar — about  2.5  cents ;  and  we  are  in  abso- 
lute distress. 

I  do  not  believe  the  street-railway  men  here  appreciate  that  as 
thoroughly  as  it  is  true.  We  are  hopelessly  bankrupt.  Now,  that 
may  be  a  shock  to  some  of  them ;  but  I  want  to  tell  you  the  part  of 
the  game  that  hurt  us  more  seriously,  or  nearly  as  seriously  as  the 
idea  which  the  public  has  that  we  have  been  enormously  profitable — 
that  we  are  making  enormous  profits  and  do  not  need  this  relief. 

When  these  roads  began  to  improve  their  science,  bigger  cars  and 
fast  schedule  speed  and  improved  service  to  the  public,  we  got  an 
ascending  curve  of  gross  earnings  that  was  quite  remarkable.  As 
long  as  that  ascending  curve  continued  upward,  we  could  capitalize 
and  sell  securities.  As  long  as  we  were  selling  securities,  we  capi- 
talized the  renewal  and  replacement  fund,  which  should  have  been 
in  the  operating  expenses,  but  which  had  not  been  in  the  operating 
expenses  to  the  extent  that  it  is  necessary.  The  only  situation  that 
I  know  of — I  suppose  there  are  others— where  they  have  taken  care 
of  that  renewal  and  replacement  fund  is  the  United  Railways  of  St. 
Louis.  There,  for  a  period  of  8  or  10  years,  on  top  of  their  regular 
maintenance,  they  have  set  aside  a  fund  called  depreciation,  but 
which  should  be  called  renewals  and  replacements,  to  take  care  of 
the  thing  that  was  going  to  be  put  out  of  service  next  year  or  the 
following  year,  but  which  did  not  need  throwing  into  the  junk  pile 
at  that  immediate  time. 

That  ran  for  a  period  of  seven  or  eight  years,  and  that  road  now 
has  reduced  its  capitalization.  It  has  not  sold  a  security,  to  my 
knowledge,  within  the  last  seven  or  eight  years.  It  does  not  sell 
securities.  But  still,  what  do  we  find?  We  find  that  that  road  is 
in  the  hands  of  a  receiver,  is  not  able  to  meet  the  natural  growth  of 
the  city  of  St.  Louis  by  putting  in  the  improvements,  because  it  can 
not  capitalize.  We  find  the  4  per  cent  bond  selling  for  55.  They 
were  selling  a  few  weeks  ago  for  50,  and  behind  them  the  junior 
bonds.  We  find  the  four's  closed  out  and  no  more  could  be  issued, 
and  even  though  they  could  be  issued  you  could  not  sell  them. 

Now,  there  is  the  one  outstanding  property  that  has  taken  care  of 
this  renewal  and  replacement  fund,  and  yet  it  has  not  been  able  to 
navigate  in  a  capital  way  and  has  had  to  go  into  the  hands  of  a 
receiver. 

We  are  all  familiar  with  the  fact  that  they  had  a  loan  from  tho 
War  Finance  Board  during  the  war  and  have  not  been  able  to  pay  it 


556       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

off  up  to  this  time,  notwithstanding  the  fact  that  these  gentlemen 
on  that  commission  have  crowded  this  road  to  the  utmost,  threatening 
them  with  the  sale  of  the  securities,  which  has  not  alarmed  them  very 
much,  because  what  we  can  not  do  the  commission  can  not  do.  The 
securities  can  not  be  sold. 

Mr.  WARREN.  You  are  referring  to  the  Finance  Commission  ? 

Mr.  NEWMAN.  Yes. 

Mr.  WARREN.  The  Federal  commission. 

Mr.  NEWMAN.  Then,  we  find  the  road  breaking  down  under  their 
old  system  of  accounting.  We  find  that  they  can  not  do  any  financ- 
ing. We  are  finding  this,  too,  that  when  they  have  to  come  out  from 
under  their  old  system  of  financing,  there  must  be  established  a  com- 
plete new  financial  set-up,  a  complete  new  process  of  financing. 

Now,  what  is  going  to  happen  ?  I  have  had  to  do  with  putting  six 
properties  in  the  hands  of  receivers.  The  interest  is  being  cut  on  all 
of  the  bonds. 

The  CHAIRMAN.  During  the  last  year  or  so? 

Mr.  NEWMAN.  During  the  past  year.  And  we  have  a  serious  prob- 
lem, a  problem  which  is  far  more  serious  than  the  public  has  any 
idea  of,  and  I  believe  far  more  serious  than  the  members  of  this 
commission  believe. 

How  are  we  going  to  get  around  it  ?    How  are  we  going  to  solve  it  ? 

Let  us  talk  municipal  ownership  for  a  minute.  There  is  a  consti- 
tutional prohibition  in  the  charters  of  all  of  the  cities  that  they 
can  not  take  over  the  street  railways  by  any  system  of  guaranty,  be- 
cause it  is  not  legally  possible. 

The  next  thing  is  that  they  do  not  want  to  do  it.  There  was  a  cry 
for  municipal  ownership ;  but  I  do  not  know  of  a  community  to-day 
that  would  take  over  these  properties.  Why?  Because  the  politi- 
cian lives  on  public  favor,  and  the  moment  the  politician  attempts  to 
raise  the  street-car  fare,  the  public  are  against  him,  and  he  will  lose 
out  at  the  next  election.  They  do  not  want  to  enter  into  that;  so, 
frankly.  I  have  given  up  all  hope  of  municipal  ownership. 

Mr.  WARREN.  Before  you  leave  that.  Mr.  Newman,  have  you  any 
views  on  State  ownership  as  distinguished  from  municipal  owner- 
ship? 

Mr.  NEWMAN.  No ;  I  never  thought  of  that  proposition. 

Mr.  WARREN.  Of  course,  that  would  be  a  possibility  with  which 
most  of  the  constitutions  would  not  interfere. 

Mr.  NEWMAN.  There  you  are  separating  the  city  and  State,  and  I 
do  not  dream  of  that  as  a  possibility. 

I  do  not  believe  the  people  themselves  want  to  put  street  railways 
in  municipal  ownership.  They  are  different  from  any  other  kind  of 
public-service  corporation,  for  this  reason.  They  have  an  enormous 
pay  roll — 40  per  cent,  maybe  50  per  cent,  of  their  operating  expenses, 
and  maybe  a  great  deal  more  than  that,  the  way  wages  are  going.  It 
means  that  motormen  and  conductors,  who  have  not  had  the  advan- 
tages of  an  education,  who  are  not  carpenters  or  mechanics,  and  who 
have  to  take  this  class  of  work — that  means  not  the  highest  order  of 
education — are  prey  for  politicians;  and  that  puts  a  lot  of  strength 
into  the  hands  of  the  politicians.  It  puts  a  great  big  pay  roll  in  the 
hands  of  the  politicians.  A  wrater  company,  a  gas  company,  and  a 
lighting  company  do  not  have  the  same  proportion  of  employees. 

So  I  do  not  believe  in  municipal  ownership. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      557 

I  would  be  glad  to  get  relief  if  we  had  to  lose  money  and  got  rid 
of  some  of  the  trouble.  Life  is  hardly  worth  living  with  the  proposi- 
tion as  it  is  to-day;  but  I  think  the  cities  themselves  do  not  want 
municipal  ownership. 

Xow,  then,  what  are  we  going  to  do? 

The  street-railway  people  have  not  presented  their  case.  TJiey 
have  been  assailed.  When  they  did  ask  for  something,  they  asked  for 
a  6-cent  fare.  Why,  that  did  not  begin  to  take  care  of  the  situation, 
if  you  keep  in  mind  this  renewal  and  replacement  fund,  and  espe- 
cially the  wage  scale.  They  left  no  room  for  a  trade.  If  they  had 
asked  for  a  10-cent  fare,  they  might  have  helped  the  situation  some. 
Even  at  a  6-cent  fare,  I  do  not  believe  there  is  a  single  municipality 
in  the  United  States  that  would  vote  a  6-cent  fare  at  a  referendum, 
and  many  of  the  cities  have  a  referendum.  The  reason  they  won't 
do  it  is  because  they  say,  "  These  fellows  have  been  getting  rich,  and 
they  have  made  a  lot  of  money,  and  we  don't  believe  it." 

The  CHAIRMAN.  They  did  in  Sioux  Falls,  S.  Dak. 

Mr.  NEWMAN.  Well,  that  is  an  exception,  as  you  know. 

Mr.  WARREN.  The  exception  that  proves  the  rule. 

Mr.  NEWMAN.  Then,  what  are  we  going  to  do  with  the  situation? 
We  have  to  reach  the  masses. 

In  the  city  of  New  Orleans  I  knew  an  old  conductor  on  a  line; 
and  when  I  was  riding  with  him  I  said,  "  Why  do  you  motormen 
and  conductors  fight  this  increase  in  fare''  (they  employed  an  at- 
torney and  they  are  going  to  the  court  to  fight  it)  "when  you  get 
this  enormous  increase  in  wages  ?  "  "  Because  the  company  does  not 
need  it." 

I  believe  the  public  is  fair  enough  to  give  it  if  the  facts  are 
known ;  and  the  hope  that  I  have  in  this  situation  is  that  this  com- 
mission will  say  something  to  the  public  which  they  will  fully  be- 
lieve when  the}'  won't  believe  the  same  thing  said  by  the  street- 
railway  people. 

The  solution,  in  my  judgment,  is  the  service  at  cost,  plus  a  return 
on  the  investment — an  ascending  fare,  or  a  descending  fare,  but  a 
fair  return  on  the  investment. 

If  they  choke  off  the  chance  of  the  street-railway  people  and  bank- 
ers from  manipulating  the  securities  again,  I  do  not  believe  it  mat- 
ters much  what  the  capitalization  of  the  company  is,  whether  it  is 
high  or  low.  That  is  not  the  point.  If  we  got  out  to  make  securi- 
ties, they  could  be  cut  down.  It  can  be  dealt  with  by  the  process  of 
law,  but  what  the  people  want  to  know  is  that  an  unfair  return  is 
not  paid  on  the  capital  invested. 

AA  hen  the  public  is  educated  to  the  fact  that  they  are  paying  a 
fair  return  on  the  investment  and  not  a  return  on  watered  securi- 
ties they  are  not  going  to  object  to  an  increase  in  fares,  no  matter 
what  it  is,  even  if  it  should  bo  10  cents. 

Now,  in  this  position  you  have  to  take  the  public's  point  of  view, 
because  you  can  not  look  at  it  fairly  if  you  just  go  below  the  sur- 
face of  the  street-railway  situation  and  do  not  analyze  the  public 
point  of  view. 

Suppose  we  are  operating  a  factory,  and  we  were  unwise  enough 
to  sell  our  product  at  a  fixed  price  for  a  term  of  20  years,  what 
would  happen  when  the  raw  material  went  up,  so  that  we  could  not 


558       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

produce  that  article  at  cost?  We  would  go  into  receivership  and 
then  bankruptcy. 

Now,  would  the  purchaser  of  that  material  want  to  take  the  fac- 
tory and  run  it,  or  would  he  say,  "  Here,  you  go  on  and  manufacture 
your  goods,  and  I  want  to  see  that  you  do  not  make  an  abnormal 
prpfit  out  of  it."  I  think  most  business  men  would  say,  "  You  had 
better  operate  your  factory;  I  don't  want  to  operate  it,  especially 
when  you  are  only  getting  a  meager  return  on  your  investment." 

And  that  is  what  the  public  is  going  to  say  when  they  are  con- 
vinced that  that  is  the  situation  in  the  street-railway  business.  They 
are  fairly  entitled  to  know  that,  after  we  have  had  the  cream  of 
these  franchises,  and  that  when  the  day  of  reverses  passes,  we  are  not 
going  to  continue  to  pay  large  dividends  on  the  basis  of  securities. 
They  will  insist  that  we  pay  only  a  fair  return  on  the  capital  prop- 
erty value  and  let  the  securities  readjust  themselves. 

There  is  another  feature  about  the  financial  plan — the  securities 
plan — that  I  would  like  to  see  the  commission  adopt,  if  the  commis- 
sion should  favor  the  plan  of  service  at  cost  plus  a  fair  return  on 
the  capital  property  value,  and  that  is  this,  that  there  should  be  a 
condition  attached  to  that  sort  of  an  arrangement  by  which  the 
securities  would  be  readjusted  so  that  a  new  system,  a  financial  set- 
up, will  be  established  in  order  to  make  it  possible  for  the  street 
railways  to  go  ahead  and  keep  up  with  the  times,  to  take  care  of 
this  renewal  and  replacement  fund,  which  has  not  been  accumulated 
by  a  majority  of  the  roads,  but  which  has  been  an  operating  charge, 
just  to  the  same  extent  as  the  motormen  and  conductors'  salaries. 
It  has  been  taken  care  of  in  the  past  through  this  ascending  pros- 
perity, now  blocked,  because  we  have  reached  the  height  of  the  in- 
dustry or  nearly  so ;  and  automobiles  have  come  along  and  have  taken 
the  cream  off  the  top.  So  we  are  dealing  to-day  with  this  problem 
of  a  renewal  and  replacement  which  must  be  inserted  in  the  operat- 
ing charge  at  a  fixed  charge.  Now,  when  you  have  done  that,  you 
have  broken  down  your  whole  system  of  finance,  because  there  is  not 
a  banker  who  has  played  the  game  in  New  York  or  elsewhere  who 
has  not  adopted  the  standard  of  judging  a  bond  by  the  ability  of 
the  company  to  earn  twice  its  interest  charge.  When  you  insert 
that  renewal  and  replacement  charge — notwithstanding  all  the  prop- 
erties are  face  to  face  with  that,  and  it  is  a  much  more  material 
thing  than  we  have  been  thinking  of  in  the  past — you  destroy  its 
net  earnings,  and  even  if  you  had  an  open  issue  of  bonds,  you  could 
not  sell  them  unless  you  had  two  for  one  and,  of  course,  I  do  not 
know  of  1  road  in  10  that  can  make  that  sort  of  a  statement  to-day, 
with  a  renewal  and  replacement  fund. 

Now,  if  you  do  not  put  it  in  operating  expenses,  you  have  to 
capitalize  it,  and  you  are  not  allowed  to  do  so  by  the  cities  as  an 
operating  expense.  When  you  put  it  into  operating  expenses,  and 
you  want  a  return,  an  interest  on  the  fair  valuation,  6  cents  fades. 
There  is  nothing  to  it,  and  7  cents,  in  many  instances,  will  fade,  and 
will  go  up  to  a  very  much  higher  standard,  and  there  is  no  hope  of 
that  higher  standard,  unless  we  have  taken  the  public  into  our  con- 
fidence and  say,  "We  have  stopped  the  juggling  of  securities;  we 
have  stopped  consolidation  to  get  out  more  stock;  we  have  gotten 
down  to  an  honest  system  of  finance,  by  which  the  public  will  pay 
a  return  on  the  investment  and  nothing  more,  and  what  you  pay  you 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      559 

get.  If  you  want  a  low  rate  of  fare,  take  the  seats  out  of  the  cars, 
and  let  everybody  stand  up ;  but  if  you  pay  enough,  we  will  put  on 
Pullman  palace  cars  for  you.  You  shall  be  the  judge  of  what  you 
want,  but  whatever  you  pay  you  get,  and  you  pay  it  only  to  give  us 
a  return  on  our  actual  investment." 

The  CHAIRMAN.  At  this  point,  we  will  discontinue  until  2  o'clock. 

(Whereupon,  at  1  o'clock  p.  m.,  a  recess  was  taken  until  2  o'clock 
p.  m.) 

AFTER  RECESS. 

STATEMENT  OF  MR.  J.  T.  NEWMAN— Resumed. 

Mr.  WARREN.  Will  you  resume,  Mr.  Newman? 

Mr.  NEWMAN.  We  Avere  talking  about  renewals  and  replacements; 
or  if  we  were  not,  I  want  to  talk  it  strong. 

Let  us  assume  for  a  basis  now  that  your  property  has  a  fair  valua- 
tion of  five  to  one,  gross  receipts.  I  will  not  say  that  that  is  the 
way  it  is  going  to  work  out,  but  let  us  take  that  figure  arbitrarily— 

The  CHAIRMAN.  What  do  you  mean  by  five  to  one,  gross  receipts? 

Mr.  NEWMAN.  That  the  value  of  the  property  is  five  times  the 
gross  receipts.  Now,  we  talk  about  10  per  cent  of  the  gross  receipts 
for  renewal  and  replacement.  That  is  2  per  cent  of  the  value  of  the 
property.  Just  ask  yourselves  the  question,  how  far  will  2  per  cent 
go  toward  rebuilding  the  property;  what  is  the  life  of  the  car; 
what  is  the  life  of  the  rail;  what  is  the  life  of  the  special  work; 
what  is  the  life  of  power  equipment?  So  I  am  emphasizing  the  fact 
that  this  renewal  and  replacement  fund  has  not  lien  dealt  .with  as 
an  operating  charge  in  the  past;  that  we  have  capitalized  the  recon- 
struction of  worn-out  property  because  the  prosperity  of  the  com- 
pany in  the  past  permitted  the  capitalizing  and  the  sale  of  securities, 
but  now  we  can  not  do  it  any  more;  we  can  not  capitalize;  we  can 
Dot  sell  the  securities.  The  wearing  out  of  the  property  is  going 
on  and  we  are  face  to  face  with  this  renewal  and  this  replacement 
on  top  of  the  ordinary  maintenance.  You  can  maintain  a  thing  up 
to  a  certain  point  by  repairing  and  patching  it  and  then  it  comes  to 
where  it  has  got  to  be  replaced;  so  that  becomes  an  operating  ex- 
pense from  now  on. 

Mr.  WARREN.  How  much  do  you  think  that  should  be,  Mr.  New- 
man? 

Mr.  NEWMAN.  That  varies  all  over  the  country,  according  to 
the  local  condition.  Some  roads  have  very  heavy  traffic  in  narrow 
streets;  some  have  wide  streets  to  permit  vehicles  to  go  on  the  side, 
and  they  do  not  interfere  with  your  track,  do  not  wear  out  your 
track.  Paint  lasts  longer  in  some  communities  than  others.  But  it 
is  so  much  more  substantial  than  street-railroad  men  and  bankers 
have  ever  put  into  their  statements  that  from  now  on  we  have  got  to 
deal  with  that  as  an  operating  expense. 

Commissioner  GADSDEN.  Do  you  mean  the  current  or  accumulated, 
or  both? 

Mr.  NEWMAN.  Both.  The  current  is  repairs  and  maintenance. 
The  future  is  going  on  every  day,  but  may  be  only  calling  for  a  largo 
amount  of  capital  at  some  future  time;  reconstruction  of  the  track 
or  something  of  that  kind  is  a  replacement. 


560       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

The  CHAIRMAN.  Who  is  to  determine  the  amount  of  the  deprecia- 
tion ? 

Mr.  NEWMAN.  The  management  of  the  road.  Now,  I  will  talk 
about  that  in  a  minute. 

The  CHAIRMAN.  You  know  that  in  the  past  railroad  companies 
desiring  to  hide  a  large  return  would  charge  a  very  big  depreciation 
account,  and  those  who  wanted  to  make  a  very  favorable  showing 
would  charge  practically  no  depreciation.  Now,  are  you  going  to 
be  able  to  leave  this  to  the  street-car  management  ? 

Mr.  NEWMAN.  You  have  stated  two  cases.  One  does  not  exist 
very  often. 

The  CHAIRMAN.  Well,  it  has  in  the  past,  and  we  hope  it  will  in  the 
future. 

Mr.  NEWMAN.  There  has  been  very  little  hiding  of  net  earnings. 
To  the  contrary,  there  has  been  representation  of  net  earnings  that 
did  not  exist  in  order  to  justify  the  sale  of  securities  for  capitaliza- 
tion purposes.  Now,  that  must  go  in  the  future.  When  that  goes  in 
the  future — I  want  to  talk  banking  to  you  a  minute.  You  go  into  any 
banking  house  in  the  country  that  has  a  means  of  distributing  se- 
curities and  they  say,  "What  are  your  net  earnings?  Are  they 
two  for  one?"  "No."  "Well,  we  are  not  interested."  And  that 
standard  has  been  adopted  before  you  reached  the  renewal  and  re- 
placement account.  Now,  if  you  leave  it  out  in  the  future — 

The  CHAIRMAN.  What  is  that  two  for  one  ? 

Mr.  NEWMAN.  Net  earnings,  twice  the  bond  interest.  Now,  if  you 
leave  it  out  in  the  future  the  cities  will  say  when  giving  you  a  return 
on  your  investment,  "  Oh,  this  does  not  belong  in  here."  If  you  put 
it  in  as  an  operating  expense  you  have  destroyed  this  system  of 
financing,  so  you  have  to  set  up  an  entirely  new  financing.  That  is 
as  it  should  be,  a  new  system  of  financing,  because  you  will  never 
finance  on  the  old  basis.  And  before  the  cities  grant  this  new  relief 
that  should  be  one  of  the  conditions.  And  I  hope  that  this  commis- 
sion will  point  to  that  as  one  of  the  necessary  things  to  be  done.  It 
will  help  the  reorganization  of  the  property,  it  will  help  to  a  better 
understanding  in  the  future  as  to  when  and  how  we  can  get  money 
for  these  properties.  Now,  those  are  two  of  the  points  that  I  want 
to  emphasize. 

Now,  about  the  increased  fare,  when  we  get  it.  The  mathematical 
percentage  of  a  6-cent  fare  is  20  per  cent-  It  is  practically  impos- 
sible to  say  from  the  past  experience  what  that  is  yielding,  because 
when  you  get  your  receipts,  showing,  as  Mr.  Bertron  has  said,  in 
some  cases  30  per  cent  increase  and  in  other  cases  only  5  per  cent  in- 
crease, that  is  mixed  up  with  the  prosperity  or  the  lack  of  pros- 
perity in  a  given  community.  In  New  Orleans,  where  we  are  get- 
ting about  30  per  cent  increase  with  a  20  per  cent  increase  in  fare, 
it  is  very  largely  due  to  an  enormous  prosperity  brought  on  by  war 
conditions,  and  it  is  very  hard  to  say  which  is  which.  But  if  you 
can  just  get  the  public  mind  convinced  that  they  are  getting  a  square 
deal  now,  that  there  will  be  no  more  pyramiding  of  securities  and 
no  more  compounding  and  excessive  flotations  and  excessive  profits 
to  the  bankers,  and  convince  them  that  they  are  paying  only  for 
what  they  get  plus  return  on  invested  capital,  I  think  there  will  be 
no  objection  at  all  to  the  increased  fare  nor  will  that  mean  even- 
tually a  material  reduction  in  the  riding.  So  I  do  look  for  consider- 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION".       561 

able  relief  from  the  increased  fare  and  I  believe  it  will  measure  up 
very  closely  as  time  goes  on  to  the  mathematical  proportion. 

Mr.  WARREN.  And  it  is  the  only  relief  that  can  be  immediately 
applied;  is  it  not,  Mr.  Xewman? 

Mr.  XEWMAN.  Absolutely. 

Mr.  WARREN.  These  other  matters  that  you  have  discussed  and 
that  others  have  discussed  require  a  good  deal  of  time  for  their 
consideration  and  adoption? 

Mr.  NEWMAN.  Yes- 

Mr.  WARREN.  And  in  the  meantime  this  increased  revenue  must 
be  obtained? 

Mr.  XEWMAN.  But  if  the  public  is  convinced  that  the  relief  they 
are  giving  is  for  service,  irrespective  of  capitalization  but  dependent 
upon  the  value  of  the  property  plus  a  fair  return — once  the  public 
believes  that,  we  will  get  our  increased  fares  with  a  less  effort  than 
we  are  making  at  the  present  time. 

Mr.  WARREN.  And  without  public  hostility? 

Mr.  XEWMAN.  Yes.  Xow,  if  we  say  this  they  do  not  believe  us — 
and  I  say  we.  the  street-railroad  people — but  if  this  commission 
would  say  it,  I  believe  it  would  be  a  tremendous  step  forward. 

Mr.  WARREN.  I  agree  with  you.  I  think  that  is  all  I  want  to  ask 
Mr.  Xewman,  Mr.  Chairman. 

The  CHAIRMAN.  How  many  years  have  you  been  in  the  street-car 
business  ? 

Mr.  XEWMAN.  Twenty-four. 

The  CHAIRMAN.  During  all  of  that  time  have  you  also  been  in  the 
banking  business? 

Mr.  XEWMAN.  Yes;  not  all  of  the  period  in  the  banking  business. 
I  graduated  from  the  street-railroad  business  into  the  banking  end 
of  it. 

The  CHAIRMAN.  To  what  have  you  given  your  greatest  attention, 
railroading  or  banking? 

Mr.  XEWMAN.  First  to  railroading  and  then  to  the  banking  end 
of  it. 

The  CHAIRMAN.  How  many  years  have  you  been  giving  most  at- 
tention to  the  banking  end? 

Mr.  XEWMAN.  Since  my  father  died,  about  10  years  ago. 

The  CHAIRMAN.  Have  you  been  giving  much  attention  to  railroad- 
ing in  the  past  10  years? 

Mr.  XEWMAN.  Yes. 

The  CHAIRMAN.  At  the  present  time  you  have  a  good  many  prop- 
erties under  }^our  control? 

Mr.  XEWMAN.  Yes. 

The  CHAIRMAN.  How  many? 

Mr.  XEWMAN.  Well,  I  do  not  like  that  word  control,  but  I  am  act- 
ing in  an  advisory  capacity  for  nine. 

The  CHAIRMAN.  You  gave  us  some  very  interesting  information 
about  the  early  history  of  these  companies,  and  particularly  about 
the  long-term  franchise  and  the  5-cent  charge.  Was  it  your  ex- 
perience in  the  early  days  that  the  5-cent  fare  was  profitable  to  theso 
companies? 

Mr.  XEWMAN.  In  the  very  early  days  it  was  profitable,  but  it  never 
was  as  profitable  as  the  bankers  thought  it  was,  for  the  reason  that 
we  were  capitalizing  that  renewal  and  replacement  charge. 


552       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  CHAIRMAN.  How  long  did  they  operate  profitably  on  that 
5-cent  fare? 

Mr.  NEWMAN.  I  should  say  up  to  the  time  that  they  began  to  hnve 
an  increase  in  their  platform  expenses  over  and  above  25  cents  an 
hour,  and  that  varied  in  different  situations. 

The  CHAIRMAN.  Did  the  practice  of  capitalizing  the  replacements 
and  earnings  begin  early  in  the  history? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  And  did  you  participate  in  that  practice? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  Did  the  bankers  know  that  sooner  or  later  that 
practice  would  lead  the  companies  into  trouble? 

Mr.  NEWMAN.  Maybe  not. 

The  CHAIRMAN.  They  were  fascinated  with  a  scheme  of  the  5-cent 
fare  with  a  long  term  and  thought  that  would  carry  them  over  all 
sorts  of  difficulties? 

Mr.  NEWMAN.  Yes;  but  you  must  keep  in  mind  this— that  we  had 
a  new  industry  and  it  was  just  making  leaps  and  bounds.  Where  a 
town  or  a  city  was  at  all  prosperous  the  improved  service,  the  im- 
proved cars,  the  improved  speed,  the  moving  out  from  the  con- 
gested centers  of  the  city  into  the  outlying  districts  developed  the 
traffic  with  leaps  and  bounds,  and  that  was  an  appreciation  which 
more  than  counterbalanced  that  renewal  and  replacement  that  was 
going  on,  sometimes  called  depreciation. 

The  CHAIRMAN.  But  there  was  a  large  amount  of  capital  issued 
for  stock  which  did  not  represent  the  capital  put  into  the  plant,  was 
there  ? 

Mr.  NEWMAN.  Absolutely. 

The  CHAIRMAN.  Was  not  that  quite  a  common  practice  in  the  early 
days? 

Mr.  NEWMAN.  Yes. 

Commissioner  GADSEN.  Was  it  confined  to  public  utility? 

Mr.  NEWMAN.  No,  sir. 

The  CHAIRMAN.  I  think  the  limit  was  the  roof  in  almost  every- 
thing. 

Mr.  NEWMAN.  I  think  the  steam  railroads  are  in  exactly  the  same 
condition  to-day,  and  if  they  were  to  be  taken  from  under  the 
Government  control  you  would  see  a  situation  similar  to  the  street- 
railroad  situation,  and  that  is  something  this  Government  is  facing. 

Qommisioner  GADSDEN.  Was  not  that  the  code  of  ethics  in  those 
days  and  everybody  subscribed  to  it? 

Mr.  NEWMAN.  Yes. 

Commissioner  GADSDEN.  It  was  looked  upon  as  proper  by  every- 
body ? 

Air.  NEWMAN.  Absolutely.  I  am  not  meaning  to  reflect  that  I 
have  been  dishonest — I  won't  let  you  say  that — and  I  do  not  believe 
the  bankers  were. 

The  CHAIRMAN.  I  am  not  attempting  to  make  any  reflection  but 
am  trying  to  develop  the  facts. 

Mr.  WARREN.  It  is  still  the  practice  in  many  industrials;  is  it  not? 

Mr.  NEWMAN.  It  is  quite  the  fashion  to-day. 

The  CHAIRMAN.  Suppose  these  properties  had  been  operated  ac- 
cording to  modern  ethics,  capitalizing  only  the  money  that  is  in- 
vested, would  they  be  able  to  operate  under  a  5-cent  charge? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       563 

Mr.  NEWMAN.  Never. 

The  CHAIRMAN.  To  what  extent,  if  any,  does  this  excess  capitaliza- 
tion or  the  practice  which  you  refer  to  'influence  the  present  ability 
of  these^ utilities  to  pay  their  operating  costs? 

Mr.  NEWMAN.  Well,  if  you  mean  eliminating  the  return  on  invest- 
ment  

The  CHAIRMAN.  I  spoke  of  operating  costs. 

Mr.  NEWMAN.  They  can  all  earn  their  operating  costs. 

The  CHAIRMAN.  Under  a  5-cent  fare? 

Mr.  NEWMAN.  Without  interest,  I  think  so;  yes,  sir. 

The  CHAIRMAN.  Can  your  companies  pay  operating  expenses  on 
a  5-cent  fare? 

Mr.  NEWMAN.  I  think  they  can,  but  no  return  on  the  investment. 

The  CHAIRMAN.  You  spoke  of  the  service-at-cost  plan.  Has  that 
question  been  discussed  in  St.  Louis? 

Mr.  NEWMAN.  Why,  I  should  say  it  has  been  discussed  by  every 
street  railroad  man  in  the  business. 

The  CHAIRMAN.  What  is  the  present  charge  in  St.  Louis? 

Mr.  NEWMAN.  Six-cent  fare. 

The  CHAIRMAN.  How  long  has  that  been  in  effect? 

Mr.  NEWMAN.  Something  over  a  year. 

The  CHAIRMAN.  Granted  by  the  commission? 

Mr.  NEWMAN.  Yes;  as  a  temporary  expedient. 

The  CHAIRMAN.  Did  it  take  you  long  to  get  the  commission  to 
make  that  order? 

Mr.  NEWMAN.  Well,  it  came  rather  easily  at  St.  Louis  as  compared 
to  what  has  been  happening  in  other  situations. 

The  CHAIRMAN.  The  Missouri  Commission  has  been  very  prompt 
in  disposing  of  these  war-time  questions;  has  it  not? 

Mr.  NEWMAN.  Compared  to  other  commisions. 

The  CHAIRMAN.  Well,  what  commissions  have  not,  in  your  ex- 
perience? 

Mr.  NEWMAN.  Well,  take  the  Alabama  Commission.  There  they 
have  done  very  well — the  State  commission — but  there  has  been  a 
conflict  as  to  whether  there  was  not  some  constitutional  power  in  the 
city  charter  which  prohibited  the  State  commission  from  acting,  and 
as  the  result  of  that  in  Birmingham  we  are  still  operating  under  a 
5-cent  fare,  but  the  company  is  under  a  receiver. 

The  CHAIRMAN.  The  commission  showed  a  disposition  to  act  if  it 
had  the  power? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  Have  you  not  found  that  generally  true  with  all 
commissions? 

Mr.  NEWMAN.  Yes,  if  you  can  get  a  fair  public-utility  bill  through 
the  State  and  take  the  burden  off  of  the  local  administration  for  giv- 
ing you  this  increased  fare — I  say  burden  because  it  is  so  unpopular 
with  the  public — you  do  not  have  so  much  difficulty  with  the  com- 
missions where  they  are  constituted  with  reasonable  men  on  the 
board. 

The  CHAIRMAN.  You  have  had  a  lot  of  experience  in  the  railroad 
business  and  also  in  the  banking  business.  Which,  in  your  judgment, 
would  be  the  most  satisfactory  solution  of  the  street-car  problem— 
the  cost-of-service  plan  with  municipal  control  and  supervision,  or 


564        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

an  indeterminate  permit  franchise  subject  to  the  right  of  the  city  to 
bujT,  with  the  rates  to  be  fixed  by  the  State  commission? 

Mr.  NEWMAN.  Well,  I  do  not  see  a  great  deal  of  difference  between 
the  two  statements;  they  are  so  closely  related  that  they  are  about 
the  same  thing.  I  believe  all  service-at-cost  plans  are  based  upon  an 
indeterminate  franchise.  A  franchise  is  worthless,  or  a  scrap  of 
paper,  from  my  point  of  view.  What  we  want  is  the  indeterminate 
franchise  which  regulates  the  rate  so  that  here  are  your  gross  re- 
ceipts and  here  are  your  operating  expenses,  and  there  are  your  net 
earnings  between,  and  that  remains  constant,  no  matter  which  way 
the  business  goes.  Just  keep  it  that  way.  NQAV,  that  indeterminate, 
with  the  city  represented  on  the  board  of  the  property  to  see  that 
there  is  an  honest  administration,  and  with  the  city,  or  if  they  have 
not  the  power,  the  public-service  commission  of  the  State  granting 
the  increase  and  ordering  the  decrease  in  rates. 

The  CHAIRMAN.  Then  so  far  as  you  are  concerned  either  plan  would 
offer  a  satisfactory  solution? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  Have  you  discussed  this  alternative  plan  with 
many  people  engaged  in  this  line  of  business? 

Mr.  NEWMAN.  Yes,  I  have.  We  have  had  a  conference  of  the  in- 
terested parties  in  all  of  our  properties  together  with  the  operators  of 
these  properties,  and  we  have  thrashed  this  whole  question  out.  I 
am  able  to  talk  freely  about  it,  not  because  of  my  wisdom  but  be- 
cause I  think  I  represent  here,  in  what  I  am  saying,  the  consensus 
of  opinion  of  a  great  number  of  able  men  in  the  business. 

The  CHAIRMAN.  This  conference  that  you  speak  of  is  the  one  held 
by  the  representatives  of  the  plants  that  you  are  interested  in? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  Have  you  discussed  this  alternative  plan  with 
those  men? 

Mr.  NEWMAN.  Well,  I  may  be  a  little  thick,  but  I  can  not  quite 
catch  the  alternate-plan  idea. 

The  CHAIRMAN.  The  cost-of-service  plan  is  one,  and  the  other  to 
have  the  rates  established  by  a  State  commission,  the  franchise  based 
on  an  indeterminate  permit  subject  to  the  right  of  the  municipality 
to  bny. 

Mr.  NEWMAN.  Let  me  see  if  I  can  not  clear  that  up  for  you.  The 
cost-of-service  plan  is  nothing  until  the  rate  is  fixed.  You  find  out 
what  your  gross  receipts  are  and  what  your  operating  expenses  are 
and  that  determines  the  fare. 

The  CHAIRMAN.  That  is  true. 

Mr.  NEWMAN.  And  then  the  public  commission  fixes  the  fare? 

The  CHAIRMAN.  That  is  true. 

Mr.  NEWMAN.  And  they  go  right  together;  you  can  not  separate 
them ;  it  is  only  one  plan.  It  is  not  an  alternative  plan ;  one  is  part 
of  the  other. 

The  CHAIRMAN.  Well,  not  exactly.  One  operates  automatically 
after  the  contract  has  been  made.  In  the  other,  you  must  address 
yourself  to  the  judgment  of  a  commission  when  you  make  an  applica- 
tion for  an  increase  or  decrease,  and  the  question  then  depends  upon 
the  facts  presented.  Now,  as  between  those  two  plans  your  people 
would  be  satisfied  with  either? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       565 

Mr.  XEWMAN.  Yes,  sir;  preferably  a  combination  of  the  two,  if  you 
can  distinguish  them  as  two  plans. 

The  CHAIRMAX.  Well,  we  may  be  able  to  develop  that  later  on,  but 
I  have  not  seen  the  combination  of  the  two  yet;  at  least,  it  has  not 
been  presented  to  us. 

Mr.  NEWMAN.  You  will  find  this,  that  the  city  administration  want 
to  get  out  of  this  problem;  they  do  not  want  to  deal  with  it.  They 
are  going  to  be  only  too  happy  to  leave  it  to  the  public-service  com- 
mission. Xow,  the  alternate  plan  you  talk  about  is  this,  that  the 
public-utility  commission  may  order  certain  rates  to  be  put  in  force. 
Xow,  the  cities  may  take  action  to  make  effective  the  State  com- 
mission's recommendations. 

And  while  I  am  on  that  point  I  wrant  to  say  something,  too,  that  I 
hope  your  commission  will  adopt  in  your  report;  and  it  is  this:  A 
tentative  increase  in  fare  not  based  upon  some  definite  policy  by 
which  the  companies  will  come  into  vested  rights  is  worthless  for 
banking  purposes. 

The  CHAIRMAN.  Why? 

Mr.  XEWMAN.  They  must  have  vested  rights;  they  must  have  the 
question  settled  for  all  time.  We  can  not  be  going  through  these 
controversies  and  these  discussions  every  two  or  three  years. 

The  CHAIRMAN.  How  did  the  patrons  in  St.  Louis  regard  this 
G-cent  fare? 

Mr.  XEWMAN.  There  was  not  a  bit  of  opposition  to  it — well,  just 
correct  that.  There  was  no  concerted  action.  It  was  generally  well 
received. 

The  CHAIRMAN.  Do  you  think  that  the  public  looked  upon  that 
charge  with  favor  because  the  rate  was  established  by  a  commission 
that  examined  the  facts? 

Mr.  XEWMAN.  Yes. 

The  CHAIRMAN.  Your  home  is  in  Xew  Orleans? 

Mr.  XEWMAN.  Yes. 

The  CHAIRMAN.  There  are  some  street-car  difficulties  in  that  com- 
munity, are  there  not? 

Mr.  XEWMAN.  Yes;  terriffic. 

The  CHAIRMAN.  Are  you  interested  in  that  plan? 

Mr.  XEWMAX.  Well,  indirectly;  yes.  I  do  not  know  whether  I  am 
going  to  be  landed  with  it  or  not.  I  have  got  some  senior  securities. 

The  CHAIRMAN.  What  is  the  volume  of  your  senior  securities? 

Mr.  XEWMAN.  All  of  the  stocks  of  the  Xew  Orleans  Railway  & 
Light  Co.  are  pledged  to  secure  an  issue  of  collateral  trust  notes 
which  my  firm  floated. 

The  CHAIRMAN.  What  is  represented  by  those  notes?  What  is  the 
amount? 

Mr.  XEWMAN.  Seven  and  a  half  million  outstanding  now  of  notes, 
but  they  have  all  these  other  properties  in  addition  to  the  Xew 
Orleans  property. 

The  CHAIRMAN.  Have  they  got  a  fixed  franchise  fare  there? 

Mr.  XEWMAN.  Yes. 

The  CHAIRMAN'.  What  do  they  charge? 

Mr.  NEWMAN.  Five  cents.    They  are  now  giving  them  C  cents. 

The  CHAIRMAN.  Who  gave  them  G  cents? 

Mr.  NEWMAN.  The  city  council;  and  there  was  a  terrific  time  about 
it,  for  this  reason:  They  did  not  have  a  State  commission,  and  the 


566       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

War  Finance  Board  had  a  loan  made  to  New  Orleans,  and  Mr.  Hard- 
ing came  to  New  Orleans  and  absolutely  demanded  that  the  city 
administration  give  a  6-cent  fare.  They  gave  a  C-cent  fare,  but 
there  was  real  opposition  to  it;  and  the  opposition  came  in  this 
way.  Remember,  I  take  the  stand  that  there  is  no  opposition  to 
an  increased  fare  properly  granted,  because  there  is  a  very  small 
per  cent  of  the  population  so  ignorant  as  not  to  know  that  they  have 
got  to  pay  the  increased  cost  of  these  properties.  But  they  do  not 
want  to  pay  it  until  they  know  that  it  is  being  paid  for  service  and 
not  being  paid  to  make  good  some  watered  securities 

The  CHAIRMAN.  Why  did  the  people  object  to  the  6-cent  fare  in 
New  Orleans? 

Mr.  NEWMAN.  Because  it  was  granted  very  promptly  without  the 
proper  explanation  as  to  why  it  was  granted;  and  they  took  the 
stand  that  Mr.  Harding  had  no  right  to  come  down  there  and  de- 
mand that  the  increased  charge  be  put  on  the  people  without  the 
question  being  thoroughly  discussed. 

The  CHAIRMAN.  Was  not  the  question  discussed  before  the  council  ? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  And  did  not  the  utility  present  figures  there  to 
show  what  its  operating  conditions  were? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  Did  not  the  people  have  the  right  to  examine 
those  figures? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  And  cross-examine  witnesses? 

Mr.  NEWMAN.  Yes ;  but  they  did  not  do  it. 

The  CHAIRMAN.  Were  not  the  representatives  of  the  public  there? 

Mr.  NEWMAN.  Yes;  they  were  there  and  brought  suit  against  it; 
the  attorneys  for  the  public  were  there.  The  street-railroad  men 
were  there  themselves,  and  the  motormen  and  conductors  employed 
an  attorney  to  represent  them.  And,  as  I  stated  in  my  testimony 
earlier,  one  of  the  most  trusted  conductors  on  the  road  told  me  they 
were  opposing  it  because  they  did  not  believe  the  street-railroad 
company  needed  it.  Of  course,  it  is  notorious  that  the  New  Orleans 
property  is  grossly  overcapitalized. 

The  CHAIRMAN.  How  much  is  it  overcapitalized? 

Mr.  NEWMAN.  In  the  light  of  the  present  information,  it  is  im- 
possible to  tell  what  the  value  of  the  property  is. 

The  CHAIRMAN.  That  may  be  so,  but  what  is  the  generally-as- 
sumed overcapitalization? 

Mr.  NEWMAN.  Many  millions  of  dollars. 

The  CHAIRMAN.  And  if  the  people  there  could  have  felt  that  this 
6-cent  fare  would  result  in  paying  no  more  than  the  operating 
charges  and  a  fair  return  on  the  honest  value  of  the  plant,  do  you 
suppose  they  would  have  objected? 

Mr.  NEWMAN.  I  think  not;  but  the  burden  is  upon  the  street-car 
people  to  let  the  public  know  it,  and  the  public  does  not  believe  the 
street-railroad  company;  consequently  your  commission  can  do  a 
wonderful  service  for  us  by  telling  them  the  facts. 

The  CHAIRMAN.  Of  course,  you  would  not  expect  our  commission 
to  go  into  detail  and  develop  statistical  facts  with  reference  to  all 
these  companies  in  the  country? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       567 

Mr.  NEWMAN.  No;  but  yon  could  state  generalities. 

The  CHAIRMAN.  If  we  did,  I  do  not  know  when  we  would  reach 
New  Orleans. 

Mr.  NEWMAN.  You  certainly  would. 

The  CHAIRMAN.  Now,  you  spoke  of  renewals  and  replacements— 
and  I  think  it  was  a  very  interesting  point.  Have  you  ever  made 
an  investigation  as  to  the  life  of  these  bridges,  rails,  and  culverts, 
and  things  of  that  kind  on  the  roads  which  you  operate? 

Mr.  NEWMAN.  I  never  mad«  any  particular  investigation.  I  am  so 
thoroughly  familiar  with  it  that  I  carry  it  in  my  head. 

The  CHAIRMAN.  Don't  you  believe  since  it  is  a  very  important 
item  that  it  would  be  better  for  yourselves,  as  well  as  the  public, 
having  in  mind  this  question  of  psychology,  to  have  the  question  of 
depreciation  determined  by  public  authorities? 

Mr.  NEWMAN.  Yes;  it  must  be  developed  in  each  locality,  because 
each  one  has  its  peculiarities  and  is  different  from  the  other. 

The  CHAIRMAN.  Yes;  it  is  always  a  question  of  study. 

Mr.  NEWMAN.  Yes;  but  the  principle  remains  the  same. 

The  CHAIRMAN.  And  do  you  believe  also  that  the  public  authori- 
ties should  have  control  over  the  expenditure  of  the  money  that  is 
set  aside  for  that  fund? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  Giving  the  right  of  the  utility  to  borrow  from 
that  fund  if  it  so  chooses? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  Don't  vou  believe  that  the  public  would  have 
very  much  more  respect  for  the  utilities  if  it  had  a  larger  share 
in  fixing  this  depreciation  fund  and  in  controlling  the  expenditures 
and  especially  the  contracts  for  material  and  supplies? 

Mr.  NEWMAN.  Yes.  We  have  got  to  take  them  into  our  confidence 
and  let  them  sit  in  with  us.  We  have  got  to  clear  what  is  in  the 
mind — guilt. 

Commissioner  SWEET.  Were  you  here  when  Mr.  Culkins,  of  Cin- 
cinnati, was  on  the  stand? 

Mr.  NEWMAN.  No;  I  only  came  to-day. 

Commissioner  SWEET,  rie  is  the  director  representing  the  city 
interests  in  dealing  with  the  street-railroad  company.  Do  you  know 
what  sort  of  settlement  or  arrangement  was  made  between  the  city 
of  Cincinnati  and  the  street-railway  company? 

Mr.  NEWMAN.  Not  in  any  of  its  details,  only  in  a  very  general 
way. 

Commissioner  SWEET.  They  have  adopted  what  they  call  a  service- 
at-cost  plan.  But  with  certain  details  that  perhaps  would  not  be 
applicable  in  every  city.  I  understood  you  to  say  this  morning 
that  in  the  city  of  St.  Louis  provision  had*  been  made  right  straight 
along,  year  after  year,  for  what  you  call  the  renewal  and  replace- 
ment fund. 

Mr.  NEWMAN.  Yes. 

Commissioner  SWEET.  And  yet  notwithstanding  that,  the  company 
got  into  trouble. 

Mr.  NEWMAN.  Yes. 

Commissioner  SWEET.  So  that  you  would  not  rely  upon  that  as 
doing  anything  except  to  correct  what  you  deem  to  have  been  an 


568       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

evil  in  the  past  by  way  of  what  you  might  call  self-deception  on  the 
part  of  bankers  and  investors  through  the  banks. 

Mr.  NEWMAX.  That  is  it  exactly. 

Commissioner  SWEET.  They  fooled  themselves  in  the  belief  that 
the  profits  were  greater  than  they  actually  were  ? 

Mr.  NEWMAX.  Yes. 

Commissioner  SWEET.  Because  that  very  large  item  was  omitted, 
and  you  think  it  should  always  be  included. 

Mr.  NEWMAX.  In  the  future  there  will  be  no  other  way  of  handling 
it  except  to  take  it  out  of  operating  expenses,  x 

Commisioner  SWEET.  And  always  will  be,  probably.  Now  you  ad- 
mitted this  morning  that  in  the  old  days  your  chief  concern  was  to 
get  a  long-term  franchise  and  to  have  specified  in  that  franchise  a 
5-cent  fare. 

Mr.  NEWMAX.  Yes. 

Commissioner  SWEET.  And  you  thought  if  you  got  that  you  had  a 
valuable  piece  of  property,  based  of  course  upon  the  history  of  the 
industry  up  to  that  point  and  not  based  upon  conditions  such  as 
exist  now.  At  the  present  time  you  would  not  think  of  taking  such 
a  franchise? 

Mr.  NEWMAX.  I  think  all  of  our  5-cent  franchises  are  worthless. 

Commissioner  SWEET.  Absolutely  worthless? 

Mr.  NEWMAX.  Yes. 

Commissioner  SW?EET.  That  is,  because  the  cost  of  constructing  the 
street  railroads  and  operating  them  has  so  tremendously  increased? 

Mr.  NEWMAX.  Yes. 

Commissioner  SWEET.  That  is  the  chief  reason;  so  that  the  5-cent 
fare  is  not  adequate  and  is  not  in  proportion  now  and  does  not  afford 
a  revenue  sufficient  to  meet  the  proper  operating  expenses  and  pay  a 
fair  interest  on  the  investment.  On  the  same  basis  as  you  figured  in 
the  old  days  that  a  5-cent  fare  was  ample,  what  ought  the  fare  in  your 
judgment  to  be  now  to  produce  a  similar  result,  taking  into  account 
the  increased  cost  of  material  and  labor? 

Mr.  NEWMAX.  Well,  I  do  not  ever  hope  for  a  similar  result  such 
as  we  fancied  we  had  at  the  time 

Commissioner  SWEET.  Well,  you  told  us  there  was  quite  a  differ- 
ence between  what  you  fancied  and  the  real  fact. 

Mr.  NEWMAN.  Yes. 

Commisioner  SWEET.  But  could  you  answer  my  question  without 
any  regard  to  what  you  fancied  and  tell  us  what  you  think  to  be  the 
fare  now  that  would  be  equivalent  under  present  conditions  to  the 
5-cent  fare  in  the  old  days  ? 

Mr.  NEWMAX.  It  is  different  in  every  locality.  I  would  like  to 
answer  your  question  directly,  but  I  do  not  think  there  are  enough 
brains  in  the  street-railroad  business  to-day  to  answer  that  question. 
Only  time  will  tell  when  wre  know  whether  these  high  costs  are  going 
to  continue  and  what  the  scale  of  wages  is  going  to  be.  Only  here 
recently  in  Boston  they  were  awarded  62  cents  an  hour  pay  to  the 
motormen  and  conductors.  In  New  Orleans  AVC  are  paying  42  cents. 
We  thought  that  was  tremendously  high.  The  biggest  item  of  cost 
of  course  is  this  wage  scale,  and  it  is  fluctuating  so  fast  now  that  it  is 
impossible  for  anyone  to  say  they  ought  to  have  a  6-cent  fare  or 
a  10-cent  fare.  But  I  say,  let  the  commission  say  how  much  return 
you  must  have  and  let  them  fix  the  fare  accordingly  and  change  it 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       569 

from  year  to  year  as  we  know  the  conditions  with  which  we  have  to 
deal. 

Mr.  WARREN.  That  Boston  rate  is  only  an  example  of  a  great  many 
pending  requests,  is  it  not,  Mr.  Xewman?  In  Chicago,  for  instance, 
Jo  you  know  what  the  request  for  wages  is  there  ? 

Mr.  XEWMAN.  Well,  I  understood 

Mr.  WARREN.  Eighty  cents,  or  something  like  that  ? 

Mr.  XEWMAN.  Yes ;  it  is  away  up  in  the  eighties. 

Commissioner  SWEET.  Have  you  worked  out  a  definite  plan  in  all 
its  details  on  what  we  call  the  service-at-cost  principle  ? 

Mr.  XEWMAX.  Personally,  I  have  not,  but  there  is  a  Mr.  Xash  con- 
nected with  the  Stone  &  Webster  organization,  and  I  think  he  may 
be  present  here 

Mr.  WARREN.  He  is  the  witness  whose  testimony  has  been  inter- 
rupted. 

Mr.  XEWMAN.  And  I  think  he  has  done  the  most  comprehensive 
piece  of  work  we  have  had  done  in  the  street-railroad  business. 

Commissioner  SWEET.  You  have  not  worked  that  out  yourself? 

Mr.  XEWMAN.  Xo;  I  have  not.  I  have  been  content  to  take  his 
statement  of  the  case.  I  have  just  the  one  objective  in  mind,  and 
all  our  people  have  it,  and  that  is  to  get  a  fair  return  on  the  invest- 
ment irrespective  of  what  the  capitalization  may  be  on  these  prop- 
erties. 

Commissioner  SWEET.  The  very  thing  that  made  you  }rears  ago 
feel  that  you  were  getting  a  bonanza  when  you  got  a  long  franchise 
at  a  5-cent  fixed  rate  of  fare  causes  the  public  now,  looking  back  at 
those  days,  to  realize  that  to  some  extent  the  public  was  buncoed  "by 
granting  those  franchises;  does  it  not? 

Mr.  XEWMAN.  Yes. 

Commissioner  SWEET. -And  it  is  true,  too,  is  it  not,  or  some  part 
of  it? 

Mr.  XEWMAN.  If  that  renewal  and  replacement  account  had  been 
taken  care  of  I  say,  Xo;  it  is  not  true.  The  money  was  made  in 
handling  the  securities  but  not  in  operating  the  property. 

Commissioner  GADSDEN.  Do  you  think  the  car  rider  ever  paid 
more  than  he  ought? 

Mr.  XEWMAN.  Xo;  I  do  not. 

Commissioner  GADSDEN.  That  is  the  point. 

Commissioner  SWEET.  You  do  not  think  he  ever  did? 

Mr.  XEWMAN.  Xo. 

Commissioner  SWEET.  You  do  not  think  5  cents  was  ever  too  high 
a  fare? 

Mr.  XEWMAN.  Xo.  If  we  had  had  the  vision  to  see  where  the 
science  has  developed  as  it  is  now — where  the  cream  is  no  longer 
on  the  top  but  has  been  taken  off  by  automobiles  and  other  condi- 
tions— and  had  started  to  put  aside  then  and  there  replacement  and 
renewal  funds  to  take  care  of  the  dilapidation  of  the  property,  there 
never  was  a  time  in  the  business  under  those  conditions  that  5  cents 
was  an  excessive  fare. 

Commissioner  SWEET.  Are  you  speaking  now  of  the  industry  gen- 
erally, or 

Mr.  XEWMAX.  Generally. 

Commissioner  SWEET.  Will  you  admit  that  there  might  have  been 
particular  localities  in  which  the  5-cent  faro  was  too  large? 

1G00430— 20 37 


570       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  NEWMAN.  Well,  I  could  not  deny  it. 

Commissioner  SWEET.  You  could  not  deny  it? 

Mr.  NEWMAN.  No. 

Commissioner  SWEET.  So  that  the  local  conditions  which  you  have 
previously  mentioned  as  existing  to-day  have  always  existed  to  a 
certain  extent;  have  they  not? 

Mr.  NEWMAN.  Yes,  sir.  I  might  say  this  to  you — that  I  started 
10  years  ago  to  write  an  article  on  the  contingency  overhanging  the 
street-railroad  industry — 

Commissioner  SWEET.  Ten  years  ago? 

Mr.  NEWMAN.  Yes.  I  never  finished,  but  I  sold  our  property 
when  I  got  the  opportunity. 

Commissioner  GADSDEN.  You  were  fortunate  to  find  a  purchaser, 
even  10  years  ago;  were  you  not? 

Mr.  NEWMAN.  I  thought  so. 

Commissioner  GADSDEN.  Others  would  have  done  the  same  thing 
if  they  had  found  a  purchaser  ? 

Mr.  NEWMAN.  No,  I  think  not.  There  were  others  who  realized 
that  the  contingencies  were  there  but  we  kept  thinking  that  this 
phenomenal  growth  which  we  had  been  enjoying  due  to  the  develop- 
ment of  the  science  and  service  would  continue. 

Commissioner  SWEET.  Have  you  had  any  experience  with  what 
they  call  the  safety  car  ? 

Mr.  NEWMAN.  The  safety  car? 

Commissioner  SWEET.  Yes. 

Mr.  NEWMAN.  I  do  not  knowr  it  by  that  name. 

Commissioner  SW'EET.  The  one-man  car. 

Mr.  NEWMAN.  The  one-man  car? 

Commissioner  SWEET.  The  one-man  car. 

Mr.  NEWMAN.  I  have  had  one  of  our  men  investigate  it.  It  will 
be  a  very  great  relief  to  short  lines  in  small  cities  or  short  hauls  in 
big  cities.  It  will,  in  a  measure  do  away  with  the  competition  of  the 
jitneys.  We  have  several  situations  where  we  ought  to  use  the  one- 
man  car,  but  we  have  not  got  any  money  to  buy  them  with  and  can 
not  get  them. 

Commissioner  SWEET.  Are  you  speaking  of  New  Orleans  now? 

Mr.  NEWMAN.  I  am  speaking  of  all  of  our  properties — and  I  think 
ours  are  in  no  different  situation  than  the  generality  of  properties. 

Commissioner  SWEET.  So  you  think  there  is  a  permanent  place  for 
that  kind  of  car? 

Mr.  NEWTMAN.  Yes ;  but  it  will  give  you  relief  of  such  a  nature  that 
it  will  be  important  in  influencing  the  conclusions  that  I  think  will 
be  brought  out  by  this  testimony  here  before  your  commission. 

Commissioner  SWEET.  That  is,  you  do  not  think  that  the  amount 
of  relief  that  it  would  give  is  sufficient  to  cut  very  much  figure  ? 

Mr.  NEWMAN.  No ;  but  if  I  should  be  mistaken  in  that,  it  will  be  re- 
flected in  the  service-at-cost-plus-interest-on-investment  plan  by  a 
reduction  in  the  fares  of  roads  if  they  are  put  in  shape  to  finance 
themselves  and  buy  these  cars;  and  that  is  one  point  I  would  like 
to  emphasize  again,  that  whatever  is  done  by  the  cities  it  should  be 
withheld  from  the  companies  until  they  have  put  themselves  in 
financial  shape  to  enjoy  the  new  grant  from  the  city  to  finance  the 
requirements  of  the  property  economically  instead  of  at  12  per  cent, 
as  Mr.  Bertron  testified  was  paid  in  one  instance. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       571 

Commissioner  SWEET.  Your  idea  of  the  way  this  whole  subject 
should  be  handled  in  the  future,  if  I  understand  you  right,  is  in  a 
spirit  of  cooperation  between  the  city  and  the  company  ? 

Mr.  NEWMAN.  And  the  public. 

Commissioner  SWEET.  Well,  when  I  say  the  city,  I  mean  the  public. 

Mr.  XEWMAX.  Yes. 

Commissioner  SWEET.  That  would  be  a  decided  change  of  attitude 
from  the  past ;  would  it  not  ? 

Mr.  XEWMAX.  It  would  not  be  with  the  administration  such  as 
we  have  had  in  our  companies. 

Commissioner  SWEET.  Has  there  not  been  an  antagonism  of  interest 
to  a  certain  extent  between  the  public  represented  by  the  city  gov- 
ernments and  the  companies? 

Mr.  XEWMAX.  Yes,  in  a  good  many  instances;  but  we  were  fortu- 
liate  in  never  having  had  but  one  difficulty  with  the  city  government. 

Commissioner  SWEET.  Well,  whether  you  had  actual  difficulty  or 
not,  has  there  not  been  antagonism — that  is,  a  conflict  of  interest  in 
respect,  we  will  say,  to  taxation  and  paving  and  various  things  of 
that  kind? 

Mr.  NEWMAX.  That  is  our  steady  diet;  that  is  our  daily  work. 

Commissioner  SWEET.  I  know;  but  they  have  not  pulled  together 
in  those  things,  have  they?  Has  not  the  municipality  said,  "We 
insist  now  that  you  shall  pave  between  the  tracks  and  maybe  for  a 
foot  or  two  outside,"  and  imposed  a  burden  upon  the  companies 
which  was  in  one  sense  to  the  advantage  of  the  municipality  and 
against  the  interest  of  the  company.  Has  not  that  been  the  case? 

Mr.  NEWMAX.  Yes;  there  has  been  a  lot  of  that  controversy,  but 
I  should  not  say 

Commissioner  SAVEET.  Well,  whether  they  have  actually  quarreled 
over  it  or  not,  I  think  it  has  generally  been  accepted  by  the  com- 
panies without  any  quarrel;  has  it  not? 

Mr.  XEWMAX.  Yes;  the  paving  part  of  it  was  a  franchise  obliga- 
tion in  all  of  our  properties. 

Commissioner  SWEET.  In  most  cases  it  has  been? 

Mr.  XEWMAX.  Yes. 

Commissioner  SWEET.  But  it  imposed  a  very  heavy  burden  on  the 
street  railroads  of  the  country,  did  it  not? 

Mr.  XEWMAX.  Tremendous. 

Commissioner  SWEET.  And  what  is  your  view  with  regard  to  the 
future  of  those  burdens?  Should  they  be  removed  under  the  serv- 
ice-at-cost  plan?  Do  you  think  it  would  be  wise  and  the  proper 
thing  from  every  standpoint  for  the  general  public  to  relinquish 
voluntarily  whatever  advantage  it  might  have  obtained  by  reason 
of  such  paving  and  taxation? 

Mr.  XEWMAX.  I  would  answer  that  in  this  way:  The  idea  of 
service  at  cost  based  upon  a  valuation  is  such  a  tremendous  question 
in  itself  that  when  you  attempt  to  complicate  that  with  these  other 
questions  you  will  be  getting  nothing  accomplished.  Xow,  I  pre- 
fer not  to  bring  up  the  question  of  taxes  and  of  paving  and  to  let 
that  go  along  as  part  of  the  future  obligations  of  the  company, 
because  it  makes  no  difference  whether  you  do  the  paving  or  tho 
citv  does  the  paving  provided  you  are  getting  a  return  on  your  in- 
vestment and  provided  the  public  will  pay  the  increased  fare  to 
justify  that  investment.  That  is  almost  mathematics;  is  it  not? 


572       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Yes.  The  result,  however,  would  be  more 
certain,  would  it  not,  and  more  satisfactory  to  investors  if  the  bur- 
dens that  I  have  been  speaking  of  were  removed  so  that  the  total 
amount  necessary  to  earn  would  be  less.  That  would  mean  that 
the  fares  would  be  somewhat  less ;  would  it  not  ? 

Mr.  NEWMAX.  Yes. 

Commissioner  SWEET.  And  with  a  lowTer  fare  you  are  more  cer- 
tain to  hold  up  your  patronage,  and  the  whole  thing  would  move 
more  smoothly ;  would  it  not  ? 

Mr.  NEWMAN.  Yes;  but  I  am  afraid  if  ,we  tried  to  be  too  much 
hog  we  might  not  get  anything. 

Commissioner  SWEET.  You  do  not  think  there  would  be  any  hog 
about  demanding  or  trying  to  get  absolute  justice;  do  you? 

Mr.  NEWMAN.  Not  at  all.  But  when  you  remove  the  paving  and 
taxes  you  are  throwing  a  burden  back  on  the  people  that  has  been 
on  the  street  railroads  and  then  asking  them  to  pay  increased  fares, 
and  I  think  you  are  complicating  the  question  so  you  can  not  pre- 
sent it  in  a  concise  and  clear  manner  and  can  not  get  relief.  I  am 
afraid  to  tackle  too  many  phases  of  this  problem.  It  is  unfair  in  the 
light  of  to-day's  operations  to  pay  for  paving  because  we  all  know 
the  city  paves  every  street  with  rails  on  before  any  others  are  paved ; 
and  in  New  Orleans  we  pay  more  taxes  than  the  steam  rairoads  to- 
gether, and  the  same  is  true  in  Birmingham.  Now,  if  you  cut  off 
those  big  taxes  you  are  transferring  your  troubles  back  to  the  ad- 
ministration. In  the  city  of  New  Orleans  they  can  not  do  without 
these  street-railroad  taxes.  In  the  city  of  Birmingham  they  can 
not  do  without  these  street-railroad  taxes.  And  that  is  where  this 
thing  is  going  to  come  back  home  to  the  city;  they  are  going  to 
choke  these  companies  to  the  point  of  receivership  and  poor  service, 
and  then  the  companies  are  in  shape  to  go  into  court  and  contest 
the  taxable  value  and  get  a  reduction  on  this  franchise  tax;  and 
that  is  going  to  be  a  boomerang  to  the  cities  who  can  not  afford 
to  cut  off  this  tax.  I  do  not  believe  in  complicating  the  question 
with  this  tax  problem  and  the  paving  problem  and  starting  more 
antagonism  to  the  street  railroads,  because  I  believe  we  can  get  a 
fare  which  will  return  us  a  fair  rate  on  our  investment  and  at  the 
same  time  take  care  of  the  paving  and  the  taxes  without  having  to 
go  back  to  the  city  and  complicate  the  problem  further. 

I  really  believe  that  if  you  could  put  that  problem— I  mean  the 
problem  of  the  railroads — to  all  of  the  people  we  could  get  a  10-cent 
fare  if  it  was  necessary,  because  we  gave  the  service  to  justify  the 
10  cents.  The  people  are  not  set  against  an  increased  fare ;  they  are 
set  against  the  street-railroad  people  who  had  a  bonanza  once,  as 
they  thought,  and  who  now  in  their  trouble  are  asking  you  to  take 
up  their  burdens,  and  they  want  to  know  in  the  future  that  this 
pyramiding  of  securities  will  stop  and  that  the  securities  Avill  be 
sold  on  a  fair  interest  rate.  And  that  is  why  I  say  to  you,  reference 
should  be  made  to  the  financial  plan  and  to  get  a  fair  financial  plan 
you  must  have  vested  right  and  permanent  right  and  a  process  which 
forever  chokes  off  all  those  errors  in  the  past.  Gives  us  only  a  fixed 
return  and  then  let  the  public  pay  for  what  they  want. 

Commissioner  SWEET.  I  spoke  of  the  paving  burden  and  taxation 
together  but  really  they  are  on  quite  a  different  basis,  are  they  not? 

Mr.  NEWMAN.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       573 

Commissioner  Sweet.  But  if  I  understand  your  position  it  is  that 
even  though  absolute  justice  might  require  that  the  paving  burden 
should  be  removed  from  the  companies,  it  would  not  be  good  policy 
for  them  to  urge  that  at  the  present  time,  because  it  would  create  an- 
tagonism, and  it  is  more  for  their  interest  and  the  general  good  that 
it  should  not  be  created ;  is  that  right  ? 

Mr.  NEWMAN.  Yes. 

Commissioner  MEEKER.  It  is  not  quite  clear  to  me  just  how  you 
would  obtain  a  reasonable  return.  Do  you  mean  a  reasonable  return 
upon  moneys  invested  or  a  reasonable  return  upon  a  fair  valuation? 

Mr.  NEWMAN.  I  mean  upon  a  fair  replacement  value  of  the  prop- 
erty, including  the  cost  of  the  development  of  that  property. 

Commissioner  MEEKER.  In  the  properties  under  your  control  have 
you  followed  that  scheme  or  have  you  depended  upon  physical  valua- 
tion of  the  properties? 

Mr.  NEWMAN.  You  can  not  take  the  naked  physical  value.  There 
is  lots  that  does  not  appear  in  that  that  goes  to  make  up  part  of  the 
value.  It  would  appear  in  the  cost  to  any  city  which  would  attempt 
(o  build  a  new  street-railroad  system,  if  it  was  all  thrown  out.  You 
can  not  find  certain  elements  of  value  that  were  there  to  start  with 
and  are  not  there  to-daj',  but  they  have  been  part  of  the  cost  of  the 
development  of  the  system. 

For  instance,  you  put  in  a  generator  and  that  becomes  obsolete. 
The  custom  was,  or  should  have  been,  not  to  capitalize  the  amount  of 
power  which  you  threw  out  for  the  increased  unit  but  to  capitalize 
the  increased  unit.  But  in  many  cases  this  unit  was  capitalized  and 
tht  old  one  thrown  away,  because  its  efficiency  was  there  and  the 
saving  to  the  company  was  supposed  to  have  wiped  out  the  original 
cost.  But  we  have  kept  on  doing  that  over  and  over  again,  and  those 
original  costs  never  were  repaid  to  the  company. 

Mr.  WAKREN.  If  I  may  interrupt  for  a  moment.  Had  the  base  of 
any  plan  such  as  }'ou  have  been  suggesting  and  at  its  very  foundation 
you  would  expect  a  proper  and  fair  valuation  of  the  property  devoted 
to  use,  would  you  not? 

Mr.  NEWMAN.  Yes,  sir;  certainly.  The  paving  taken  up  and  re- 
placed— who  knows  about  the  old  paving?  You  have  forgotten  all 
about  it,  but  yet  the  city  demanded  that  you  do  it.  They  had  one 
type  of  paving  and  they  changed  it.  You  would  have  to  go  back  to 
the  old  inhabitants  to  remember  that,  yet  it  was  taken  up  and  never 
paid  back  to  you  and  it  is  part  of  the  original  capitalization. 

Commissioner  MEEKER.  I  do  not  wish  to  press  that  further,  but  it 
would  be  a  sort  of  cumulative  process  then;  you  would  necessarily 
have  to  include  as  a  part  of  your  investment  upon  which  you  are  en- 
titled to  a  reasonable  return  some  properties  that  have  been  discarded 
bu.  have  not  been  written  off  the  books  as  yet? 

Mr.  NEWMAN.  Yes. 

Commissioner  MEEKER.  The  thing  that  I  am  really  interested  in  is 
the  outstanding  capital,  whether  bonds  or  stock.  Are  you  much  con- 
cerned with  the  control  of  the  issuance  of  such  securities?  What  I 
mean  is  this:  Does  it  make  much  difference  whether  such  securities 
be  controlled  by  a  commission  as  long  as  you  are  limited  to  a  fair 
return  upon  investment? 

Mr.  NEWMAN.  That  is  correct,  but  you  must  put — let  me  explain 
this.  It  does  not  make  any  difference  under  this  plan  we  are  dis- 


574       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

cussing  what  the  securities  are  out  against  the  property,  whether 
bonds  or  stocks.  I  say  ignore  it  absolutely  and  let  the  security 
holders  fight  that  out  among  themselves.  The  authorities  have 
nothing  to  do  with  that  capitalization  and  ought  to  ignore  it  entirely, 
except  for  one  reason.  The  roads  must  be  financed  in  the  future;  and 
you  must  have  a  sound  financial  plan  by  which  you  are  going  to 
float  your  securities  at  the  lowest  possible  rate  in  the  future.  Ex- 
cept for  that  one  reason  the  city  authorities  are  not  concerned  as  to 
what  amount  of  securities  is  outstanding,  whether  bonds  or  stocks. 

Commissioner  MEEKER.  You  think  there  should  be  some  public 
control  of  the  issuance  of  securities  so  as  to  protect  the  credit  of  the 
street-railway  company? 

Mr.  NEWMAN.  Absolutely. 

Commissioner  MEEKER.  So  it  can  get  the  capital  it  needs  at  the 
lowest  rate  of  interest? 

Mr.  NEWMAN.  'Yes;  and  I  go  further  than  that.  I  say  that  before 
the  cities  make  these  new  concessions — this  new  franchise  arrange- 
ment with  the  property  owners — they  should  demand  that  they  fix 
up  their  capitalization  in  such  shape  that  they  will  not  only  have 
securities  that  can  be  sold  to  take  care  of  the  properties  in  the  future, 
but  that  wTiHtake  care  of  them  in  a  way  that  will  do  it  at  the  lowest 
rate  of  interest.  You  have  got  to  reestablish  the  credit  for  these 
roads  and,  in  my  judgment,  you  can  not  do  it  without  a  complete 
financial  reconstruction;  and  the  cities  are  interested  that  that  re- 
construction takes  place. 

The  CHAIRMAN.  Which  would  require  reorganization  of  the  com- 
pany ? 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  Throwing  out  all  the  old  stock  and  reissuing 
new? 

Mr.  NEWMAN.  Yes. 

Commissioner  MEEKER.  One  point  I  did  not  hear  you  refer  to; 
that  is,  the  zone  system. 

Mr.  NEWMAN.  No;  I  did  not  refer  to  it. 

Commissioner  MEEKER.  Do  you  think  that  may  perhaps  be  a  means 
of  helping  to  solve  the  difficulties  of  the  street  railways? 

Mr.  NEWMAN.  It  will  be  a  contributing  help  but  it  will  not  be  a 
substantial  remedy. 

Commissioner  MEEKER.  It  is  in  the  nature  of  the  one-man  car;  it 
may  help  some,  and  every  little  helps. 

Mr.  NEWMAN.  Yes. 

Commissioner  MEEKER.  But  the  one-man  car  and  the  zone  system 
seems  to  be  incompatible  so  far  as  I  can  make  out. 

Mr.  NEWMAN.  No;  they  are  a  different  proposition  entirely.  The 
one-man  car  has  no  place  in  street-railway  operation  except  in  short 
hauls. 

Mr.  WARREN.  Where  the  zone  system  would  not  be  operative,  the 
haul  would  not  be  long  enough  to  make  into  zones. 

Mr.  NEWMAN.  That  is  correct.    The  zone  system  goes  out  into 

Commissioner  MEEKER.  The  only  way  I  can  think  is  to  think  con- 
cretely. Take  the  city  of  Washington:  If  we  establish  a  zone  sys- 
tem in  this  city  I  do  not  see  how  we  could,  use  the  one-man  car,  be- 
cause as  I  see  it,  it  would  be  very  uneconomical  to  have  these  one- 
man  cars  operate  only  within  these  limited  zones  and  then  turn 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       575 

back  at  the  corner.  We  would  have  to  run  them  through  as  we  do 
now  from  the  beginning  to  the  end  of  the  run,  as  I  see  it. 

Mr.  NEWMAN.  You  would  have  two  types  of  car — the  present  car 
for  long-distance  hauls  where  the  zone  system  would  prevail,  and  on 
the  short  haul,  especially  in  smaller  cities,  you  would  use  the  one- 
man  car. 

Commissioner  MEEKER.  And  the  one-man  cars  would  operate  only 
within  a  single  zone? 

Mr.  NEWMAN.  Yes. 

Commissioner  MEEKER.  Has  that  been  tried,  do  you  know,  in  that 
way? 

Mr.  NEWMAN.  I  think  the  city  of  Houston  has  had  some  experience 
in  that  direction. 

Mr.  WARREN.  We  expect  to  introduce  a  witness  on  the  safety  car 
and  its  operation. 

Commissioner  MEEKER.  Very  well.    That  is  all. 

Commissioner  GADSDEN.  Mr.  Newman,  referring  to  what  you  said 
about  the  public  authorities  having  no  concern  with  the  capitaliza- 
tions of  these  companies,  do  you  not  think  that  consideration  would 
probably  have  to  be  giv^n  by  public  authorities  to  the  innocent  hold- 
ers of  these  securities  that  the  bankers  and  street-railroad  people  to 
whom  you  referred  issued  some  20  years  ago?  What  is  going  to 
become  of  the  innocent  third  party,  we  will  say,  who  is  holding  some 
millions  of  these  securities  now?  Is  the  public  conscience  going  to 
stand  for  just  depriving  these  people  of  their  property?  They  did 
not  do  any  harm,  did  they  ?  They  bought  them  from  bankers,  we 
will  say,  in  the  ordinary  course  of  business.  Now,  are  you  going  to 
take  the  position  before  this  commission  that  those  people's  prop- 
erty— widows,  orphans,  trust  companies,  and  savings  banks — that 
those  securities  are  going  to  be  sacrificed  because  20  years  ago  a  lot  of 
bankers  issued  watered  stock  and  inflated  securities? 

Mr.  NEWMAN.  Now,  I  am  going  to  say  yes,  but  with  a  tremendous 
qualification. 

Commissioner  GADSDEN.  I  want  the  qualification;  that  is  what  I 
am  after. 

Mr.  NEWMAN.  Yes;  I  am  going  to  give  you  that. 

Commissioner  GADSDEN.  Before  you  go  ahead,  here  is  the  thought 
in  my  mind.  I  want  you  to  get  my  full  thought.  If  that  confisca- 
tion were  carried  out,  would  not  that  of  itself  still  further  destroy 
credit  on  the  part  of  investors  in  any  security  which  the  public  had 
control  of? 

Mr.  NEWMAN.  All  right.  I  want  you  to  get  what  I  am  saying  and 
get  it  very  carefully.  I  have  taken  the  position  in  all  of  our  reor- 
ganizations that  the  bondholder  who  wants  to  exercise  his  full 
measure  will  have  to  work  without  me.  I  will  fight  him  to  a  finish; 
that  the  securities  in  the  first  to  the  tenth  position  are  all  part  of  the 
system,  and  when  the  reorganization  comes  I  want  all  of  them  to  be 
dealt  with  fairly  so  that  no  one  security  holder  can  get  advantage  of 
this  new  city  contract  to  the  detriment  of  the  other.  I  do  not  mind 
confessing  to  you  that  part  of  the  scheme  that  I  have  in  my  mind  is 
to  withhold  this  franchise  right  from  the  bankers  or  from  any  class 
of  securities  and  make  them  adopt  a  reorganization  scheme.  The 
basis  of  that  is  sound,  because  it  must  take  care  of  future  financing 
and  it  makes  them  deal  with  all  classes  of  securities  and  agree  upon 


576       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

a  reorganization.  Now,  in  some  instances — take  the  New  Orleans 
case  where  the  common  stock  of  $20,000,000  is  absolutely  worthless — 
there  is  no  chance  for  that  stock  to  have  any  intrinsic  value  whatever. 

The  CHAIRMAN.  Is  that  stock  all  water? 

Mr.  NEWMAN.  Yes.  It  is  going  to  work  a  great  hardship  on  some 
people,  but  is — 

Commissioner  GADSDEN.  Then  it  is  all  held  in  New  Orleans,  is 
it  not? 

Mr.  NEWMAN.  No;  there  is  a  holding  company,  but  there  is  some 
minority  interest  outstanding.  I  am  very  sorry  for  those  people; 
but  you  can  not  bring  that  into  this  problem..;  But  there  is  another 
way  of  throwing  equity  to  those  common-stock  holders.  Take  the 
case  of  St.  Louis,  Detroit,  and  New  Orleans:  St.  Louis  has  a  4  per 
cent  bond  which  matures  in  1934;  New  Orleans  has  a  4£  per  cent 
bond  maturing  in  1934,  and  Detroit  has  a  4^  per  cent  bond  maturing 
in  1934  or  1935 — all  about  the  same  period.  The  St.  Louis  bond  is 
selling  at  about  55,  the  New  Orleans  bond  is  selling  at  about  G7,  and 
the  Detroit  bond  is  selling  at  76.  Now,  if  you  precipitate  these 
reorganizations  these  fellows  who  hold  those  bonds,  who  have  made 
a  loan  for  15  years,  are  going  to  come  in  and  say,  "  Give  me  my 
money  now." 

A  dollar  at  4  per  cent  paj-able  in  15  years  is  not  worth  par  to-day. 
So,  when  von  get  this  valuation  of  the  property — take  St.  Louis  with 
$12.000,000  underlying  and  $30,000,000  fours,  with  $30,000,000  of 
bonds.  That  $30,000,000  of  bonds  have  got  to  be  converted,  say,  into 
a  G  per  cent  bond  which  would  give  it  ultimately  66§  per  cent  value; 
and  you  cut  $10,000,000  out  of  that  and  that  $10,000.000  capitaliza- 
tion moves  down.  And  the  fair  bankers  who  are  in  this  reorganiza- 
tion are  now  going  to  demand  their  pound  of  flesh  on  these  strangle- 
hold securities  at  the  top  but  are  going  to  pass  the  equity  all  the 
way  down,  and  if  they  attempt  to  do  otherwise  they  are  the  ones  you 
want  to  complain  about;  they  are  the  ones  who  will  be  to  blame.  Is 
that  clear? 

Commissioner  GADSDEN.  I  am  looking  at  it  now  and  the  commis- 
sion is  going  to  look  at  it  from  the  standpoint  of  the  public  and  not 
from  the  railroad  company  or  the  holders  of  the  first  securities.  I 
am  asking  you  from  the  standpoint  of  the  general  good  of  this  great 
public,  have  we  not  got  to  take  into  consideration  a  situation  where 
there  are  millions  of  securities  in  the  hands  of  innocent  third  parties? 
The  same  is  true  of  the  steam  railroads,  is  it  not  ? 

Mr.  NEWMAN.  Yes. 

Commissioner  GADSDEN.  Do  you  think  this  country  can  face  the 
catastrophe  of  wiping  that  stock  out  altogether  ?  Do  you  think  your 
banking  S3rstem  would  stand  that? 

Mr.  NEWMAN.  Well,  you  are  putting  a  question  to  me  that  is  not 
going  to  be  a  real  one.  I  am  quite  an  optimist  on  the  street-railroad 
situation,  because  I  believe  in  the  fairness  of  the  American  public 
and  I  believe  they  are  going  to  come  around  and  straighten  it  up 
for  us  when  the  time  comes  that  we  get  on  a  right  basis. 

Commissioner  GADSDEN.  But  they  have  to  have  your  help  and  that 
of  others  to  do  that. 

Mr.  NEWMAN.  But  the  bonds  that  are  in  the  trust  companies  and 
insurance  companies,  etc.,  will  be  taken  care  of.  It  is  the  only 
watered  stocks  in  most  instances  that  will  be  affected,  and  they  will 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       577 

get  some  by  virtue  of  their  voting  power  and  control;  and  the  fair 
banker  is  going  to  pass  a  little  of  the  plum  all  the  way  down ;  there 
are  going  to  be  several  bites  of  the  plum. 

Commissioner  GADSDEN.  That  is  true ;  but  is  it  not  true  that  a  -lot 
of  that  admittedly  watered  stock  has  gone  into  the  hands  of  innocent 
people  ? 

Mr.  NEWMAN.  Yes. 

Commissioner  GADSDEN.  What  are  we  going  to  do  about  it? 

Mr.  NEWMAN.  Well,  it  is  very  unfortunate,  but  I  think  some  of 
them  will  have  to  take  their  loss.  I  hate"  to  say  this,  but  it  is  neces- 
sarily true. 

Commissioner  SWEET.  Did  you  not  say  that  in  getting  the  valua- 
tion of  these  properties  you  thought  that  the  question  as  to  what  it 
would  cost  now  to  replace  them  ought  to  be  taken  into  account? 

Mr.  NEWMAN.  Yes. 

Commissioner  SWEET.  To  replace  rails  and  cars  and  electrical 
equipment  at  present  prices  would  mean  a  tremendous  addition, 
would  it  not,  or  produce  a  tremendous  excess  over  the  original  cost? 

Mr.  NEWMAN.  Yes ;  but  they  will  never  stand  for  it ;  they  are  not 
willing  to  look  at  the  cost  when  it  means  something  for  us,  but  they 
are  willing  to  look  at  the  cost  when  it  means  something  against  us. 
That  is  the  attitude  of  the  city  authority. 

Mr.  WARKEN.  The  valuation  has  to  be  made  on  the  best  fair  basis 
it  can,  has  it  not,  Mr.  Newman,  by  agreement  between  the  parties? 

Mr.  NEWMAN.  Yes;  but  there  are  parties  in  line  to-day  who  will 
determine  that  amount — there  are  men  who  are  following  that  as  a 
business  who  will  do  it. 

Commissioner  SWEET.  My  idea  was  this,  that  in  fixing  the  valua- 
tion of  these  companies  the  cost  of  replacement  at  present  high 
prices  ought  to  be  a  factor:  that  possibly  enough  would  be  derived 
to  more  than  take  care  of  the  bonds  and  what  you  might  call  the 
senior  securities,  and  something  might  be  left  for  the  common  stock. 

Mr.  NEWMAN.  May  I  explain  this  to  you  on  this  problem  of  value? 
No  system  has  been  devised  for  getting  at  that  value  and  there  is 
never  going  to  be  any  system  either.  There  are  no  engineers  in  the 
country  competent  enough,  and  no  group  of  engineers  in  this  coun- 
try competent  enough,  to  know  the  absolute  cost  of  that  system  or 
it.s  past  history,  which  is  not  available.  It  has  to  be  a  compromise 
situation,  as  every  situation  I  have  seen — it  is  just  a  backward  and 
forward  trade  until  you  get  a  happy  compromise  or  an  unhappy 
compromise  for  the  street  railroads  usually. 

Commissioner  SWEET.  Well,  it  has  to  be  on  a  satisfactory  basis  to 
the  city  anyway.  In  other  words,  they  have  to  feel  that  it  is  sub- 
stantially correct  and  fair. 

Mr.  NEWMAN.  Yes. 

Commissioner  SWEET.  Or  else  they  will  not  agree  to  it. 

Mr.  NEWMAN.  Yes. 

The  CHAIRMAN.  Perhaps  we  can  get  your  idea  of  the  reorganiza- 
tion of  the  company  and  the  actual  effect  which  it  will  have  upon  the 
stockholders  if  I  can  present  an  illustration  to  you.  T  know  figures 
aro  a  little  misleading,  but  I  am  quite  sure  you  will  grasp  this. 

Let  us  assume  that  you  own  a  property  which  has  a  capitalization 
of  $10,000,000;  $3,000',000  is  in  bonds,  $4,000.000  in  preferred  stock, 


578       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

and  $3,000,000  common  stock.  This  common  stock  is  water.  A 
phj'sical  valuation  is  made  of  the  property  and  it  is  determined  by 
competent  tribunals  that  that  property  is  worth  $6,000,000  and  thut 
value  is  established  by  the  courts.  Now,  your  plan  is  to  perfect  a 
reorganization  and  to  rewrite  the  securities  down  to  the  value  of  the 
property.  Tell  me  in  that  scheme  of  reorganization  how  the  common 
stockholder  is  going  to  be  given  any  consideration. 

Mr.  NEWMAN.  In  the  first  place,  these  bonds  may  be  2  per  cent 
bonds  due  in  50  years.  Now,  what  is  the  value  of  a  2  per  cent  bond 
due  in  50  years  ?  Certainly  not  par ;  so  those  $3,000,000  may  be  cut 
to  50  cents  on  the  dollar.  The  preferred  stock  may  have  had  a  5-cent 
franchise  and  be  earning  nothing  on  it,  but  with  the  new  rate  from 
the  city  it  may  be  able  to  earn  something.  But  the  common-stock 
holders  say,  "  No;  we  will  not  join  in  this  unless  you  will  share  with 
us  " — and  they  usually  do  share,  the  common-stock  holders,  where 
fair  bankers  have  got  the  situation  in  hand.  Now  there  is  another 
place 

The  CHAIRMAN.  Well,  then,  the  only  way  by  which  the  common- 
stock  holders  can  share  in  that  reorganization  is  through  their  voting 
power  ? 

Mr.  NEWMAN.  No ;  there  is  another  way.     That  is  one  way. 

The  CHAIRMAN.  What  is  it? 

Mr.  NEWMAN.  I  had  hoped  to  avoid  this  discussion.  The  rate  of 
return  on  that  property — Now  let  us  say  we  would  get  10  per  cent 
return  on  the  property,  which  to  my  mind,  is  not  excessive,  knowing 
the  business  and  the  miseries  of  it  as  I  do.  I  would  not  want  to  live 
through  it  another  24  years  for  10  per  cent.  The  bonds  may  be  5 
per  cent  bonds,  the  preferred  stock  may  be  a  5  per  cent  preferred 
stock — and  many  of  them  are. 

Commissioner  MEEKER.  This  is  under  the  reorganization? 

Mr.  NEWMAN.  No;  the  old  securities.  Now,  it  only  absorbs  part 
of  that  10  per  cent  return  on  your  investment.  You  pay  that  5  and 
5  and  you  might  capitalize  the  common  stock  for  one  dollar  and  issue 
certificates  of  participation  in  that  dollar  and  yet  have  a  substantial 
amount  to  divide  without  having  the  capitalizaion.  You  might  have 
no  par  value  a  share.  Do  you  see  that  ? 

The  CHAIRMAN.  I  do  not  know  what  I  see.  I  am  asking  you 
questions. 

Mr.  NEWMAN.  Yes.  Well,  I  have  answered  it,  or  I  think  I  have, 
and  I  will  repeat  it.  Take  your  proposition  of  $3,000,000  bonds — I 
will  make  it  concrete  for  you — and  $4,000,000  preferred  and  $3,- 
000,000  common.  I  will  make  this  calculation  in  a  hurry  for  you. 
Now,  you  have  $6,000,000  value,  and  say  that  ought  to  get  10  per  cent 
for  the  risk  and  worry  of  the  business.  That  gives  us  $600,000  a 
year.  We  have  to  cut  our  capitalization  to  $6,000,000.  These  $3,- 
000,000  bonds  are  four's  and  are  entitled  to  $2,000,000  of  the  new 
six's.  The  preferred  stock  of  $4,000,000  will  be  entitled  to  $3,000,000 
of  new  7  per  cent  preferred  stock.  That  is,  120,000  and  210,000  is 
330,000  from  600,000  and  we  have  an  equity  of  270,000  to  pay  the 
1,000,000  common  stock  which  I  can  issue  within  my  capitalization 
or  27  per  cent. 

The  CHAIRMAN.  Of  course  that  is  a  hopeful  future.  I  think  that 
is  an  exceedingly  valuable  contribution  to  the  record.  I  may  want 
to  go  into  the  public-utility  business. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       579 

Mr.  WARREN.  You  first  have  to  catch  your  10  per  cent. 

Mr.  NEWMAN.  If  we  get  the  10  per  cent  you  had  better  go  into  it, 
at  the  present  value  of  the  security. 

Commissioner  MEEKER.  Is  there  any  reason  why  the  holders  of 
common  stock  in  street-railroad  companies  should  be  treated  dif- 
ferently from  the  holders  of  common  stock  in  any  other  risky  enter- 
prise? 

Mr.  NEWMAN.  I  think  so ;  yes. 

Commissioner  MEEKER.  Why? 

Mr.  NEWMAN.  They  rendered  a  public  service;  they  took  a  risk 
that  was  an  extremely  hazardous  one.  They  have  built  extensions 
of  street-railroad  tracks  into  territory  that  was  vast  fields,  and  yet 
these  fields  to-day  are  city  lots.  Now,  the  city  has  had  an  enormous 
valuation  placed  upon  those  cit}r  lots,  and  it  has  come  back  into  the 
coffers  of  the  treasury  as  city  taxes  and  relieves  the  burden  of  all 
the  people ;  and  there  are  many  of  those  street  railroads  to-day  who 
have  built  those  extensions  which  are  not  paying  interest  on  the 
investment. 

Commissioner  MEEKER.  But  these  widows  and  orphans  who  have 
been  mentioned  to  us — these  innocent  investors — to  what  extent  did 
they  contribute  to  building  street-railway  lines  into  these  extensions? 

Mr.  NEWMAN.  By  putting  up  their  money  to  make  such  invest- 
ments as  I  have  mentioned  possible. 

Commissioner  MEEKER.  I  do  not  wish  to  push  that  any  further, 
only  it  seems  to  me  that  a  person  investing  in  a  risky  enterprise, 
his  blood  is  on  his  own  head,  no  matter  whether  that  is  a  street- 
railway  company  or  a  real-estate  development  of  a  steam  railroad 
or  any  other  enterprise.  I  see  no  reason  why  we  should  treat  the 
security  holders  in  this  enterprise  differently  from  what  they  would 
be  treated  if  they  had  invested  it  in  some  other  risky  enterprise. 

Commissioner  GADSDEN.  Why  not  leave  them  to  regulation  of 
their  rates  and  then  you  would  be  treating  them  as  other  people  ? 

Commissioner  MEEKER.  Of  course,  they  were  well  aware  of  the 
regulation  of  the  public  rates  when  they  made  the  investment. 

Mr.  WARREN.  But  the  regulation  followed  the  investment  in  most 
cases.  The  investment  was, made  before  regulation  was  installed, 
but  it  seems  to  me  if  you  had  proper 

The  CHAIRMAN.  How  is  that  so?  Do  you  not  have  to  get  a 
franchise  before  you  made  the  investment? 

Mr.  WARREN.  Yes;  but  in  many  cases  the  rates  were  not  fixed 
in  the  older  franchises.  In  Massachusetts  rates  were  almost  never 
fixed. 

Commissioner  MEEKER.  Do  you  think  that  any  rate  that  the  street- 
railway  company  fixed  was  the  established  rate? 

Mr.  WARREN.  Yes.  The  compulsory  regulation  followed  later. 
It  was  a  development  of  the  public-utility  business  from  the  State, 
the  government  side. 

Commissioner  MEEKER.  I  think  it  would  be  very  interesting,  Mr. 
Warren,  if  you  could  give  us  some  documentary  evidence  on  that 
point. 

Mr.  WARREN.  I  should  be  very  glad  to. 

Commissioner  MEKKER.  This  is  rather  a  new  phase  to  me,  for  I 
had  supposed,  as  the  chairman  has  indicated,  that  the  franchises, 
at  least  for  a  very  long  period  of  years,  had  fixed  the  faro. 


580       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  In  some  States  they  have  for  a  long  time,  but  in 
some  States  they  were  not  fixed  and  the  regulation  came  with  the 
supervisory  commission. 

Commissioner  MEEKER.  I  wanted  to  make  it  clear  that  I  regard 
this  as  a  minor  point.  The  only  thing  is,  Mr.  Gadsden  has  brought 
the  matter  up  and  it  is  not  yet  evident  to  me  that  the  security 
holders — those  who  have  been  innocent  enough — to  put  it  that  way,, 
to  invest  in  street-railway  securities,  have  a  right  to  get  100  cents 
on  every  dollar  they  invested  in  the  street-railway  company  any 
more  than  a  man  who  invests  in  a  shoe  factory  or  a  real-estate  de- 
velopment is  entitled  to  get  100  cents  return. . 

Mr.  WARREN.  Of  course,  if  they  are  entitled  to  100  cents  on  the 
dollar  there  is  no  reason  for  having  any  valuation,  because  the  out- 
standing securities  would  be  the  measure  of  the  amount  on  which 
the  return  was  to  be  made.  If  the  return  is  to  be  made  upon  the  valu- 
ation, then  the  security  holders  can  adjust  their  respective  equities 
somewhat  in  the  line  suggested  by  Mr.  Newman,  or  in  various  other 
lines  which  have  been  suggested. 

Commissioner  MEEKER.  Yes.  I  think  Mr.  Newman  has  given  us 
a  very  illuminating  discussion  of  the  possibilities  of  reorganization. 

Mr.  WARREN.  We,  probably  all  of  us,  have  had  more  or  less  sad 
personal  experiences  in  reorganizations  and  we  know  they  can  be 
worked  out  in  very  many  ways,  according  to  the  actual  or  assumed 
equities  of  the  various  security  holders  in  the  corporation. 

I  have  two  other  witnesses  whom  I  very  much  want  to  ^;et  on  be- 
fore 5  o'clock,  because  neither  of  them  can  be  here  this  evening.  One 
is  Mr.  Ferguson,  president  of  the  chamber  of  commerce,  and  the 
other  is  Mr.  Stanley,  president  of  the  Cleveland  Street  Railway ;  and 
Mr.  Stanley  has  to  leave  at  5  o'clock  and  Mr.  Ferguson  wants  to 
leave  earlier,  so  I  would  ask  the  commission  to  have  in  mind  that  if 
Mr.  Ferguson's  examination  takes  too  long  Mr.  Stanley  will  have  to 
go  without  testifying. 

Mr.  NEWMAN.  You  do  not  desire  anything  further  from  me  ? 

The  CHAIRMAN.  No. 

(AVitness  excused.) 

The  CHAIRMAN.  You  may  proceed,  Mr.  Warren. 

STATEMENT  OF  ME.  HOMER  I.  FERGUSON. 

Mr.  WARREN.  Your  full  name,  Mr.  Ferguson. 

Mr.  FERGUSON.  Homer  L.  Ferguson. 

Mr.  WARREN.  And  you  are  the  president  of  the  United  States 
Chamber  of  Commerce,  I  believe? 

Mr.  FERGUSON.  Yes,  sir. 

Mr.  WARREN.  And  also  of  the  Newport  News 

Mr.  FERGUSON.  Shipbuilding  &  Dry  Dock  Co. 

Mr.  WARREN.  Yes,  sir. 

The  CHAIRMAN.  What  was  that  last  statement? 

Mr.  FERGUSON.  The  Newport  News  Shipbuilding  &  Dry  Dock  Co. 

Mr.  WARREN.  As  President  of  the  United  States  Chamber  of  Com- 
merce, have  you  had  occasion  to  hold  hearings  or  conduct  an  investi- 
gation on  this  same  subject,  by  the  chamber? 

Mr.  FERGUSON.  Yes,  sir.  The  committee  was  appointed  before  I 
was  elected  president,  by  Mr.  Harry  Wheeler,  of  Chicago.  At  the 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       581 

St.  Louis  convention,  it  was  decided  that  the  conditions  of  the  street 
railways  had  become  so  critical  that  the  chamber  of  commerce 
should  appoint  a  special  committee  to  investigate  the  subject  as  com- 
pletely as  possible,  with  a  view  of  submitting  to  a  referendum  their 
decisions,  with  the  arguments  pro  and  con,  so  as  to  get  an  expression 
of  the  business  organizations  of  the  country,  which  constitute  the 
chamber. 

Mr.  WARREN.  And  this  convention  was  what — the  convention  of 
what  ? 

Mr.  FERGUSON.  It  was  a  convention  of  the  Chamber  of  Commerce 
of  the  United  States,  attended,  I  should  say,  by  about  3,000  dele- 
gates from  all  over  the  country,  and  it  wyas  decided  there  that  this 
committee  should  be  appointed.  The  committee  was  appointed  by 
Mr.  Wheeler,  and  has  been  in  session  here  in  Washington  on  a  num- 
ber of  occasions.  I  have  attended  one  or  two  of  the  meetings  of  the 
committee,  but  not  as  a  member. 

Mr.  WARREN.  You  have  said  that  the  feeling  of  that  convention 
was  that  the  situation  was  a  very  serious  one  and  demanded  some  car- 
tain  action? 

Mr.  FERGUSON.  Yes,  sir. 

Mr.  WARREN.  And  has  that  impression  been  increased  or  lessened 
by  what  you  have  heard  in  the  hearings  ? 

Mr.  FERGUSON.  It  has  been  increased — that  and  discussion  with  a 
great  many  men  who  are  operating  street  railways  and  who  are 
concerned  with  them.  I  think  the  business  judgment  of  the  country, 
so  far  as  it  can  be  gauged,  is  that  the  situation  is  right  critical  and 
should  receive  attention  just  as  soon  as  possible,  on  account  of  the 
enormous  amount  of  values  involved  and  the  fact  that  the  companies, 
a  great  many  of  them,  are  in  a  bad  way. 

Mr.  WARREN.  You  yourself  have  had  some  street-railway  experi- 
ence, I  believe? 

Mr.  FERGUSON.  Not  as  a  manager,  Mr.  Warren.  I  am  a  director  in 
a  local  street  railway  at  Hampton  Roads,  between  Old  Point  and 
Newport  News;  and  I  believe  we  have  one  of  the  few  street-railway 
properties  in  the  United  States  that  is  doing  very  well  at  the  present 
time. 

Mr.  WARREN.  That  is,  thanks  to  your  activities  at  present  with  the 
shipbuilding  company,  I  assume. 

Mr.  FERGUSON.  Well,  it  has  been  due  to  the  shipyard  to  an  enor- 
mous extent.  It  has  been  due  to  the  fact  that  the  population  feeding 
this  railway  probably  more  than  doubled.  We  have  from  fifteen 
to  forty  thousand  soldiers  there  all  the  time,  and  they  ride  on  the 
cars  a  great  deal,  and  it  has  also  been  due  to  the  fact  that  the  street 
railway  there  not  only  sells  transportation  but  also  power,  ice,  gas, 
and 

Mr.  WARREN.  So  the  returns  are  not  confined  to  the  transportation 
features? 

Mr.  FERGUSON.  No.  Another  point  is  that  in  the  early  days  we 
had  a  12-mile  trip  when  we  had  a  competing  company.  Both  com- 
panies practically  went  broke  carrying  people  these  12  miles  for  a 
nickel ;  and  then",  when  one  company  went  under  and  the  property 
was  absorbed  by  the  other  in  a  reorganization,  the  district  was  split 
into  three  zone's,  and  a  5  cents  fare  in  each  zone,  for  the  primary 
reason,  as  I  understand— I  was  not  associated  with  the  company  at 
all  then 


582       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Yes. 

Mr.  FERGUSON.  For  the  primary  reason  that  the  country  was  so 
sparsely  populated  that  we  could  not  afford  to  carry  them  for  a 
nickel.  Now,  when  the  traffic  has  increased  enormously,  this  weak- 
ness of  the  original  system  has  been  the  strength  of  the  present  sys- 
tem. 

Mr.  WARREN.  You  practically  increased  your  fares  ahead  of  time 
because  of  the  sparsely  settled  territory  ? 

Mr.  FERGUSON.  Yes;  and  now  when  the  cars  are  running  full,  of 
course  that  has  given  the  benefit  to  us.  At^the  same  time,  at  the 
works,  our  men  are  carried  over  the  old  lines  as  much  as  3.5  miles 
for  2.5  cents. 

Mr.  WARREN.  That  is  a  special  morning  and  evening  rate? 

Mr.  FERGUSON.  That  is  between  6  and  7  in  the  morning  and  4  and 
5  in  the  afternoon.  They  are  carried  very  thick..  About  2,500  men, 
or  20  per  cent  of  our  force,  ride  in  the  cars.  The  others  walk. 

On  the  new  line,  which  was  built  with  money  loaned  by  the  United 
States  Shipping  Board  Emergency  Fleet  Corporation,  the  fares  were* 
fixed  by  that  corporation  at  5  cents  for  workmen — or  twice  the  fare 
over  the  old  line — on  account  of  the  excessive  cost  of  the  new  equip- 
ment of  the  new  line. 

Mr.  WARREN.  Which  was  built  during  the  war  ? 

Mr.  FERGUSON. 'It  was  built  during  the  war  under  an  agreement 
that  the  money  loaned  on  the  actual  railroad,  as  I  understand  it,  was 
•to  be  repaid  in  full,  but  the  equipment  was  to  be  purchased  at  a  fair 
valuation  under  a  board  of  neutral  appraisers. 

Mr.  WARREN.  Yes? 

Mr.  FERGUSON.  In  other  words,  the  excess  cost  during  the  war 
was  taken  care  of  by  the  war. 

Mr.  WARREN.  Yes. 

Mr.  FERGUSON.  In  that,  as  in  several  other  things  in  our  vicinity, 
it  was  recognized  that  this  was  a  war  cost. 

Mr.  WARREN.  And  where  was  this  5-cent  fare,  as  compared  with 
the  2.5-cent  fare— in  the  same  direction? 

Mr.  FERGUSON.  No;  in  another  direction. 

Mr.  WARREN.  But  about  the  same  distance? 

Mr.  FERGUSON.  Not  quite  so  far. 

Mr.  WARREN.  So  that  the  Government  recognized  thus  the  in- 
creased cost  of  construction  by  fixing  a  higher  fare  on  the  new  line 
for  the  men  than  on  the  old  line  ? 

Mr.  FERGUSON.  Oh,  yes;  not  only  for  the  men,  but  the  ordinary 
fare  was  made  15  cents  a  round  trip  over  the  new  line  for  the  sol- 
diers. Then  the  citizens  living  along  this  line  all  kicked,  and  so  they 
were  given  15  cents  a  round  trip,  although  the  ordinary  fare  was 
10  cents,  and  for  workmen  5  cents. 

Mr.  WARREN.  And  on  the  old  line  it  was  still  10  cents  ? 

Mr.  FERGUSON.  Yes. 

Mr.  WARREN.  For  that  distance? 

Mr.  FERGUSON.  Yes. 

Mr.  WARREN.  For  the  public! 

Mr.  FERGUSON.  Yes. 

Mr.  WARREN.  How  did  you  happen  to  become  connected  with  the 
road,  Mr.  Ferguson? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       583 

Mr.  FERGUSON.  It  was  largely  accidental.  We  were  very  much 
interested  in  the  street  railway,  because  decent  transportation  was 
necessary  to  the  operation  of  our  business;  and  after  one  of  the  old 
roads  had  gone  into  bankruptcy  and  had  been  bought  up  by  the 
other,  and  the  other  was  in  pretty  nearly  as  bad  shape,  the  whole 
thing  being  run  down,  and  the}-  did  not  have  any  money,  and  the 
men  would  come  into  the  works  in  the  morning  a  half  hour  late  or 
an  hour  late,  and  we  used  to  have  to  argue  with  them  more  or  less 
not  to  wreck  the  system.  This  had  happened  time  and  time  again. 
The  lights  would  go  out  and  would  come  on  again  the  next  night, 
perhaps.  So  that  when  the  bondholders  took  over  the  property  and 
reorganized  it  by  sending  some  railway  people  there  who,  in  my 
judgment,  knew  the  business,  the  local  people  were  very  much  in- 
terested; and  in  order  to  rehabilitate  themselves  in  local  favor,  they 
had  a  number  of  local  men,  or  asked  them  to  acquire  enough  shares 
in  the  company  to  be  elected  directors.  A  majority  of  the  directors 
are  local  men,  who,  by  no  means  control  the  stock;  and  it  was  an 
evidence  of  good  faith  on  the  part  of  the  people  who  came  there  to 
rehabilitate  this  railroad.  The  question  we  asked  them  was  whether 
they  are  going  to  run  a  real  railroad  or  the  kind  of  thing  that  we 
had  had,  and  they  showed  every  evidence  of  operating  the  street 
railway  not  only  for  the  benefit  of  the  stockholders,  but  for  the 
benefit  of  the  public;  and  I  think  they  have  done  it;  and  the  local 
directors  have  been  very  active  in  assisting  them  to  do  it,  and  in 
seeing  that  they  did  do  it. 

Mr.  VARREN.  Yes? 

Mr.  FERGUSON.  Which  they  wanted  to  do.  So,  instead  of  having 
a  company  which  could  furnish  no  service,  we  have  a  company 
which  does  furnish  a  real  service  that  did  not  break  down  during 
the  war,  notwithstanding  the  fact  that  their  traffic  more  than 
doubled,  and  which  has  been  a  real  asset  to  the  community.  The 
war- working  community  could  not  have  been  carried  on  at  all  with- 
out the  street-railway  transportation,  the  power  and  electric  lights, 
and  so  forth. 

Mr.  WARREN.  So  that  you  had  an  experience  with  a  broken-down 
road  rendering  poor  service,  because  it  was  not  earning  enough  to 
do  anything  else  5 

Mr.  FERGUSON.  Yes. 

Mr.  WARREN.  And  with  an  up-to-date  road  there,  charging  a 
high  rate  of  fare,  you  have  maintained  good  service  ? 

Mr.  FERGUSON.  No;  they  did  not  charge  a  high  rate  of  fare.  The 
old  road  had  charged  the  higher  rate  before  they  went  into  tho 
hands  of  a  receiver. 

Mr.  WARREN.  They  had  raised  it  to  the  three  fares? 

Mr.  FERGUSON.  They  had  raised  it,  but  they  had  no  money.  They 
had  no  credit.  So  a  local  syndicate  was  formed  which  raised  ap- 
proximately $1,000,000,  about.  Of  this  $1,000,000,  $750,000  was  put  in 
a  power  house  and  the  rest  was  put  in  the  property.  In  other  words, 
they  put  the  property  on  its  feet. 

Mr.  WARREN.  Yes. 

Mr.  FERGUSON.  By  creating  a  credit  for  it.  Then,  with  the  in- 
creased business  the  earnings  picked  up  at  once,  and  they  have  been 
going  very  well  ever  since. 


584        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  So  that  that  is  a  question  of  a  company  without 
credit  as  compared  with  one  with  credit? 

Mr.  FERGUSON.  The  company  had  no  credit  under  the  old  arrange- 
ment. As  soon  as  it  could  borrow  money  they  put  the  property  in 
good,  condition  and  built  it  up,  and  that,  with  the  increased  business, 
paid  them  very  fair  earnings. 

Mr.  WARREN.  One  of  the  reasons,  I  suppose,  that  you  were  on  the 
board  was  to  get  reliable  service? 

Mr.  FERGUSON.  Absolutely.  . 

Mr.  WARREN.  For  your  employees? 

Mr.  FERGUSON.  Yes;  that  is  very  important  in  a  small  place  like 
ours — of  about  30,000  or  40,000  people — because  we  have  a  grea^  many 
men  who  live  a  good  distance  away  from  their  work.  I  think  the 
most  vital  feature  in  a  place  like  ours,  of  street-car  transportation — 
reliable  transportation — is  that  it  enables  the  workmen  to  live  where 
land  is  cheap,  where  he  can  eke  out  his  wage  by  being  fairly  inde- 
pendent in  the  matter  of  his  own  garden,  his  chickens  and  cow  and 
pigs,  and  all  that  sort  of  thing.  Incidentally,  I  believe  that  the  one 
real  sure  cure  for  all  of  what  we  are  pleased  to  call  our  modern  ills 
and  bolshevism  is  to  have  every  man  own  his  own  home ;  and  if  his 
home  is  out  in  the  country,  where  land  is  cheap,  and  where  living  is 
cheaper,  I  think  that  is  of  great  benefit.  We  have  built,  for  instance, 
ii  town  of  500  houses,  where  this  new  transportation  was  provided, 
for  the  express  purpose  of  giving  the  men  a  place  to  'live  other  than 
a  tenement  or  a  mud  row,  or  something  like  that. 

Mr.  WARREN.  You  provide  some  land  for  each  owner  ? 

Mr.  FERGUSON.  Oh,  yes. 

Mr.  WARREN.  A  house  and  lot? 

Mr.  FERGUSON.  Well,  they  have  a  garden.  The  street-railway  com- 
pany has  made  access  to  cheap  land  for  industrial  workers,  and  I 
think  that  is  most  important. 

Mr.  WARREN.  Yes;  and  as  president  of  the  chamber,  you  would 
say  that  this  matter  is  one  of  the  very  greatest  importance  at  this 
time,  would  you  not? 

Mr.  FERGUSON.  Yes. 

Mr.  WARREN.  This  street-railway  problem? 

Mr.  FERGUSON.  I  think  it  is  one  of  the  most  important  matters  in 
the  country  at  the  present  time.  Financially,  it  would  seem  to  me 
to  be  the  most  acute  problem  that  we  have  internally  at  this  time. 

Mr.  WARREN.  And  unless  settled  it  might  involve  great  and  serious 
financial  dangers,  I  suppose? 

Mr.  FERGUSON.  I  should  say  so. 

Mr.  WARREN.  That  is  all. 

The  CHAIRMAN.  Has  the  committee  of  the  chamber  of  commerce 
which  has  been  making  a  study  of  this  question  made  any  report  ? 

Mr.  FERGUSON.  I  do  not  know  that  they  have  as  yet,  sir ;  but  they 
are  formulating  a  report.  I  understand  the  matter  has  progressed 
favorably.  They  had  a  hearing  in  Washington. 

The  CHAIRMAN.  Have  you  an  idea  how  soon  they  will  have  such 
a  report  presented  ? 

Mr.  FERGUSON.  I  don't  know.  I  believe,  though,  within  a  com- 
paratively short  time. 

The  CHAIRMAN.  Before  this  commission  gets  through  with  this  in- 
vestigation ? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       585 

Mr.  FERGUSON.  I  hope  so,  and  if  the  commission  would  like  the 
data  that  they  have  accumulated  from  a  variety  of  sources  it  can  be 
put  at  the  service  of  the  commission,  if  the  commission  sees  fit  to 
use  it. 

The  CHAIRMAN.  That  is  very  kind  indeed.  We  will  take  that  into 
consideration. 

Mr.  FERGUSON.  Yes,  sir. 

The  CHAIRMAN.  In  your  Newport  News  plant  you  have  gas,  light, 
and  railway  combined? 

Mr.  FERGUSON.  Yes,  sir. 

The  CHAIRMAN.  Have  you  ever  made  a  separation  of  the  cost  of 
performing  each  branch  of  the  company's  service  ? 

Mr.  FERGUSON.  Yes. 

The  CHAIRMAN.  Do  you  know  whether  the  railway  service,  in  and 
of  itself,  is  paying  its  own  way? 

Mr.  FERGUSON.  Yes ;  it  is  paying  its  own  way,  but  not  much  more, 
at  the  present  time. 

The  CHAIRMAN.  Although  you  have  greatly  increased  the  volume 
of  your  business? 

Mr.  FERGUSON.  Yes. 

The  CHAIRMAN.  And  the  number  of  passengers  that  you  serve? 

Mr.  FERGUSON.  Yes. 

The  CHAIRMAN.  You  mentioned  a  village  of  500  houses  which  was 
built  for  the  use  of  industrial  workers.  How  far  is  that  from  the 
plant? 

Mr.  FERGUSON.  About  2|  miles. 

The  CHAIRMAN.  What  is  that  fare? 

Mr.  FERGUSON.  5  cents.  The  Government  fixed  that  rate  of  fare 
for  this  village.  They  loaned  the  money  to  build  the  village  with. 

The  CHAIRMAN.  Do  you  feel  that  the  street-car  industry  is  a  per- 
manent institution? 

Mr.  FERGUSON.  Permanent? 

The  CHAIRMAN.  Yes. 

Mr.  FERGUSON.  Yes,  sir. 

The  CHAIRMAN.  Do  you  think  it  is  just  as  vital  to  the  commercial 
development  and  welfare — the  communal  development  and  welfare 
of  the  city  as  the  light,  gas,  and  water? 

Mr.  FERGUSON.  I  do  not  think  it  is  as  important  as  water,  but  I 
think  it  is  as  important  as  the  light  or  gas  or  anything  else  we  use, 
except  water  and  air. 

The  CHAIRMAN.  But  if  the  street-car  companies  should  become  a 
decadent  institution  and  there  was  nothing  better  put  in  its  place, 
would  we  not  have  to  completely  revolutionize  our  whole  economic 
and  social  system? 

Mr.  FERGUSON.  I  think  so.  Of  course,  automobiles  can  be  operated, 
but  I  do  not  believe  we  will  ever  see  the  time,  unless  some  new  power 
method  of  transportation  is  devised,  when  we  will  operate  over  roads 
as  economically  as  we  will  on  steel  rails. 

The  CHAIRMAN.  But  the  country  must  have  some  institution  that 
can  travel  365  days  on  steel  ? 

Mr.  FERGUSON.  Yes,  sir. 

The  CHAIRMAN.  Regardless  of  weather  conditions? 

Mr.  FERGUSON.  I  think  so. 
100643°— 20 38 


586       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

The  CHAIRMAN.  And,  of  course,  the  automobile  will  not  supplant 
that? 

Mr.  FERGUSON.  Yes,  sir. 

The  CHAIRMAN.  In  Minnesota  oftentimes  we  have  5  feet  of  snow 
on  the  level. 

Mr.  FERGUSON.  Yes,  sir. 

The  CHAIRMAN.  And  the  automobiles  are  stored  up  during  that 
period. 

Mr.  FERGUSON.  I  would  say  that  they  are  an  absolute  necessity 
in  any  modern  city.  For  industrial  workers,  for  whom  I  speak 
particularly,  I  think  it  is  vital  that  you  haYe  street-car  transporta- 
tion. 

The  CHAIRMAN.  Then  we  should  proceed  upon  the  theory  that 
this  distribution  must  be  preserved  ? 

Mr.  FERGUSON.  Yes,  sir. 

Commissioner  SWEET.  What  wages  are  you  paying,  Mr.  Ferguson, 
on  your  street  railway? 

Mr.  FERGUSON.  45  cents,  I  believe,  at  the  present  time. 

Commissioner  SWEET.  Was  that  adjusted  by  the  War  Labor  Board  ? 

Mr.  FERGUSON.  No,  sir;  it  has  been  adjusted  by  the  company  volun- 
tarily. I  think  we  had  seven  raises  in  three  years. 

Commissioner  SWEET.  Are  your  conductors  and  motormen  white 
men? 

Mr.  FERGUSON.  Yes,  sir. 

Commissioner  SWEET.  Is  that  wage  satisfactory  to  them  ? 

Mr.  FERGUSON.  As  far  as  I  know. 

Mr.  WARREN.  I  do  not  suppose  it  is  fair  to  ask  you  whether  you 
think  they  will  go  up  further? 

Mr.  FERGUSON.  I  do  not  think  it  is  likely  to  come  down  soon. 

Commissioner  SWEET.  The  general  raise  of  wages  and  materials 
that  go  into  street  railways,  and  everything  else  now,  has  been  men- 
tioned by  former-President  Taft  as  an  evidence  in  his  mind  that  the 
purchasing  power  of  money  had  been  reduced.  Is  that  your  view 
of  it? 

Mr.  FERGUSON.  Yes,  sir;  it  results  in  that.  Wages  and  materials, 
generally  speaking,  I  think,  have  doubled  and  more  than  doubled 
in  the  last  four  years.  They  have  considerably  more  than  doubled  in 
our  business.  In  the  street-railway  business,  I  understand,  they  are 
about  doubled. 

Commissioner  SWEET.  Taking  an  ordinary  street  railway  that  was 
doing  fairly  well  before  prices  advanced,  with  the  nickel  fare,  having 
no  control  over  the  increase  of  costs  and  no  ability  to  increase  its 
income  by  raising  fares;  when  you  take  that  into  account,  are  you 
at  all  surprised  at  the  critical  condition  that  you  say  you  think  the 
companies  are  now  in  with  regard  to  street  railways  ? 

Mr.  FERGUSON.  I  think  it  would  be  very  surprising,  Mr.  Sweet, 
if  what  has  happened  had  not  happened. 

Commissioner  SWEET.  Practically,  to  a  man  of  any  business  abil- 
ity whatever,  or  intelligence,  it  is  the  very  thing  that  had  to  hap- 
pen; is  it  not? 

Mr.  FERGUSON.  I  think  it  is ;  and  it  is  a  demonstrated  proposition 
that  if  everything1  else  goes  up  except  street-car  fares,  and  they  are 
left  in  the  lurch,  and  no  miracle  is  going  to  take  place  with  refer- 
ence to  them  any  more  than  with  anything  else.  Everything  else 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       587 

seems  to  have  gone  up  that  1  know  of.  It  seems  to  me — I  won't  say 
absurd,  but  it  seems  very  strange  that  the  question  would  have  to 
be  discussed  at  such  length,  Mr.  Sweet. 

The  CHAIR-MAX.  Yes. 

Mr.  FERGUSON.  Now,  for  instance,  when  men  have  to  be  charged  to- 
day a  greater  fare  because  property  costs  more  money,  we  have  found 
that  by  explaining  it  to  the  men,  all  of  whom  may  be  getting  more 
money,  because  it  costs  them  more  to  live,  that  this  is  a  necessary 
thing  on  account  of  its  having  been  done  during  the  war;  and  al- 
though they  do  not  lake  it,  they  put  up  with  it  as  the  rest  of  us  do 
when  it  is  explained1  to  them  and  when  it  is  explained  that  the  Gov- 
ernment has  allowed  this.  As  a  matter  of  right,  they  do  not  object 
particularly,  and  we  have  found  that  they  want  to  do  what  is  fair 
and  right.  I  am  speaking  of  the  workmen  who  pays  his  nickel. 

Mr.  WARREN.  On  your  line? 

Mr.  FERGUSON.  Yes. 

Commissioner  SWEET.  Do  you  think  that  is  typical  in  all  com- 
munities throughout  the  country? 

Mr.  FERGUSON.  J  do  not  know  that  it  is,  sir.  There  seems  to  be 
a  good  deal  of  opposition  to  it,  but  it  does  seem  to  me  if  the  facts — 
and  particularly  the  facts  as  developed  in  an  authoritative  way — 
could  be  properly  placed  before  the  people  who  are  concerned,  you 
will  find,  in  general,  that  most  people,  the  big  majority  of  people, 
would  be  willing  to  do  what  is  fair  and  right. 

Commissioner  SWEET.  Yes. 

Mr.  FERGUSON.  If  they  were  convinced  that  it  was  the  right  thing 
to  do.  Of  eo«rse,  I  have  no  scheme  of  financing  a  reorganization. 
The  one  thing  that  is  patent  to  me  is  that  they  must  get  more  faros 
or  go  broke,  but  as  to  how  it  will  be  done  and  how  the  final  reor- 
ganisation will  take  place  or  jnst  what  method  will  be  used,  I  do 
not  know ;  but  it  seems  perfectly  patent  that  no  one  should  expect 
to  riele  now  for  5  cents  as  he  rode  for  5  cents  six  years  ago. 

Commissioner  SWEET.  When  he  knows  that  he  can  not  buy  pota- 
toes or  an3rthmg  else  at  the  same  price. 

Mr.  FERGUSON.  He  knows  he  can  buy  absolutely  nothing  except 
at  greatly  increased  prices. 

Commissioner  SWEET.  In  view  of  the  fact  that  the  Chamber  of 
Commerce  of  the  United  States  has  a  committee  investigating  this 
subject  which  will  soon  make  a  report,  I  presume  you  would  prefer 
not  to  express  any  personal  opinion? 

Mr.  FERGUSON.  >iot  at  all;  hecuirse  it  would  be  my  job  to  try  to 
assist  in  putting  through  the  recommendations  of  that  committee. 

Commissioner  SWUET.  And  you  would  prefer,  naturally,  to  await 
that  report? 

Mr.  FiwfiusoN.  Xot  only  that,  sir,  but  I  do  not  feel  competent  to 
express  a  j-wlgment  as  to  the  final  solution  of  it  at  all,  and  I  would 
nol  do  so,  awaiting  the  report  of  our  committee. 

Commissioner  SWEET.  That  is  what  I  would  imagine. 

Mr.  FERGUSON.  Yes,  sir. 

Commissioner  SWEET.  And,  for  that  reason,  I  will  not  ask  3*011  any 
question  on  that  point;  but  ,t  matter  that  I  think  is  patent  to  every- 
body, or  ought  to  be,  at  least,  as  you  have  said,  is  that  with  costs 
increasing  for  everything  that  the  company  has  to  buy  that  its  in- 


588       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

come  must  be  increased  by  higher  fares  in  order  to  meet  its  obliga- 
tion? 

Mr.  FERGUSON.  Yes,  sir. 

Commissioner  SWEET.  Otherwise,  it  would  have  to  go  out  of  busi- 
ness ? 

Mr.  FERGUSON.  Yes,  sir. 

Commissioner  SWEET.  There  is  no  question  about  that,  is  there  ? 

Mr.  FERGUSON.  I  do  not  think  there  is. 

Commissioner  SWEET.  That  is  all. 

Commissioner  GADSDEN.  Mr.  Ferguson,  pending  a  working  cut  of 
a  permanent  solution  either  on  the  lines,  recommended  by  the  com- 
mittee of  the  chamber  of  commerce,  or,  we  will  say,  by  this  commis- 
sion, what  would  you  say  as  to  the  immediate  necessity  of  the  situa- 
tion? 

Mr.  FERGUSON.  Well,  I  should  say  the  first  aid  to  the  wounded 
would  consist  in  giving  an  increase  in  fare  to  suit  the  actual  posi- 
tive present  necessities  of  any  particular  situation.  I  do  not  see 
that  that  can  be  escaped,  if  the  companies  are  to  be  saved. 

Commissioner  GADSDEN.  That  is  all  I  have  to  ask. 

Mr.  WARREN.  Your  men,  I  suppose,  are  receiving  a  great  deal 
higher  wages  in  your  work  than  they  received  formerly? 

Mr.  FERGUSON.  When  the  2.5-cent  workmen's  fare — which  also, 
applied  to  school  children,  by  the  way — was  adopted,  the  first-class 
pay  of  the  mechanic  we  had  was  two  and  a  half  a  day.  At  the 
present  time  the  pay  of  a  first-class  mechanic  is  $6.40  a  day.  He 
worked  10  hours  then,  and  he  works  8  hours  now. 

The  CHAIRMAN.  Go  down  the  line  and  give  us  a  few  more  figures 
of  the  same  kind,  Mr.  Ferguson. 

Mr.  FERGUSON.  The  common  laborer  got  $1  a  day.  At  the  pres- 
ent time  he  gets  $3.68  a  day  for  the  commonest  of  the  common 
labor,  and  $4  a  day  for  what  you  would  call  a  helper  or  the  higher 
grade  of  laborer.  When  the  fare  was  established  he  was  getting  9()> 
cents  a  day.  That  is  black  labor. 

The  CHAIRMAN.  Are  you  paying  black  labor  $3.68? 

Mr.  FERGUSON.  The  minimum  is  $3.68  now. 

Mr.  WARREN.  For  black  labor? 

Mr.  FERGUSON.  Yes,  sir.  It  runs  from  that  with  pieceworkers  up 
as  high  as  $150  a  week.  .  . 

Commissioner  MEEKER.  Have  they  been  working  8  hours,  too? 

Mr.  FERGUSON.  Working  8  hours;  yes,  sir. 

Commissioner  SWEET.  And  formerly  10  hours? 

Mr.  FERGUSON.  No  one  is  working  10  hours. 

Commissioner  MEEKER.  I  say,  formerly  10  hours. 

Mr.  FERGUSON.  Formerly  10  hours;  yes,  sir. 

The  CHAIRMAN.  These  men  are  in  your  street-car  service? 

Mr.  FERGUSON.  No;  the  shipbuilding  service.  In  the  street-car 
service  the  wages  are  different.  They  pay  the  same  wages  in  the 
shops  as  we  do,  but  the  motormen  and  conductors,  as  I  understand  it, 
run  about  12  hours.  I  am  not  sure,  but  they  run  longer  hours  than 
we  do. 
.  Commissioner  SWEET.  At  45  cents  an  hour? 

Mr.  FERGUSON.  Yes,  sir. 

There  was  one  thing  that  was  done  locally  that  may  interest  you 
gentlemen,  in  regard  to  the  street-car  service,  and  that  is  in  the 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       589 

morning  and  afternoon  when  the  cars  are  crowded  we  have  a  great 
many  men  who  are  not  motormen,  and  these  men  will  take  the  place 
of  the  regular  motormen  on  the  morning  and  afternoon  runs  and 
get  a  quarter  or  50  cents  a  day  extra  for  the  running  of  the  car 
in  and  out  when  it  is  loaded.  They  come  into  the  shipyard  and 
work  all  day  and  run  that  car  back  at  night.  That  is  very  satis- 
factory to  the  men  and  very  satisfactory  to  the  company,  because  it 
saves  them  the  service  of  these  extra  men.  That  is  done  in  the  case 
of  a  good  many  men. 

Mr.  WARREN.  How  has  this  wage  of  the  men  on  the  work  that  you 
have  mentioned  been  fixed? 

Mr.  FERGUSON.  They  were  fixed  by  the  Shipbuilding  Labor  Ad- 
justment Board  here  in  Washington.  At  the  shipyard  they  were  in- 
creased about  150  per  cent.  In  the  case  of  some  trades,  in  piece- 
workers, it  was  much  more  than  that ;  so  that  I  feel  that,  as  a  local 
situation,  the  men  who  were  employed  industrially  can  very  well 
afford  to  pay  the  higher  street-car  fare. 

Mr.  WARREN.  And  it  does  not  make  the  street-railway  wage  look 
as  high,  by  comparison,  as  it  seems  to  the  street-railway  men,  meas- 
ured only  by  what  it  used  to  be? 

Mr.  FERGUSON.  Xo ;  and  it  has  made  it  very  difficult  for  the  street 
railway,  locally,  to  keep  their  men,  because  they  could  come  into  the 
shipyard  and  get  so  much  better  wages,  so  that  their  wages  have 
gradually  been  increasing  with  ours. 

Mr.  WARREN.  Do  you  expect,  Mr.  Ferguson,  that  this  level  of 
wages  is  going  to  continue  for  some  time  or  is  it  going  to  drop  again 
soon? 

Mr.  FERGUSON.  I  think  it  will  continue  for  some  time. 

Mr.  WARREN.  A  matter  of  months  or  years? 

Mr.  FERGUSON.  Years.  I  do  not  see  any  signs  of  decreases  in 
wages.  It  seems  to  me  that  commodities  are  bound  to  remain  high, 
on  account  of  the  tremendous  foreign  demand,  and  that  wages  with 
us  are  bound  to  remain  high,  on  account  of  the  cost  of  living,  and  also 
on  account  of  the  tide  of  immigration  actually  setting  the  other  way, 
instead  of  to  this  country;  so  that  I  think,  although  a  great  many 
people  predicted  lower  wages  with  the  end  of  the  war  and  the 
signing  of  the  armistice,  there  has  been  no  sign  of  it,  and  if  any  ten- 
dency has  been  exhibited,  it  has  been,  I  think,  a  tendency  upward 
instead  of  downward,  as  illustrated  by  the  various  strikes  going  on. 

Mr.  WARREN.  That  is  in  the  street-railway  industry,  certainly,  is 
it  not? 

Mr.  FERGUSON.  Oh,  yes. 

Mr.  WARREN.  I  am  very  much  obliged  to  you,  Mr.  Ferguson.  That 
is  all  I  have. 

Mr.  FERGUSON.  I  am  much  obliged  to  you,  gentlemen. 

The  CHAIRMAN.  Mr.  Ferguson,  you  have  a  very  illustrious  man  to 
follow  in  the  chamber. 

Mr.  FERGUSON.  Yes,  sir;  he  is  a  very  fine  man. 

Mr.  WARREN.  Mr.  Commissioner,  I  will  ask  Mr.  Stanley  to  take 
the  stand. 


590       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

STATEMENT  OF  ME.  JOHN  J.  STANLEY. 

Mr.  WARREN.  Mr.  Stanley,  your  full  name? 

Mr.  STANLEY.  John  J.  Stanley. 

Mr.  WARREN.  You  are  the  president  of  the  Cleveland  Street  Rail- 
way Co.? 

]Nlr.  STANLEY.  The  Cleveland  Street  Railway  Co. 

Mr.  WARREN.  And  have  been  for  how  long? 

Mr.  STANLEY.  Ten  years. 

Mr.  WARREN.  Were  you  the  president  before  the  service-at-cost 
plan  was  introduced  there? 

Mr.  STANLEY.  I  was  vice  president  and  general  manager. 

Mr.  WARREN.  How  long  were  you  connected  with  the  road  before- 
you  became  president? 

Mr.  STANLEY.  I  had  been  with  the  road  about  36  years. 

Mr.  WARREN.  What  did  you  start  as? 

Mr.  STANLEY.  Hill  boy. 

Mr.  WARREN.  Sanding  the  rail? 

Mr.  STANLEY.  No;  pulling  the  cars  up  the  hill  with  a  horse. 

Mr.  WARREN.  Tow  horse  ? 

Mr.  STANLEY.  A  tow  horse;  yes. 

Mr.  WARREN.  So^  you  have  been  with  the  road  from  the  time  it 
was  a  horse  railway  down  to  the  time  that  it  became  a  service-at- 
cost  road? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  And  that  marked  some  change,  I  presume  f 

Mr.  STANLEY.  Yes :  I  have  seen  some  change. 

Mr.  WARREN.  Now,  Mr.  Stanley,  you  have  to  go  at  5  o'clock,,  do 
you  not? 

Mr.  STANLEY.  Or  very  soon  thereafter. 

Mr.  WARREN.  I  want  to  leave  some  time  for  the  commissioners  to 
ask  some  questions,  so  I  .do  not  want  to  take  up  too  much  time  ask- 
ing questions  myseff ;  but  I  should  like  to  have  you  give  the  com- 
mission a  sketch  of  this  service-at-cost  situation— how  it  came  about, 
and  how  it  is  working:. 

Mr.  STANLEY.  After  10  years  of  fighting  in  Cleveland  with  Tom 
Johnson  and  the  city  officials,  Judge  Tayler  devised  a  scheme  of  serv- 
ice at  cost.  The  scheme  was  to  deduct  from  the  receipts  the  operating 
costs,  the  maintenance  costs,  taxes,  and  interest.  The  interest  cost 
was,  of  course,  the  6  per  cent  on  our  stock.  The  balance  would  go 
into  the  interest  fund.  When  that  interest  fund  became  $700^000 
or  more,  the  fare  was  reduced.  When  it  came  down  to  $300,000  the 
fare  was  increased.  So  the  interest  fund  is  the  barometer.  As  the 
interest  fund  reaches  $700,000,  there  is  nothing  else  to  do  but  to 
lower.  When  it  reaches  $300,000,  it  has  to  raise  it. 

We  operated  in  Cleveland  for  10  years  on  a  3-cent  fare,  3  and  1. 
We  are  now  operating  at  5  cents,  i  penny  for  a  transfer,  and  11 
tickets  for  50  cents. 

That  is  about  all  there  is  to  it. 

Commissioner  SWEET.  What  was  the  fund  upon  which  you  pay 
the  6  per  cent  ? 

Mr.  STANLEY.  Upon  which  we  pay  the  6  per  cent? 

Commissioner  SWEET.  You  spoke  of  it  as  stock.  Does  that  repre- 
sent the  entire  cost? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       591 

Mr.  STANLEY.  It  was  a  valuation  that  was  decided  upon  at  the 
time  of  the  Tayler  grant.  That  valuation  was  gotten  together  by 
not  only  the  city's  side  of  it  but  the  railway  side. 

Mr.  WARREN.  That  was  a  valuation  of  the  whole  property? 

Mr.  STANLEY.  A  valuation  of  the  whole  property.  We  were  al- 
lowed at  that  time  about  $110,000  a  mile  for  the  amount  of  tracks 
that  we  had  in  the  city  of  Cleveland. 

The  CHAIRMAN.  Including  equipment? 

Mr.  STANLEY.  Yes;   including  equipment  and  everything. 

Mr.  WARREN.  Did  that  valuation  include  anything  for  unexpired 
franchises,  do  you  remember? 

Mr.  STANLEY.  Yes!    Yes,  sir;  about  three  million — $3,500,000. 

Mr.  WARREN.  That  was  these  term  franchises  that  still  had  some 
time  to  run,  I  suppose? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  And  you  mentioned  starting  on  3  and  1,  I  think. 
That  was  the  rate  of  fare? 

Mr.  STANLEY.  That  was  the  rate  of  fare  we  decided  on  at  that 
time,  to  start  on. 

Mr.  WARREN.  What  does  three  and  one  mean? 

Mr.  STANLEY.  Three  cents  for  a  fare  and  a  penny  for  a  transfer. 

Mr.  WARREN.  Was  that  the  lowest  rate  that  you  ever  had? 

Mr.  STANLEY.  I  really  do  not  know  whether  we  ever  went  below 
that  or  not.  I  can't  recall.  I  think,  under  the  first  commissioner, 
we  did  operate  for  a  while  at  3  cents. 

Mr.  WARREN.  At  3  cents? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  Without  the  transfer  charge? 

Mr.  STANLEY.  Without  the  transfer  charge.  There  was  a  rebate. 
The  charge  was  made,  but  it  was  rebated. 

Mr.  WARREN.  How  was  that  3  cents  paid — in  cash  each  time? 

Mr.  STANLEY.  Either  cash  or  tickets.  A  ticket  was  worth  3 
cents. 

Mr.  WARREN.  Those  tickets  were  bought  in 'strips? 

Mr.  STANLEY.  Yes;  they  were  in  a  strip — six  in  a  strip.  Five  at 
15  cents;  that  is  right. 

Mr.  WARREN.  That  cash  fare,  Mr.  Stanley — was  that  strictlv  a 
3-cent  cash  fare?  Suppose  a  man  got  on  without  any  ticket,  and  he 
did  not  have  3  pennies  in  his  pocket  but  had  a  nickel,  what  was  tho 
fare  to  him? 

Mr.  STANLEY.  He  paid  the  nickel. 

Mr.  WARREN.  In  other  words,  the  conductor  did  not  make  change? 

Mr.  STANLEY.  That  is  true. 

Mr.  WARREN.  Suppose  he  had  a  dime.  Did  he  make  change  for 
that? 

Mr.  STANLEY.  Well,  we  had  one  line  that  ran  down  to  the  Union 
Depot  that  we  used  to  charge  a  penny  for.  If  he  put  in  a  nickel, 
why,  it  was  all  right.  If  he  put  in  a  dime,  it  was  all  right.  Wo 
would  keep  the  dime  or  the  nickel,  or  whatever  he  put  in. 

Mr.  WTARREN.  That  is  a  very  short  ride,  as  I  recall  it? 

Mr.  STANLEY.  It  was  a  mile— about  a  mile  long. 

Mr.  WARREN.  That  was  from  the  square  down  to  the  Union  Sta- 
tion ? 

Mr.  STANLEY.  From  the  square  down  to  the  piers. 


592       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  I  should  like  to  turn  the  witness  over  to  the  com- 
mission now,  because  I  know  you  are  interested  in  this  subject;  and 
while  I  think  I  know  something  about  the  subject,  I  think  your 
questions  are  apt  to  be  directed  to  the  points  that  you  want  to  know 
about;  and  Mr.  Stanley,  I  think,  represents  the  pioneer  company  in 
this  so-called  service-at-cost  plan. 

You  were  the  first  company  in  the  country,  Mr.  Stanley,  that  went 
into  it,  were  you  not? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  Is  it  a  term  franchise  that  you  have  now  ? 

Mr.  STANLEY.  It  is  a  perpetual  franchise.  .-It  is  a  franchise  that 
runs  25  years ;  but  every  10  years  they  are  supposed  to  renew  it.  If 
they  do  not  renew  it,  the  service  goes  back  to  the  railway  company ; 
and  then  we  are  supposed  to  get  our  money  out  of  it  in  the  last  15 
years,  at  the  maximum  rate  of  fare.  Our  maximum  rate  of  fare 
to-rday  is  a  6-cent  fare  and  a  penny  for  a  transfer. 

Mr.  WARREN.  What  fare? 

Mr.  STANLEY.  Six  cents,  with  a  penny  for  a  transfer.  That  is  our 
maximum  rate  of  fare  that  we  can  charge.  We  are  not  charging  it. 

Mr.  WARREN.  Oh,  yes.    What  are  you  charging? 

Mr.  STANLEY.  Five  and  one,  and  11  tickets  for  50  cents. 

Mr.  STANLEY.  Oh,  yes. 

The  CHAIRMAN.  Mr.  Nash  is  going  to  file  copies  of  the  franchises 
with  us,  is  he  not  ? 

Mr.  WARREN.  Yes. 

The  CHAIRMAN.  So  there  is  no  need  of  our  inquiring  about  the 
terms  ? 

Mr.  WARREN.  I  do  not  think  there  is.  I  think  it  is  more  the  gen- 
eral principles,  the  working  of  it. 

The  CHAIRMAN.  It  is  the  general  principles  and  the  effect? 

Mr.  WARREN.  Yes. 

The  CHAIRMAN.  How  long  has  that  franchise  been  in  effect  ? 

Mr.  STANLEY.  Ten  years,  sir. 

The  CHAIRMAN.  The*  cost-of-service  franchise  ? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  What  fare  did  you  start  at? 

Mr.  STANLEY.  We  started  at  three  and  one. 

The  CHAIRMAN.  What  is  it  now? 

Mr.  STANLEY.  Five  and  one. 

The  CHAIRMAN.  When  was  it  made  five? 

Mr.  STANLEY.  I  will  read  it  off  to  you. 

To  May  31,  1911,  rate  E.  3-cent  cash  fare,  1-cent  transfer. 

To  August  31,  1914,  rate  F,  3-cent  fare,  1-cent  transfer,  and  1-cent 
rebate. 

To  December  14,  1917,  rate  E,  3-cent  cash  fare,  1-cent  transfer. 

To  December  25,  1917,  rate  D,  4-cent  cash  fare,  3  tickets  for  Ifr 
cents,  1-cent  transfer,  and  1-cent  rebate. 

To  April  2,  1918,  4-cent  cash  fare,  3  tickets  for  10  cents,  1-cent 
transfer. 

To  April  9 

Mr.  WARREN.  Xo  rebate? 

Mr.  STANLEY.  No  rebate. 

Mr.  WARREN.  What  does  that  rebate  mean,  Mr.  Stanley? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       59 £ 

Mr.  STANLEY.  Well,  when  you  receive  the  transfer,  you  pay  a 
penny;  and  if  you  do  not  rebate,  of  course,  the  company  keeps  the 
penny ;  but  if  you  rebate,  the  conductor  hands  back  the  penny  to  the 
passenger  at  the  time  he  turns  in  his  transfer. 

Mr.  WARREN.  Oh.  yes. 

The  CHAIRMAN.  It  is  very  hard  to  hear  you,  Mr.  Stanley. 

Mr.  STANLEY.  To  August  3,  1918,  rate  A,  4-cent  cash  fare,  seven 
tickets  for  25  cents,  1-cent  transfer. 

To  August  6,  1919,  rate  2d,  5-cent  cash  fare,  five  tickets  for  25 
cents,  1-cent  transfer. 

Now,  the  only  reason  that  the  five  tickets  for  25  cents  were  put  in 
there  was  as  an  accommodation  to  the  public.  They  liked  the  five 
tickets,  rather  than  pay  a  cash  fare. 

The  CHAIRMAN.  How  long  did  you  operate  under  that  contract  be- 
fore you  increased  rates? 

Mr.  STANLEY.  Well,  up  to  December  25,  1917. 

The  CHAIRMAN.  That  was  how  many  years? 

Mr.  STANLEY.  That  is  over  eight  years. 

The  CHAIRMAN.  That  was  on  a  3  and  1  basis  ? 

Mr.  STANLEY.  That  was  on  a  3  and  1  basis? 

The  CHAIRMAN.  During  all  of  that  time  was  the  company  meeting 
the  contract  provisions? 

Mr.  STANLEY.  Yes ;  in  a  way. 

The  CHAIRMAN.  Then  you  had  no  difficulty  in  paying  your  wages, 
maintaining  your  property,  and  taking  care  of  fixed  charges  on  a 
3  and  1  fare  from  1908  up  to  1917  ? 

Mr.  STANLEY.  We  had  a  deficit  each  and  every  year,  which  was 
taken  care  of  in  the  following  year.  Otherwise,  we  got  along  very 
well  with  it. 

The  CHAIRMAN.  Well,  from  what  fund  was  that  deficit  paid? 

Mr.  STANLEY.  Under  the  ordinance  we  are  allowed  so  much  for  op- 
erating, cents  per  car-mile,  and  so  much  for  maintenance,  cents  per 
car-mile.  After  the  first  year  of  operation,  when  we  found  that  it 
was  not  sufficient  to  take  care  of  it,  they  allowed  a  sufficient  fund,  or 
allowed  a  special  allowance  to  take  care  of  the  deficit  of  the  year 
before. 

The  CHAIRMAN.  But  this  fund  is  created  out  of  the  operating 
revenue  ? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Everything  comes  out  of  the  fare? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Then,  you  were  able  to  operate  that  plant  and 
pay  all  of  the  expenses  and  maintain  the  property  and  take  care  of 
fixed  charges? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Out  of  the  revenues? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  On  the  3  and  1  basis? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Do  you  regard  the  value  of  that  plant  as  fair? 

Mr.  STANLEY.  No,  sir;  we  were  not  satisfied  with  the  valuation  at 
the  time  the  settlement  was  made.  They  cut  our  stock  down  from. 


594       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

par  to  55.  I  will  frankly  say  that  if  we  were  allowed  at  that  timo 
about  80,  we  would  have  been  satisfied. 

The  CHAIRMAN.  How  many  years  had  the  franchise  to  go  at  the. 
time  this  contract  was  made? 

Mr.  STANLEY.  Some  of  them  were  running  out,  and  others  had 
four,  or  five,  or  six,  or  seven  years  probably,  to  go. 

The  CHAIRMAN.  Do  you  consider  that  $3,500,000  valuation  for  the 
franchise  as  fair  ? 

Mr.  STANLEY.  To  some  extent. 

The  CHAIRMAN.  You  began  increasing  these  charges  in  1917? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Those  charges,  I  understand,  work  automatically ; 
as  the  increased  cost  takes  place,  the  fare  increases  ? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  There  has  been  quite  a  number  of  increases  here 
in  the  last  year  and  a  half — four,  I  think.  As  I  recall  your  testi- 
mony, there  have  been  about  four  increases  in  the  last  year  and  a 
half. 

Mr.  STANLEY.  That  is,  in  the  fare? 

The  CHAIRMAN.  Yes. 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Xow,  what  effect  did  those  increases  have  upon 
the  patrons  ? 

Mr.  STANLEY.  Why,  none  at  all.  It  had  a  good  deal  of  effect  on 
the  politician,  but  not  on  the  car  rider.  I  think  the  car  rider  real- 
izes that  he  ought  to  pay  more  fare. 

The  CHAIRMAN.  Well,  under  your  contract,  does  the  city  maintain 
strict  supervision  over  expenditures? 

Mr.  STANLEY.  They  do. 

The  CHAIRMAN.  And  over  your  accounts? 

Mr.  STANLEY.  They  do. 

The  CHAIRMAN.  In  what  way? 

Mr.  STANLEY.  They  have  to  approve  everything  that  we  buy,  and 
they  have  absolute  supervision  over  our  accounts. 

The  CHAIRMAN.  And  they  have  supervision  over  your  contracts 
as  well  ? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Are  all  of  the  contracts  submitted  on  bids? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  And  the  city  has  to  approve  those  bids? 

Mr.  STANLEY.  They  have  to  approve  bids. 

The  CHAIRMAN.  How  large  a  force  does  the  city  use  in  that  work? 

Mr.  STANLEY.  Well,  the  cost  of  the  commissioner's  office  runs  any- 
where from  $40,000  to  $60,000  a  year. 

The  CHAIRMAN.  How  many  men  are  employed? 

Mr.  STANLEY.  They  have  something  like  20  or  25  men — 25  men. 

The  CHAIRMAN.  Is  the  cost  of  maintaining  that  office  charged  to 
the  operation  of  the  railway  or  paid  for  out  of  taxes? 

Mr.  STANLEY.  It  comes  out  of  the  railway. 

The  CHAIRMAN.  It  comes  out  of  the  railway  ? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Then  the  whole  public,  as  well  as  the  private 
control  of  the  road,  is  charged  to  operation  ? 

Mr.  STANLEY.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       595 

The  CHAIRMAN.  How  many  accountants  are  maintained  by  the 
public? 

Mr.  STANLEY.  I  think  they  have  probably  three  accountants. 

The  CHAIRMAN.  They  devote  all  of  their  time  to  a  study  of 
your 

Mr.  STANLEY.  Accounts. 

The  CHAIRMAN  (continuing).  Property? 

Mr.  STANLEY.  Yes.  They  even  inspect  our  work  on  the  tracks 
and  inspect  our  cars. 

The  CHAIRMAN.  Does  this  city  supervision,  in  your  judgment, 
prevent  the  company,  if  so  disposed,  from  pronting  out  of  contracts 
which  it  makes  in  supplies  with  others? 

Mr.  STANLEY.  I  do  not  believe  there  is  any  way  of  profiting  from 
contracts  under  this  scheme. 

The  CHAIRMAN.  Under  this  scheme? 

Mr.  STANLEY.  No. 

The  CHAIRMAN.  Of  course,  it  has  been  under  the  old  method — • 
perhaps  not  in  Cleveland? 

Mr.  STANLEY.  I  do  not  know  of  any  that  has  been  done. 

The  CHAIRMAN.  By  individuals,  I  mean  the  officers  of  the  com- 
pany. 

Mr.  STANLEY.  Personally,  I  never  have  had  that  occur,  that  I  know 
of,  in  my  organization.  It  may  have  happened,  but  I  do  not  know 
of  it. 

The  CHAIRMAN.  Well,  could  that  happen  under  this  system  of 
supervision? 

Mr.  STANLEY.  Yes;  it  could  happen. 

The  CHAIRMAN.  Would  it  not  have  to  be  collusion  between  the 
officer  of  the  railway  and  that  of  the  city  ? 

Mr.  STANLEY.  Sure. 

The  CHAIRMAN.  It  is  very  hard  to  get  collusion  among  three 
parties,  is  it  not  \ 

Mr.  STANLEY.  Yes,  sir;  it  is. 

The  CHAIRMAN.  Well,  during  the  whole  time  the  capital  on  the 
fixed  charges  had  been  paid  upon  the  investment? 

Mr.  STANLEY.  Yes, 

The  CHAIRMAN.  Had  they  been  making  any  extensions  and  im- 
provements since  this  contract  was  made? 

Mr.  STANLEY.  We  are  making  five  extensions  this  year. 

The  CHAIRMAN.  What  is  the  cost  of  those? 

Mr.  STANLEY.  The  extensions  are  running  probably  a  mile  to  an 
extension,  which  would  make  it  anywhere  from  5  to  7  miles  of  exten- 
sion this  vear;  and  the  cost  of  those  extensions  would  run  from 
$30,000  to  $60,000  a  mile. 

The  CHAIRMAN.  Where  did  you  get  the  money? 

Mr.  STANLEY.  From  our  stockholders. 

The  CHAIRMAN.  You  sold  new  stock? 

Mr.  STANLEY.  We  sold  new  stock. 

The  CHAIRMAN.  What  was  that  slock  sold  at  ? 

Mr.  STANLEY.  At  par.    We  can  not  sell  it  at  any  less. 

The  CHAIRMAN.  Was  there  any  trouble  in  disposing  of  it  ? 

Mr.  STANLEY.  We  have  not  had  any  trouble.  We  had  trouble 
when  we  first  started  the  grant.  That  might  be  of  interest  to  you. 

The  CHAIRMAN.  Was  that  sold  to  the  stockholders  locally  ? 


596       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  STANLEY.  Yes.  I  would  be  very  glad  to  furnish  you  that. 
We  have  with  our  company  5,202  stockholders.  Seventy  per  cent  of 
those  are  local  stockholders — Cleveland  stockholders.  All  the  trust 
companies — three  of  them — in  Cleveland  control  possibly  anywhere 
from  $1,000,000  to  $2,000,000  worth  of  stock  for  estates,  widows,  and 
orphans. 

The  CHAIRMAN.  What  was  the  total  amount  of  stock  issued  for 
these  hew  extensions? 

Mr.  STANLEY.  That  I  can't  say  offhand.  I  have  not  the  record 
here. 

The  CHAIRMAN.  It  is  comforting  to  be  able  to  find  one  street-car 
company  in  the  country  that  can  sell  its  stock  at  par. 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Is  that  the  result  of  your  contract  with  the  city? 

Mr.  STANLEY.  Yes  and  no. 

The  CHAIRMAN.  What  are  the  conditions  in  Cleveland  that  estab- 
lishes this  credit  for  your  company  ? 

Mr.  STANLEY.  If  I  might  read  this  quotation  here  from  Mr. 
Baker.  Hon.  Newton  D.  Baker,  upon  taking  office  as  mayor  of 
Cleveland,  January  1,  1912,  wrote  a  letter,  in  which  he  said: 

My  advice  and  hopes  are  that  from  now  on,  by  cooperation  and  sympathy, 
the  company  and  the  city  administration  can  work  out  their  respective  parts 
of  what  is,  in  effect,  a  common  trust  of  the  public  welfare.  The  interests  of 
the  owners  of  the  property  and  the  people  whom  it  serves  are  one 

Now,  there  is  the  secret.  If  the  city  and  the  railway  company 
work  together,  the  plan  \vill  be  successful. 

The  CHAIRMAN.  Is  there  a  real  confidence  between  tl^e  public  and 
the  railway  company  ? 

Mt.  STANLEY.  There  has  been;  yes,  sir. 

The  CHAIRMAN.  Is  there  to-day? 

Mr.  STANLEY.  Yes  and  no.  A  man  might  become  mayor  that 
cares  more  for  his  affiliations  with  the  unions  than  be  would  with 
the  railroads. 

The  CHAIRMAN.  Will  you  speak  a  little  louder,  pkase? 

Mr.  STANLEY.  He  would  do  things  for  the  unions  and  would  not 
care  anything  about  what  he  did  for  the  companies. 

The  CHAIRMAN.  Well,  just  elaborate  on  that  a  little.  I  don't 
know  what  you  mean. 

Mr.  STANLEY.  Well,  we  just  got  through  a  strike  in  Cleveland. 

The  CHAIRMAN.  I  thought  you  would  lead  up  to  that. 

Mr.  STANLEY.  Yes. 

The  men  were  asking  for  more  wage.  On  May  1  they  came  into 
my  office — the  union  did — and  said  to  me,  "  Now,  we  are  not  going 
to  ask  for  an  increase.  If  you  won't  ask  to  decrease  our  wage,  we 
won't  ask  to  have  it  increased."  Detroit  comes  along  in  six 
weeks 

Mr.  WARREN.  What  were  they  getting  then,  Mr.  Stanley  ? 

Mr.  STANLEY.  They  were  getting  48  cents.  That  was  high,  and 
the  low  was  42. 

Detroit  comes  along  and  pays  the  men  60  cents,  after  a  strike. 
Our  men  immediately  came  to  me  and  said,  "  Now,  we  are  going  to 
ask  for  more  wages."  "  Well,"  I  said,  "  What  about  May  1  ?"  "  Well, 
that  don't  make  any  difference;  we  are  going  to  get  more."  I  said, 
"All  right;  now,  I  don't  propose  to  sit  here  and  argue  and  talk 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       597 

with  you  on  the  wage  question.  We  will  take  our  troubles  right 
to  the  city  council  and  see  if  we  can  not  fight  it  out  there."  The 
mayor  immediately — of  course,  they  went  to  call  on  the  mayor — and 
the  mayor  said,  "  Of  course,  you  are  entitled  to  60  cents,"  and  that 
is  all  there  was  to  it.  Now,  we  did  go  before  the  council,  and  they 
did  get  their  60  cents.  I  got  an  increase  in  operating  cost,  and  I 
have  an  increase  in  maintenance.  I  got  the  maximum  rate  of  fare 
changed  from  4  cents  and  a  penny  for  transfer  to  6  cents  and  a 
penny  for  transfer,  and  there  is  to  be  arbitration  on  whether  we 
are  entitled  to  7  per  cent  on  our  stock  or  6  per  cent. 

The  CHAIRMAN.  Well,  in  the  first  place — 

Mr.  WARREN.  What  did  you  mean  by  saying  on  May  1  ? 

Mr.  STANLEY.  That  was  the  time  that  the  union  had  a  right  to 
open  their  contract  for  a  wage. 

Mr.  WARREN.  If  they  do  not  do  it  within  30  d&ys 

Mr.  STANLEY.  If  they  do  not  do  it  within  30  days  it  carries  over 
the  next  year. 

Mr.  WARREN.  And  they  had  not'opened  it  up? 

Mr.  STANLEY.  Had  not  opened  it  up. 

The  CHAIRMAN.  Does  this  contract  fix  a  maximum  charge  of  6 
cents  ? 

Mr.  STANLEY.  It  fixes  the  maximum  charge  at  6  cents  and  a  penny 
for  a  transfer. 

The  CHAIRMAN.  And  what  return  on  the  capital  does  -the  contract 
fix? 

Mr.  STANLEY.  Six  per  cent. 

The  CHAIRMAN.  Six  per  cent? 

Mr.  STANLEY.  Yes.  . 

The  CHAIRMAN.  In  this  negotiation,  you  say  the  union  wanted 
CO  cents  an  hour? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  And  then  the  stockholders  came  along  and  wanted 
7  per  cent? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  What  difference  did  it  make  to  the  stockholders  if 
the  union  got  40  or  50  or  60  cents  an  hour  so  long  as  the  stockholders 
got  their  return  ? 

Mr.  STANLEY.  Well,  the  stockholders  used  the  same  argument  that 
the  men  were  using,  that  the  high  cost  of  living  was  so  that  they  had 
to  have  more  wages;  and  if  that  applied  to  the  union,  it  certainly 
applied  to  the  stockholders. 

The  CHAIRMAN.  Well,  but  under  your  contract  you  say  the  union 
can  come  in  on  the  1st  of  May  each  year  and  ask  for  an  adjustment  of 
wage. 

Mr.  STANLEY.  But  we  can  meet  that  any  time  on  any  change  we 
want  to  make  in  the  contract. 

The  CHAIRMAN.  Even  as  to  the  return  upon  the  capital? 

Mr.  STANLEY.  Yes;  that  can  be  arbitrated  as  well  as  anything  else* 
Now,  the  contract  has  been  changed— 

The  CHAIRMAN.  Can  the  city  reduce  that  return? 

Mr.  STANLEY.  Can  they  reduce  it? 

The  CHAIRMAN.  Yes. 

Mr.  STANLEY.  Not  below  6. 

The  CHAIRMAN.  You  can  only  arbitrate  for  an  increase? 


598       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Well,  supposing  labor  gets  60  cents  an  hour;  can 
you  then  operate  on  a  6-cent  fare  ? 

Mr.  STANLEY.  Yes ;  I  think  we  can  operate  on  6  and  1,  on  60  cents ; 
but  if  the  wages  go  up  above  60  cents,  I  doubt  very  much  whether  we 
could  operate  on  that. 

The  CHAIRMAN.  Suppose  the  wage  did  go  up  to  the  Massachusetts 
basis  and  you  found  that  you  could  not  operate  under  a  6-cent  fare ; 
what  would  be  your  remedy  ? 

Mr.  STANLEY.  A  change  of  that  maximum,  of  course. 

The  CHAIRMAN.  Then,  as  a  matter  of  fact,  if  you  are  going  to  have 
a  cost-of -service  scheme  of  operation,  shpuld  there  be  any  maximum 
fixed  to  the  charge? 

Mr.  STANLEY.  In  a  franchise,  there  should  not  be  any  maximum 
or  minimum  rate  of  fare.  Eliminate  that,  and  your  troubles  are 
over. 

The  CHAIRMAN.  Are  you  satisfied  that  this  scheme  is  as  good  a 
one  as  can  be  created  for  the  utilities  and  the  public? 

Mr.  STANLEY.  I  do  not  know.  I  know  that  it  has  carried  us 
through  these  10  years,  and  I  know  we  have  been  on  easy  street 
those  last  four  or  five  years,  which  no  other  railroad  company  in 
this  country  has  been. 

The  CHAIRMAN.  Now,  can  you  suggest  a  better  plan? 

Mr.  STANLEY.  No;  I  can  not. 

The  CHAIRMAN.  Do  you  think  this  is  as  good  a  plan  as  can  be 
devised  to  take  care  of  the  companies,  as  well  as  the  public,  during 
good  as  well  as  during  bad  times? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Do  you  feel  that  this  plan  establishes  a  good  credit 
for  the  company? 

Mr.  STANLEY.  Without  a  doubt.  I  do  not  know  what  a  banker 
is  in  my  business. 

The  CHAIRMAN.  And  creates  an  absolutely  safe  return  for  capital? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  And  assures  labor  a  fair  wage? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  And  the  public  a  good  service  ? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  What  does  the  State  commission  have  to  do 
with  the  street  railways  in  Cleveland? 

Mr.  STANLEY.  You  have  to  go  before  the  State  commission  to  get 
an  increase  in  capitalization.  Now,  they  have  never  bothered  us. 
Whatever  we  wanted  from  the  State  commission,  with  the  recom- 
mendation of  our  street-railway  commissioner,  they  have  granted. 

The  CHAIRMAN.  Now,  looking  forward  to  the  best  sort  of  scheme 
that  can  be  evolved,  do  you  feel  that  the  State  commission  should 
have  anything  to  do  with  the  control  of  the  rates,  service,  extensions, 
betterments,  expenditures,  and  accounting  of  your  company  ? 

Mr.  STANLEY.  It  surely  depends  entirely  upon  the  personnel  of 
any  botfrd  that  you  go  to. 

The  CHAIRMAN.  Well,  should  the  State  commission  have  anything 
to  do  with  the  things  that  I  have  mentioned? 

Mr.  STANLEY.  Should  they  have  that? 

The  CHAIRMAN.  Yes. 


PROCEEDINGS  OF  FEDEBAL  ELECTRIC  RAILWAYS  COMMISSION.       599 

Mr.  STANLEY.  Yes;  I  think  so. 

The  CHAIRMAN.  What  should  they  have  to  do  with  it  ? 

Mr.  STANLEY.  I  think  we  would  be  safer  in  going  to  the  State 
commission  than  we  would  in  going  to  a  city  commission. 

The  CHAIRMAN.  Well,  do  you  believe  that  the  State  commission, 
then,  should  have  that  supervision  over  your  company,  which  is  now 
maintained  by  the  city? 

Mr.  STANLEY.  The  fact  of  the  matter  is  that  they  have  supervision 
over  our  company  to-day. 

Mr.  WARREN.  The  State  commission? 

Mr.  STANLEY.  As  well  as  the  city. 

The  CHAIRMAN.  I  understood  you  to  say  that  it  does  not  have  that 
supervision. 

Mr.  STANLEY.  As  well  as  the  city,  because  when  we  appear  be- 
fore the  State  commission  for  an  increase  in  capitalization  we  have 
to  show  our  expenditures. 

The  CHAIRMAN.  Oh,  that  is  true,  but  the  State  commission  has 
nothing  to  do  with  the  service  furnished  by  your  company. 

Mr.  STANLEY.  Not  at  all. 

The  CHAIRMAN.  Or  with  its  construction? 

Mr.  STANLEY.  No. 

The  CHAIRMAN.  Or  with  its  operation? 

Mr.  STANLEY.  No. 

The  CHAIRMAN.  Or  its  accounts? 

Mr.  STANLEY.  Well,  only  as  far  as 

The  CHAIRMAN.  The  only  supervision  is  as  to  capitalization.  The 
city  has  that  entirely.  Now  then,  should  the  State  or  city  have  that 
supervision  ? 

Mr.  STANLEY.  Personally,  I  don't  care  which  has  it. 

The  CHAIRMAN.  Well,  you  must  have  an  opinion.  You  have  been 
in  this  business  for  a  long  while. 

Mr.  STANLEY.  I  know  that  the  city  has  had  it,  and  we  have  not 
had  any  trouble  so  far. 

The  CHAIRMAN.  Are  j7ou  satisfied  with  the  present  arrangement? 

Mr.  STANLEY.  Am  I? 

The  CHAIRMAN.  Yes. 

Mr.  STANLEY.  Yes;  I  am. 

The  CHAIRMAN.  What  was  the  effect  upon  the  employees,  speaking 
about  service  and  efficiency,  since  this  contract  was  made? 

Mr.  STANLEY.  Do  you  mean  as  to  whether  or  not  it  was  better  or 
poorer? 

The  CHAIRMAN.  Yes. 

Mr.  STANLEY.  I  do  not  think  the  plan  had  anything  to  do  with  it. 
I  think  the  times  themselves  have  had  a  good  deal  to  do  with  it,  but 
the  men  are  not  as  efficient  now  as  they  were  four  or  five  years  ago. 

The  CHAIRMAN.  Is  there  anything  in  this  system  that  compels  the 
company  to  exercise  initiative  and  economies  in  the  service? 

Mr.  STANLEY.  Well,  I  think  it  is  shown  very  clearly  that  there 
must  have  been  some  economy  in  the  service  by  operating  that  rail- 
road for  lf>  years  on  a  3-eent  basis. 

The  CHAIRMAN.  But  under  this  plan,  where  yonr  wages  and  rates 
work  up  and  down  nutomatically,  can  you  not  conceive  that  the 'com- 
panies may  be  extravagant,  that  their  operation  may  be  very  ex- 


600       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

travagant,  and  the  costs  piled  up  all  the  time,  without  any  protec- 
tion whatever  to  the  public  ? 

Mr.  STANLEY.  That  might  happen ;  yes. 

The  CHAIRMAN.  Because  the  company  itself  is  protected  by  its 
returns  upon  the  capital. 

Mr.  STANLEY.  Sure. 

The  CHAIRMAN.  Now,  if  that  situation  should  develop,  how  could 
the  public  protect  itself  against  an  increased  charge  and  increased 
operating  costs? 

Mr.  STANLEY.  Well,  of  course,  our  franchise  gives  the  city  the 
right  to  take  over  our  property  at  any  time  At  110. 

The  CHAIRMAN.  Then  the  protection  to  the  public  grows  out  of  the 
fact  that  they  can  buy  that  plant  at  110? 

Mr.  STANLEY.  Sure. 

Mr.  WARREN.  Does  the  city  comptroller  control  your  expenses  and 
supervise  them? 

Mr.  STANLEY.  If  he  sees  any  extravagance  he  can  stop  it. 

The  CHAIRMAN.  That  is  what  I  am  trying  to  develop.   • 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  I  am  trying  to  find  out  how  the  public  can  protect 
itself  against  extravagant  operation. 

Mr.  STANLEY.  I  will  read  you  a  clause  from  the  franchise  that  will 
probably  give  it  to  you. 

The  CHAIRMAN.  It  seems  to  me  that  that  is  a  very  important  point 
in  connection  with  this  cost-of-service  plan,  because  you  can  not  have 
something  that  gives  absolute  protection  to  capital  and  no  protection 
to  the  public. 

Mr.  WARREN.  I  understand  that  the  city  comptroller  of  Cleveland 
has  absolute  control  over  that. 

The  CHAIRMAN.  That  is  what  I  wanted  to  find  out. 

Mr.  WARREN.  Yes. 

Mr.  STANLEY.  Section  10  of  the  franchise  reads : 

Immediately  upon  the  taking  effect  of  this  ordinance  there  may  be  desig- 
nated by  the  city  a  city  street-railroad  commissioner,  which  designation 
shall  be  made  by  the  mayor  of  the  city,  subject  to  the  approval  of  the  city 
council.  The  city  reserves  the  right,  at  any  time,  and  from  time  to  time,  to 
remove  the  street-railroad  commissioner  designated  b-y  it,  such  removal  to  be 
by  the  mayor,  and  to  fill  the  vacancy  in  the  manner  provided  for  original 
designation ;  and  the  city  shall  forthwith  upon  the  naming  of  any  city  street- 
railroad  commissioner  notify  the  company  in  writing  of  the  name  and  address 
of  such  commissioner.  The  city  street-railroad  commissioner  shall  act  as 
the  technical  adviser  of  the  council  of  the  city  of  Cleveland  in  all  matters 
affecting  the  interpretation,  meaning,  or  application  of  any  of  the  provisions 
of  this  ordinance  and  of  action  thereunder  affecting  the  quantity  or  quality 
of  service  or  the  cost  thereof  or  the  rate  of  fare.  He  shall  keep  always  in- 
formed as  to  all  matters  affecting  the  cost  or  quality  or  quantity  of  service 
furnished,  the  receipts  and  disbursements  and  property  of  the  company,  the 
rate  of  fare,  the  vouchering  of  expenditures;  and  if  he  disapproves  of  the 
vouchering  of  expenditures,  or  of  the  manner  of  keeping  accounts  or  other 
matter  affecting  the  bookkeeping  of  the  company,  he  shall  at  once  take  the 
matter  up  with  the  company;  and  in  case  of  disagreement  the  matter  shall 
at  once  be  submitted  to  the  committee  on  standard  classification  of  accounts 
of  the  American  Street  &  Interurban  Railway  Accountants'  Association,  or 
to  such  person  or  persons  upon  whom  the  regulation  of  such  matters  may 
from  time  to  time  be  devolved  by  law ;  and  the  decisions  of  such  committee  or 
person-  or  persons,  not  inconsistent  with  the  provisions  of  this  ordinance,  to 
whom  this  question  shall  be  submitted,  shall  be  final. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       601 

The  CHAIRMAN.  Now,  will  you  let  me  give  you  a  concrete  ex- 
ample ?  Suppose  that  you  had  agreed  to  pay  labor  60  cents  an  hour. 
Could  the  city  exercise  any  veto  over  that  order? 

Mr.  STANLEY.  Yes ;  I  have  always  been  very  careful  to  get  the  ap- 
proval of  the  city  in  such  a  thing. 

The  CHAIRMAN.  Well,  you  have  as  a  matter  of  policy,  but  as  a 
matter  of  fact,  can  the  city  veto  that  wage  agreement  ? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  Through  the  allowance,  Mr.  Stanley? 

Mr.  STANLEY.  Through  the  allowance.  They  would  not  give  us 
enough  allowance  to  take  care  of  it. 

The  CHAIRMAN.  I  did  not  get  that  matter  of  the  allowance  very 
clearly. 

Mr.  WARREN.  Explain  that  allowance  matter,  Mr.  Stanley. 

Mr.  STANLEY.  All  right.  In  the  operating  allowance,  the  city  al- 
lows us  so  much  a  car-mile  to  operate  our  road.  Now,  if  the  wage 
goes  up  above  that  allowance,  they  would  absolutely  refuse  to  in- 
crease our  allowance,  and  we  could  not  pay  the  men. 

Mr.  WAREN.  That  allowance  is  for  all  the  operating  expenses,  i? 
it  not? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  Including  wages? 

Mr.  STANLEY.  Yes. 

The  CHAIRMAN.  Then,  the  city  can  prevent  the  pyramiding  of 
wages  or  any  other  operating  expenses? 

Mr.  STANLEY.  Yes;  they  can. 

The  CHAIRMAN.  Then,  the  city  has  a  double  protection  J.gu^st  ex- 
travagant operation  ? 

Mr.  STANLEY.  Yes,  sir. 

The  CHAIRMAN.  One  by  curtailing  your  charges,  and  the  other  by 
taking  over  your  property? 

Mr.  STANLEY.  Yes.  They  prescribe  the  service  gicui.  They  tell 
us  how  many  cars  we  can  operate,  and  operate  them  at  a  certain 
cost ;  so  they  have  a  check  there  also. 

Mr.  WARREN.  Can  you  make  a  contract  without  their  approval? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  Assume,  then,  that  these  agreements  with  the  men 
are  what  they  purport  to  be,  contracts,  it  is  not  only  as  a  matter 
of  caution  but  as  a  matter  of  necessity  that  you  should  submit  the 
figures  to  the  city,  is  it  not? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  What  is  the  maintenance  allowance? 

Mr.  STANLEY.  What  does  it  amount  to  to-day? 

•Mr.  WARREN.  No ;  but  how  is  that  fixed  ? 

Mr.  STANLEY.  That  is  fixed  by  the  council  at  9  cents  a  car-mile. 

Mr.  WARREN.  Do  you  mean  now  or  it  always  has? 

Mr.  STANLEY.  It  is  now.  It  started  with  5,  and  it  has  finally  got 
up  to  9. 

Mr.  WARREN.  That  is,  they  allow  5  cents  for  each  car-mile  you 
run? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  For  the  maintenance  of  the  property? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  Does  that  include  renewals? 

160G430— 20 30 


C02       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  STANLEY.  That  does  not  include  depreciation. 

Mr.  WAKREN.  Well;  it  includes  all  the  current  maintenance ? 

Mr.  STANLEY.  Yes;  the  ordinary  maintenance. 

Mr.  WABREX.  Well ;  is  there  any  other  allowance  for  depreciation  ? 

Mr.  STANLEY.  The  depreciation  is  taken  care  of  through  the  re- 
production value.  Now,  if  we  scrap  a  car,  we  scrap  that  car  at  the 
reproduction  value.  To-day  any  car  that  we  scrap  would  be  scrapped 
at  $6,000  a  car.  That  is  how  trie  depreciation  is  taken  care  of. 

Mr.  WARREN.  When  you  were  operating  on  a  3-cent  fare  and  a 
1-cent  transfer — the  lowest  rate  that  you  operated  under 

Mr.  STANLEY.  Yes. 

Mr.  WARREN  (continuing).  Did  you  happen  to  make  any  over- 
drafts on  your  operating  reserves? 

Mr.  STANLEY.  Yes;  we  had  some  overdrafts,  but  it  was  taken  care 
of  in  the  following  year. 

Mr.  WARREN.  Afterwards? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  What  caused  the  overdraft  ? — The  allowance  was  not 
large  enough? 

Mr.  STANLEY.  The  allowance  was  not  sufficient  to  take  care  of  it. 

Mr.  WARREN.  So  the  allowance  was  increased? 

Mr.  STANLEY.  Yes;  the  allowance  was  increased. 

Mr.  WARREN.  And  that  increased,  I  suppose,  the  operating  ex- 
penses ? 

Mr.  STANLEY.  Sure. 

Mr.  WARREN.  Did  it  increase  it  enough  to  affect  the  rate  of  fare? 

Mr.  STANLEY.  It  did  in  time;  yes. 

Mr.  WARREN.  And  during  that  same  time,  how  about  new  cars? 
Were  they  charged  to  depreciation  or  capital  ?  Did  you  have  to  buy 
some  new  cars  and  charge  them  to  capital  ? 

Mr.  STANLEY.  All  new  cars  were  charged  to  capital,  but  the 
money  for  the  scrapping  of  the  cars — the  reproduction  value — was, 
of  course,  applied  to  the  new  cars.  In  other  words,  if  we  scrapped 
a  car  at  $6,000  and  we  paid  $10,600  for  the  new  car,  the  $4,000 
was  charged  to  capital, 

Mr.  WARREN.  Can  you  give  a  statement  to  the  commission  of  the 
increase  allowed  to  the  operating  allowance — the  increase  made  in 
the  operating  allowance? 

Mr.  STANLEY.  Since  the  Tayler  advance  ? 

Mr.  WARREN.  Yes.  It  is  based  on  so  much  per  car-mile,  I  under- 
stand, always;  is  it  not? 

Mr.  STANLEY.  Yes. 

Commissioner  GADSDEN.  Mr.  Warren,  will  you  bring  out  from 
him  the  effect  of  the  increase  in  the  rates  on  the  revenues  that  he 
gets? 

Mr.  WARREN.  Yes;  I  will. 

Mr.  STANLEY.  I  can  tell  you  right  offhand  that  the  operating 
expense  on  March  1,  1910,  was  11-J  cents. 

Mr.  WARREN.  And  what  is  it  now  ? 

Mr.  STANLEY.  On  December  31,  1919,  it  was  19£  cents,  and  to-day 
it  is  23£. 

Commissioner  MEEKER.  Mr.  Warren,  did  you  find  out  what  in- 
centive there  is  for  efficiency,  if  there  is  any  slkling-scale  arrange- 
ment with  the  city? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       603 

Mr.  WARREN.  There  is  no  sliding  scale  in  your  case,  is  there,  Mr. 
Stanley? 

Mr.  STANLEY.  In  what? 

Mr.  WARREN.  In  the  rate  of  return. 

Mr.  STANLEY.  No. 

Mr.  WARREN.  To  the  investors. 

Mr.  STANLEY.  No. 

Mr.  WARREN.  Is  there  an  arrangement  for  a  bonus  to  the  em- 
ployees or  to  the  officers  ? 

Mr.  STANLEY.  No. 

Mr.  WARREN.  The  salaries  are  fixed? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  The  salaries  may  be  changed,  but  I  suppose  only  by 
a  larger  allowance  for  operating  expenses? 

Mr.  STANLEY.  That  is  true. 

Mr.  WARREN.  Unless  you  can  save  in  some  other  respect? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  Now,  you  have  heard  Mr.  Gadsden's  inquiry.  What 
has  been  the  effect?  You  have  frequently  had  occasion  to  increase 
your  rate  of  fare? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  How  has  that  affected  the  riding  by  people,  the 
traveling?  Have  you  ever  noticed  any  difference? 

Mr.  STANLEY.  Yes ;  I  can  give  you  that. 

Commissioner  MEEKER.  Perhaps  you  had  better  file  that  book  with 
the  commission. 

Mr.  WARREN.  I  have  an  idea  that  that  is  a  vade  mecum,  Mr.  Com- 
missioner. 

I  would  like  to  know  what  the  effect  of  the  fare  on  riding  has 
been. 

Mr.  STANLEY.  Of  course,  there  has  been  some  less  riding.  I  do 
not  think  it  amounts  to  over  1  per  cent. 

Mr.  WARREN.  One  per  cent? 

Mr.  STANLEY.  Yes.  I  think  we  carried  375.000.000  passengers  the 
year  before  last,  and  last  year  we  carried  something  like  802.000,000. 

Mr.  WARREN.  But  I  mean  more  closely  than  that,  Mr.  Stanley. 
These  changes  in  rates,  changes  in  fares,  go  into  effect  automatically, 
do  they  not? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  For  instance,  this  increase  of  wages  that  you  have 
recently  made:  if  your  operating  income  is  not  large  enough  to  meet 
it  your  rate  of  fare  will  automatically  go  up  when?  On  the  first  of 
the  month  or  the  first  of  the  quarter? 

Mr.  STANLEY.  The  moment  it  reaches 

Mr.  WARREN.  The  moment  the  barometer  goes  down? 

Mr.  STANLEY.  Yes;  the  moment  it  reaches  $300,000,  then  the  fare 
goes  up. 

Mr.  WARREN.  When  it  reaches  $300.000  the  fare  goes  up? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  Now,  referring  to  those  increases  in  fares  that  you 
have  made  from  time  to  time,  how  has  the  public  received  it?  Have 
they  stopped  riding  in  part,  or  have  tho.y  ridden  just  as  much? 

.Mr.  STANLEY.  Very  nenrhr  as  much;  yes.  I  do  not  think 'it  has 
changed  very  much. 


604       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  WARREN.  You  would  say  to  the  commission,  would  you,  that 
there  has  been  no  appreciable  effect  on  the  traffic? 

Mr.  STANLEY.  Well,  there  has  been  this  effect:  We  have  not  had 
any  increase  in  rides.  We  usually  run  along  about  6  to  8  per  cent 
increase  from  year  to  year.  Now,  this  last 

Mr.  WARREN.  In  traffic? 

Mr.  STANLEY.  In  traffic. 

Commissioner  SWEET.  Is  that  about  in  proportion  to  the  growth  of 
the  city? 

Mr.  STANLEY.  Yes.  Since  we  have  gone  to  the  higher  fare  there 
has  been  a  decrease  of  about  1  per  cent,  showing,  you  see,  that  there 
has  been  about  8  or  9  per  cent  loss. 

Mr.  WARREN.  Well,  what  period  would  that  loss  cover  2 

Mr.  STANLEY.  I  think  it  covered  all  of  last  year. 

Mr.  WARREN.  All  of  last  year? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  That  was  1918  ? 

Mr.  STANLEY.  1918. 

Mr.  WARREN.  Well,  have  you  followed  the  statistics  of  street  rail- 
ways— other  companies — sufficiently  to  have  noticed,  Mr.  Stanley, 
that,  regardless  of  fare  increases,  nearly  all  of  the  companies  lost 
traffic  last  year? 

Mr.  STANLEY.  Now,  here  I  will  give  you  the  year  1917 :  The  total 
number  of  passengers  carried  was  398,000,000.  In  1918  it  was  375,- 
000,000,  showing,  you  see,  that  there  was  a  loss  there  of  about  20,- 
000,000. 

Mr.  WARREN.  And  when  was  the  increase  of  fare  with  respect  to 
1918— the  last  one? 

Mr.  STANLEY.  August  4,  1918. 

Mr.  WARREN.  But  you  did  not  answer  my  other  question  because 
you  were  looking  for  that  figure.    Did  you  notice,  or  did  you  follow 
the  street-railway  figures  enough  to  have  noticed  whether  or  not  in. 
1918  the  traffic  on  nearly  all  street  railways  fell  off  somewhat? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  That  is  true,  is  it  not? 

Mr.  STANLEY.  That  is  true. 

Mr.  WARREN.  Even  on  companies  which  made  no  change  of  fare 
whatever  during  the  year? 

Mr.  STANLEY.  That  is  true. 

Mr.  WARREN.  So  that  would  account  for  a  part  of  that  falling  off  ? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  And  that  is  the  number  of  passengers;  in  other 
•words,  it  is  the  measure  of  the  traffic  ? 

Mr.  STANLEY.  That  is  true. 

Mr.  WARREN.  Those  figures? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  And  that  decrease  is  no  more  than  the  decrease  of 
other  companies — many  other  companies? 

Mr.  STANLEY.  I  would  not  say  it  was ;  no. 

Mr.  WARREN.  It  is  no  more  than  the  decrease  of  some  that  I  hap- 
pen to  know. 

Mr.  STANLEY.  No. 

Commissioner  SWEET.  You  say  that  Judge  Tayler  was  the  author 
of  this  plan? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       605 

Mr.  STANLEY.  Judge  Tayler  was  the  author  of  the  plan ;  yes. 

Commissioner  SWEET.  Was  he  the  judge  of  one  of  the  lower  courts? 

Mr.  STANLEY.  He  was  judge  of  the  Federal  court  in  Cleveland. 

Commissioner  SWEET.  The  Federal  court? 

Mr.  STANLEY.  Yes. 

Commissioner  SWEET.  How  did  the  matter  come  before  him? 

Mr.  STANLEY.  The  matter  came  before  him  by  the  railway  and 
the  city  administration  agreeing  to  submit  it  to  Judge  Tayler. 

Commissioner  SWEET.  He  was  on  the  bench. at  the  time? 

Mr.  STANLEY.  He  was  on  the  bench  at  the  time. 

Commissioner  SWEET.  Did  he  inaugurate  the  plan,  or  was  it  sub- 
mitted to  him  by  some  one  else  and  approved  by  him  ? 

Mr.  STANLEY.  He  had  both  sides,  and  he  gave  a  decision,  and  then 
we  put  it  into  use.  It  was  passed  by  the  city  council  in  Cleveland. 

Commissioner  SWEET.  Yes;  but  in  the  argument  before  him  was 
this  plan,  either  in  whole  or  in  part,  recommended  by  either  side — by 
the  city  or  by  the  company  ? 

Mr.  STANLEY.  No ;  he  thought  of  it  himself. 

Commissioner  SWEET.  He  thought  of  that  himself? 

Mr.  STANLEY.  Yes. 

Commissioner  SWEET.  Have  you  given  any  personal  attention  to 
the  plan  now  that  is  used  in  Cincinnati  ? 

Mr.  STANLEY.  Why,  I  do  not  think  the  Cincinnati  plan  is  much 
different  from  what  our  plan  is. 

Commissioner  SWTEET.  They  got  their  idea  largely  from  you,  did 
they  not? 

Mr.  STANLEY.  Entirely. 

Commissioner  SWEET.  But  there  are  some  features  of  their  plan 
that  differ  quite  widely  from  yours;  are  there  not? 

Mr.  STANLEY.  Yes ;  I  think  so.    I  understand  they 

Commissioner  SWTEET.  Do  you  regard  those  changes  as  improve- 
ments or  otherwise  upon  your  plan  ? 

Mr.  STANLEY.  Well,  I  really  don't  know. 

Commissioner  SWEET.  You  have  not  given  that  enough  study  ? 

Mr.  STANLEY.  I  have  not  given  it  enough  study  to  know. 

Commissioner  SWEET.  To  pass  an  opinion  on  it  ? 

Mr.  STANLEY.  Yes;  that  is  true. 

Commissioner  SWEET.  I  understand  that  the  commissioner  has  been, 
appointed  or  is,  under  the  charter,  appointed  by  the  mayor? 

Mr.  STANLEY.  He  is  appointed  by  the  mayor. 

Commissioner  SWEET.  During  the  10  years  that  this  plan  has  been 
in  operation  have  there  been  several  commissioners? 

Mr.  STANLEY.  There  have  been  three. 

Commissioner  SWEET.  Are  they  political  appointments? 

Mr.  STANLEY.  Political  appointments. 

Commissioner  SWEET.  The  mayor  has  usually  appointed  a  member 
of  his  own  party? 

Mr.  STANLEY.  Always. 

Commissioner  SWEET.  Always? 

Mr.  STANLEY.  Yes. 

Commissioner  SWEET.  Have  they  been  broad-gauge  men  or  poli- 
ticians? 

Mr.  STANLEY.  We  have  been  very  fortunate  in  having  very  good 
commissioners. 


•606       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Men  who  have  worked  honestly  for  the  wel- 
fare of  the  public  and  who  have  cooperated  with  the  company? 

Mr.  STANLEY.  Exactly. 

Commissioner  SWEET.  Are  there  other  street-railway  companies  in 
Cleveland? 

Mr.  STAISTLEY.  We  have  the  only  one. 

Commissioner  SWEET.  Yon  are  the  only  one? 

Mr.  STARLET.  Yes. 

Commissioner  SWEET.  The  entire  street-railway  system  is  under 
your  control  ? 

Mr.  STANLEY.  Yes. 

Commissioner  SWEET.  Do  you  think,  Mr.  Stanley,  that  if  a  plan 
similar  in  general  principles  to  yours  were  adopted  by  the  street 
railways  of  the  country  it  would  relieve  the  situation  that  is  now 
bound  to  exist^ 

Mr.  STANLEY.  Yes ;  I  think  it  would  help  to  relieve  it. 

Commissioner  SWEET.  Do  you  think  it  would  help  to  relieve  it 
materially  ? 

Mr.  STANLEY.  Yes;  I  do.  You  know  the  city  of  Cleveland  does  a 
great  many  things  for  the  railway.  We  operate  over  eight  bridges. 
One  of  those  bridges  cost  $5,000,000.  Now,  we  do  not  pay  a  cent  for 
rental  in  going  over  that  bridge,  and  at  each  end  of  the  bridge  they 
have  subways,  and,  as  I  say,  that  one  particular  bridge  cost  $5,000,000. 
Now,  we  do  not  have  to  repave. 

Commissioner  SWEET.  You  do  not  pave  between  the  tracks? 

Mr.  STANLEY.  No ;  the  city  is  supposed  to  do  that. 

Another  thing:  For  the  past  five  or  six  years,  a  great  many  of  our 
extensions  have  been  paid  by  the  real  estate  men. 

Commissioner  SWEET.  Abutting  owners  ? 

Mr.  STANLEY.  Yes.  They  have  assessed  the  real-estate  men,  the 
abutting  owners,  $1  to  $2  a  running  foot.  That  money  goes  to  the 
railway  company  so  as  to  make  that  extension  or  help  to  make  it. 

Commissioner  SWEET.  You  mean  where  new  extensions  have  been 
ordered  by  the  council? 

Mr.  STANLEY.  Exactly.  Out  in  the  country,  where  they  want  an 
extension  to  develop  a  certain  part  of  the  city,  they  come  to  us  and 
say,  "  We  would  like  to  .have  a  road  out  there."  We  will  say,  "All 
right ;  how  much  can  you  afford  to  pay  toward  it  ? "  And  in  five  ex- 
tensions that  I  can  name  we  have  been  paid  for  it. 

Commissioner  GADSDEN.  Fully? 

Mr.  STANLEY.  Sir? 

Commissioner  GADSDEN.  How  much  did  the  company  put  up? 

Mr.  STANLEY.  Well,  we  have  taken  these  extensions  and  put  prob- 
ably a  single  track  through  it,  Mr.  Gadsden. 

Commissioner  SWEET.  What? 

Mr.  STANLEY.  Laid  a  single  track. 

Commissioner  SWEET.  Yes? 

Mr.  STANLEY.  Where  we  were  developing  the  territory,  so  as  to 
have  the  traffic  there  when  the  time  comes  to  lay  the  second  track. 

Commissioner  SWEET.  Your  car  service  in  that  locality  would  be, 
of  course,  in  proportion  somewhat  to  the  business? 

Mr.  STANLEY.  Yes.  Now.  I  will  tell  you  how  we  handle  it.  We 
apply  that  money  to  the  receipts  of  that  line.  If  the  line  was  taking 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       607 

20  or  25  cents  a  car-mile,  we  wsould  take  part  of  that  money  out  there, 
so  as  to  raise  it  to  the  operating  expenses  allowed. 

Commissioner  GADSDEN.  The  average  car-mile? 

Mr.  STANLEY.  Yes. 

Commissioner  GADSDEN.  What  is  your  average  car-mile  in  Cleve- 
land ? 

Mr.  ST ANKLET.  Forty- two. 

Commissioner  GADSDEN.  That  is  very  much  higher  than  most 
companies. 

Mr.  STANLEY.  Yes. 

Commissioner  GADSDEN.  You  have  a  great  density  of  traffic  in 
Cleveland  ? 

Mr.  STANLEY.  Our  tripper  service  is  four  times  more  than  our  base 
table.  There  is  no  other  line  in  the  United  States  that  does  that. 

Commissioner  GADSDEN.  Is  not  that  the  real  reason  that  3rou  have 
been  able  to  charge  3  cents,  while  other  properties  charge  5? 

Mr.  STANLEY.  Yes. 

Mr.  WARREN.  Mr.  Stanley,  with  all  of  these  things  that  you  say 
the  city  relieves  you  from — like  bridge  assessment,  paving,  and 
things  of  that  sort — if  you  were  charged,  as  you  used  to  be,  or  as 
other  companies  are  in  those  respects,  how  much  below  5  cents  would 
your  fare  fall,  when  you  have  been  making  it  3  cents  and  1  cent? 

Mr.  STANLEY.  I  doubt  very  much  whether  5  cents  was  ever  high 
enough  to  pay  a  railway  company.  I  mean  by  that  that  railway 
companies  never  knew  what  depreciation  was  up  to  5  or  10  years  ago. 

Mr.  WARREN.  In  other  words,  you  think  this  low  fare  has  been 
made  possible  largely  because  of  the  concessions  that  the  city  has 
made  to  the  company? 

Mr.  STANLEY.  To  some  extent,  and,  of  course,  to  the  reduction  in 
our  capitalization. 

Mr.  WARREN.  Yes. 

Mr.  STANLEY.  At  the  time  we  made  our  settlement  with  the  city, 
the  particular  line  that  my  father  and  Mr.  Samuel  Andrews  pro- 
moted we  offered  to  turn  over  our  stock  to  the  city  at  cost,  plus  6  per 
cent,  and  they  would  not  take  it. 

The  CHAIRMAN.  Do  your  lines  sprinkle  the  streets  or  any  part  of 
them? 

Mr.  STANLEY.  Do  they  sprinkle? 

The,  CHAIRMAN.  Yes. 

Mr.  STANLEY.  They  sprinkled,  but  the  city  realized  that  that  was 
a  burden  to  us,  and  they  said,  "Now,  we  will  relieve  you  from  sprink- 
ling, and  we  will  pay  you  for  flushing  the  streets";  and  we  get  out 
of  that  somewhere,  from  $15.000  to  $20,000  a  year,  but  it  used  to  cost 
us  for  sprinkling  something  like  $40,000  or  $50,000.  Unless  you  work 
together,  unless  the  city  government  and  the  railway — 

The  CHAIRMAN.  I  want  to  ask  you  this :  You  say  it  used  to  cost 
you  $40,000  or  $50,000,  and  now  you  do  it  for  $20,000  ? 

Mr.  STANLEY.  Xo.  At  one  time,  we  sprinkled  the  streets  at  a  cost 
of  $30,000  or  $40,000.  Then  tlie  city  saw  it  was  a  burden  to.  the  car 
riders,  and  they  said,  "  Now,  you  flush  the  streets  for  us,  and  we  will 
pay  you  for  flushing  them."  So  they  relieved  us  of  sprinkling.  We 
flushed  the  streets,  and  we  are  getting  out  of  that  anywhere  from 
$15,000  to  $20,000  a  year. 


608       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  You  mean  they  pay  to  you  .nore  than  actual' 
cost? 

Mr.  WARREN.  They  pay  for  the  service ;  do  they  not  ? 

Mr.  STANLEY.  Yes. 

Commissioner  SWEET.  Are  your  physical  properties  taxed? 

Mr.  STANLEY.  No;  we  have  sprinklers  of  our  own. 

Commissioner  SWEET.  No;  I  do  not  mean  sprinklers.  Is  your 
property  taxed  as  it  is  in  other  cities  ? 

Mr.  WARREN.  Real  estate,  for  example  ? 

Commissioner  SWEET.  Yes;  real  estate. 

Mr.  STANLEY.  Oh,  yes;  we  are  taxed.  The  tax  runs  about  154  per 
car-mile. 

Mr.  WARREN.  The  general  theory  is  to  take  as  much  as  possible  off 
the  car  riders  and  give  them  as  low  a  fare  as  possible  ? 

Mr.  STANLEY.  Sure. 

Commissioner  MEEKER.  Do  you  think  it  would  be  a  better  arrange- 
ment to  have  a  sliding  scale  so  as  to  induce  the  company  to  make 
improvements  in  service  and  introduce  greater  efficiency  in  connection 
with  the  management? 

Mr.  STANLEY.  No ;  I  rather  think  that  a  fair  i  ate  should  be  given 
to  the  company  on  its  capitalization.  I  doubt  very  much — in  fact, 
I  am  satisfied  that  we  could  not  to-day  sell  any  of  our  stock  at  6  per 
cent.  We  would  have  to  put  our  stock  on  the  market  below  par. 
Now,  if  that  is  so,  the  city  should  give  us  a  higher  rate  of  interest 
and  allow  us  to  sell  our  stock  at  par,  or  above  par. 

Commissioner  MEEKER.  Do  you  think  you  are  operating  just  as 
efficiently  as  you  could  if  you  had  an  incentive  to  make  a  larger 
profit,  a  larger  income? 

Mr.  STANLEY.  I  think  so;  yes. 

Commissioner  MEEKER.  By  reducing  the  expense  or  increasing  the 
income  ? 

Mr.  STANLEY.  Yes;  I  think  so. 

The  CHAIRMAN.  We  will  stand  adjourned  until  8  o'clock  to-night. 

(Whereupon,  at  5  o'clock  p.  m.,  a  recess  was  taken  until  8  o'clock 
p.  m.) 

EVENING  SESSION. 

The  commission  met  at  8  p.  m.,  pursuant  to  adjournment. 

Mr.  WARREN.  Before  I  call  a  witness  I  would  like  to  put  in  a  tele- 
gram, if  I  may,  from  Mr.  Paul  Shoup,  of  the  Pacific  Electric  Rail- 
way, addressed  to  Mr.  Pardee,  president  of  the  association.  It  is 
dated  Los  Angeles,  Calif.,  July  19: 

There  are  27  operating  electric-railway  companies  in  California,  representing 
several  hundred  millions  of  dollars  in  actual  cash  invested.  Of  these  only  one 
actually  earned  5  per  cent  return  on  investment  during  year  1918,  and  that  was 
due  to  extraordinary  shipyard  activities.  Nineteen  failed  to  earn  interest 
charges  on  their  debts.  One  more  earned  its  interest  charges  only  because 
bondholders  of  one  issue  waived  collection.  Another  road  showed  net  income 
above  all  charges  only  because  it  has  no  bonded  debt,  but  earned  only  2i  per 
cent  on  money  invested.  Also  true  of  three  roads  which  earned  about  3  per  cent 
on  money  invested.  These  figures  illustrate  the  desperate  situation  of  electric 
lines  in  California.  Wages  and  cost  of  materials  have  increased  practically  in 
same  proportion  as  in  the  East.  Increases  in  wages,  for  example,  since  1915 
of  conductors  and  motormen  have  averaged  above  50  per  cent.  Cost  of  ties 
has  more  than  doubled.  Our  State  taxation  is  on  basis  of  gross  income,  which 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       609 

was  increased  from  4  per  cent  in  1913  to  5i  per  cent  in  1918,  due  to  State 
extravagance,  resulting  in  increased  rates  of  taxation  for  public  service  cor- 
poration. In  the  same  period  value  of  our  properties,  as  measured  by  market 
quotations  for  the  securities  and  by  earnings  above  fixed  charges  carried  to 
surplus,  has  decreased  fully  40  per  cent.  In  California  the  jitneys  and  motor 
trucks  competing  with  electric  lines  are  not  only  not  taxed  for  maintenance 
of  highways  but  are  permitted  to  operate  over  the  very  pavements  which 
electric  lines  are  required  to  build  and  maintain  for  all  space  occupied  by 
tracks  and  2  feet  outside  thereof.  In  addition,  the  State  income  tax  on  elec- 
tric lines  is  in  part  used  to  maintain  system  of  good  roads  generally  so  freely 
used  by  motor  trucks  and  jitney  competitors. 

Within  last  30  days  electric  railways  of  State  have  again  generally  had  to 
face  further  demands  for  nicreased  wages  from  conductors  and  motormen, 
and  they  do  not  know  which  way  to  turn  to  secure  the  money  to  satisfy  in 
any  degree  these  requests,  and  one  of  the  largest  systems  is  threatened  with 
strike  if  demands  are  not  granted.  Our  costs  of  construction  and  maintenance 
have  been  tremendously  increased  because  of  high  standard  of  track  construc- 
tion and  paving  demanded  by  public  where  streets  and  other  highways  are  used. 
The  old  60-pound  T  rail  has  been  superseded  by  public  ordinance  with  128- 
pound  grooved  rail  for  interurban  cars  and  light  paving  of  old  days  has  been 
superseded  by  concrete  foundation,  asphaltum-top  pavements  costing  two  and 
one-half  times  as  much.  In  some  California  cities  6-cent  fares  have  been 
granted  and  in  a  number  of  other  cities  applications  for  that  rate  are  pending. 
Very  considerable  increases  in  freight  and  passenger  rates  have  been  granted 
interurban  lines,  but  necessary  relief  has  not  followed.  It  is  my  judgment  that 
inasmuch  as  the  5-cent  piece  has  only  two-thirds  of  the  purchasing  power  that 
it  had  three  or  four  years  ago,  the  street-car  nickel  must  be. replaced  with  a 
7}-cent  fare,  and  coin  should  be  minted  accordingly.  All  interurban  fares  will 
have  to  be  nicreased  in  proportion.  Further  than  that,  because  of  increased 
costs  of  maintenance  due  to  higher  stands  of  competition  of  motor  trucks, 
jitneys,  and  privately  owned  automobiles,  the  following  relief  measures  are 
proposed:  (1)  Reduction  in  taxation  from  5J  per  cent  to  4  per  cent  of  gross; 
(2)  elimination  of  franchise  tax  entirely;  (3)  elimination  of  paving  obligation 
and  maintenance  of  paving;  (4)  reduction  in  number  of  free  riders;  (5) 
service  on  basis  of  meeting  public  demands  and  not  arbitrary  requirements; 
(6)  elimination  of  obligations  to  beautify  landscape  with  iron  poles  instead  of 
wooden  poles,  to  put  wire  underground,  separate  grades,  sprinkle  or  light 
streets  except  where  public  bears  all  or  larger  part  of  expense;  (7)  free  use 
of  one-man  cars  wherever  adapted  to  service;  (8)  use  of  shuttle-car  service 
where  service  to  and  from  certain  points  is  not  justified  by  business  offered; 
(9)  restriction  of  street-car  fares  at  even  7i  cents  to  thoroughly  settled  dis- 
tricts, zone  systems  to  be  provided  elsewhere,  and  transfers  to  be  made  more 
strictly  limited  as  to  number  of  points  and  extent  of  use.  It  may  not  be  pos- 
sible for  national  legislation  to  take  care  of  these  subjects,  but  if  not,  uniform 
laws  should  be  passed  by  various  States  looking  toward  this  relief,  and  if  it 
is  necessary  to  have  subject  taken  up  through  constitutional  amendments,  then 
it  should  be  taken  up  that  way,  for  situation  is  desperate  and  only  prompt 
application  of  relief  measures  by  the  public  expressed  through  its  govern- 
ments will  save  the  electric  railway  service.  It  must  be  remembered  that  this 
service  is  vitally  essential  to  the  country  and  that  no  satisfactory  substitute 
has  been  found. 

PAUL  SHOUP. 

Commissioner  SWEET.  Where  is  that  from  ? 

Mr.  WARREN.  This  is  from  Los  Angeles,  Calif. 

The  CHAIRMAN.  He  is  president  of  the  Pacific  Electric  Co.? 

Mr.  WARREN.  Yes.  I  did  not  read  the  word  "  stop  "  as  it  occurred 
through  the  telegram.  I  did  not  think  that  would  help. 

The  CHAIRMAN.  Do  you  recall  whether  the  California  commission 
has  complete  control  over  the  rates  of  these  railway  utilities? 

Mr.  WARREN.  I  do  not  know,  Mr.  Chairman. 

The  CHAIRMAN.  I  think  it  has. 

Mr.  WARREN.  I  think  it  has;  that  is  my  impression.  I  am  advised 
that  they  have  full  control  now. 


610       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  CHAIRMAN.  That  was  my  understanding. 

Mr.  WARREN.  Yes. 

The  CHAIRMAN.  Well,  is  it  not  true  that,  at  least  during  the  early 
months  of  the  war,  the  California  commission  met  every  demand  on 
the  part  of  the  public  utilities?  The  utilities  of  all  kinds  were  get- 
ting along  very  well  in  that  State? 

Mr.  WARREN.  It  was  my  impression  that  the  California  Commis- 
sion was  very  prompt. 

The  CHAIRMAN.  What  has  happened  in  the  last  few  months  ? 

Mr.  WARREN., I  suspect  that  the  costs  ha v§  mounted  so  fast  that  it 
has  not  been  possible  to  ask  for  the  relief  and  get  it ;  but  that  is  only 
my  own  individual  judgment.  I  do  not  believe  the  commission  ap- 
preciates the  rapidity  with  which  these  costs  have  overwhelmed  some 
of  the  companies,  and  where  a  case  is  to  be  presented  to  a  commis- 
sion it  has  to  be  prepared  before  it  is  presented,  of  course;  the  com- 
pany has  to  decide  on  the  tariff  it  wants  to  ask  to  have  permission 
to  operate  and  prepare  the  exhibits  and  data  necessary  to  prove  the 
case.  The  burden  of  proof,  I  think,  universally — certainly  it  is  so  in 
Massachusetts — is  on  the  company. 

The  CHAIRMAN.  Have  the  companies  to  your  knowledge  been  dili- 
gent in  presenting  their  claims  to  the  California  Commission  1 

Mr.  WARREN.  That  I  could  not  say.  I  know  that  some  companies 
have,  because  some  in  which  I  am  interested  got  relief  some  time  ago, 
but  those  did  not  happen  to  be  street-railway  companies.  And  the 
labor  item  in  the  street  railways  is  so  very  large  that  under  the  old 
5 -cent  fare  it  takes  in  some  cases  half  the  receipts,  and  the  unsettle- 
ment  of  labor  is  a  very  difficult  thing  to  deal  with.  Even  if  an  agree- 
ment is  signed  up  for  a  year  or  two  years,  under  the  effect  of  the  war 
the  men  will  become  restive  and  uneasy  and  oftentimes  three  months 
after  the  agreement  has  been  made  they  will  intimate  that  unless 
some  further  relief  is  given  they  will  have  to  strike ;  and  very  likely 
that  is  what  has  been  happening  in  California,  because  labor  is  more 
or  less  active  in  California  at  all  times,  I  think. 

STATEMENT  OF  ME.  CHARLES  A.  FAGAN. 

Mr.  WARREX.  Your  full  name? 

Mr.  FAG  AN.  Charles  A.  Fagan. 

Mr.  WARREN.  You  are  one  of  the  receivers  of  the  Pittsburgh 
Railways? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  And  Mr.  George  is  one  of  your  two  associates,  I 
think,  who  was  here  the  other  day. 

Mr.  FAGAN.  Yes,  sir. 

Mr.  WARREN.  You  were  appointed  by  the  court? 

Mr.  FAGAN.  By  the  United  States  district  court. 

Mr.  WARREN.  Were  you  interested  in  the  railways  previously? 

Mr.  FAGAN.  No.  I  was  not ;  except  about  20  years  ago  I  was  counsel 
for  one  of  the  underlying  companies  of  this  company. 

Mr.  WARREN.  But  of  late  years  you  have  not  been  interested  in 
them? 

Mr.  FAGAN.  Of  late  years  I  have  not  been  interested  in  them  in 
any  way  whatever. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      '611 

Mr.  WARREN.  No  more  than  Mr.  George  is? 

Mr.  FAGAN.  Not  at  all. 

Mr.  WARREN.  When  were  you  appointed? 

Mr.  FAGAN.  On  the  23d  of  April,  1919. 

Mr.  WARREX.  So  that  you  have  been  receiver  about  four  months 

Mr.  FAGAN.  I  was  appointed  one  of  the  original  receivers.  At  that 
time  my  associates  and  I  disagreed  about  the  policy  of  the  company 
and  two  of  them  resigned  and  thereafter  Mr.  George  and  Mr.  Tome 
were  appointed.  Mr.  Tome,  by  the  way,,  was  president  of  this  com- 
pany at  the  time  of  the  receivership. 

Mr.  WARREN.  When  you  were  appointed  did  you  believe  that  the 
company  had  been  well  managed  or  poorly  managed,  or  did  you  have 
no  opinion  about  it? 

Mr.  FAGAN.  Well,  do  I  have  to  answer  that  question? 

Mr.  WARREN.  I  will  not  press  the  question  if  you  do  not  care  to 
answer  it. 

The  CHAIRMAN.  Read  the  question. 

(The  question  was  then  read  as  above  recorded.) 

Mr.  FAGAX.  I  might  answer  that  by  saying  that  the  general  opinion 
was  that  it  was  not  properly  managed — I  mean  of  the  community. 

Mr.  WARREN.  The  genei'al  feeling  in  the  community? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  Since  }7ou  have  been  a  receiver  you  have  had  an 
opportunity  to  acquaint  yourself  with  the  methods  of  management, 
I  presume? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  And  what  do  you  think  of  the  practical  manage- 
ment ?  I  am  not  speaking  of  the  financial  operations,  but  the  opera- 
tion of  the  railway. 

Mr.  FAGAN.  I  think  it  was  fairly  good. 

Mr.  WARREN.  And  what  are  the  conditions  prevailing  in  Pitts- 
burgh with  respect  to  the  expenses  and  income  of  the  company? 

Mr.  FAGAN.  The  income  of  the  company  is  about  $15,000,000  a 
year.  Of  that,  about  05  per  cent  is  paid  in  wages. 

Mr.  WARREN.  Sixty-five  per  cent  of  the  income? 

Mr.  FAGAN.  From  65  to  70  per  cent  of  the  income  is  paid  in  wages. 

Mr.  WARREN.  I  did  not  overstate  it,  when  I  said  50  per  cent  in 
some  cases;  did  I? 

Mr.  FAGAN.  No.  There  are  large  municipal  charges  and  franchise 
charges  against  the  company  consisting  of  obligations  to  pave  the 
streets  in  the  principal  municipality  through  which  the  lines  run,  to 
wit,  the  city  of  Pittsburgh,  which  amount  to  40  per  cent  of  the  pav- 
ing of  the  streets  over  which  the  lines  run. 

This  company  passes  over  about  150  bridges.  Some  of  them  in 
the  outlying  municipalities  like  the  boroughs  and  townships  are 
toll  bridges.  In  the  city  of  Pittsburgh  where  the  greater  part  of 
the  business  necessarily  is  done  all  of  the  bridges  are  free  to  all  sorts 
of  passengers  and  vehicles  except  this  railway  company,  and  under 
an  old  ordinance  the  railway  company  has  always  been  charged  for 
tolls  over  those  bridges  and  is  still  charged  for  them.  There  are  also 
pole  taxes  for  the  poles  which  are  erected  along  the  lines  upon 
which  all  of  those  municipalities  collect  tax. 


612       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  bonds  outstanding  against  the  company  amount  to  about 
$50,000,000.  There  are  leases  upon  which  rentals  are  provided 
amounting  to  about  eight  or  nine  million  dollars. 

When  we  took  charge  of  this  company,  of  course  it  was  insolvent. 
The  road  had  been  allowed  to  run  down  for  G  or  7  years.  "We  found 
the  physical  condition  of  the  company  such  that  it  was  unsafe  to 
life  or  limb  in  some  cases  to  travel  over  it.  We  were  appointed  dur- 
ing the  activities  of  the  war,  on  the  23d  of  January,  1918.  We 
are  in  a  district  where  a  great  many  munition  factories  exist.  In  the 
preceding  winter  the  road  had  absolutely  fallen  down  on  account 
of  the  severe  weather,  the  immense  snowstorms,  and  so  forth,  so  that 
in  some  instances  you  would  have  to  wait  for  2  hours  at  a  time  to 
get  a  car/  On  account  of  very  great  complaints  that  were  made 
about  the  inability  of  the  company  to  convey  back  and  forth  the 
munition  workers,  the  Federal  Government  took  cognizance  of  the 
situation,  and  they  sent  a  representative  of  the  Navy  Department 
and  also  one  of  the  War  Department  to  insist  upon  the  rehabilitation 
of  the  road  and  the  placing  of  the  tracks  in  proper  condition  tc* 
convey  these  munition  workers.  A  board,  I  presume,  of  a  Federal 
nature,  or  quasi-Federal  nature,  called  the  war  productions  commit- 
tee, which  consisted  of  members  of  the  cluamber  of  commerce  acting 
in  conjunction  with  the  representatives  of  the  War  and  Navy  Depart- 
ments, insisted  upon  whateA'er  money  came  into  the  hands  of  the  re- 
ceivers being  used  for  the  purpose  of  keeping  up  the  service.  That 
was  done  to  such  an  extent  that  the  service  became  practicable,  and  we- 
were  able  to  convey  these  munition  workers  back  and  forth  to  their 
homes.  That  entailed  the  expenditure  of  nearly  all  of  the  available 
money  that  came  into  the  hands  of  the  receivers. 

In  the  meantime  a  controversy  arose  upon  my  part  on  the  one 
side  and  the  other  receivers  on  the  other  side  concerning  the  policy 
of  paying  interest  on  the  capital  charges  of  the  company.  I  main- 
tained that  all  of  the  money  ought  to  be  put  into  the  service  of  the 
road  until  it  was  put  in  proper  condition.  Upon  that  subject  we 
disagreed  and  the  other  receivers  resigned;  thereupon  Mr.  George, 
and  Mr.  Tome  were  appointed  in  their  place. 

Since  that  time — 

The  CHAIRMAN.  Has  your  policy  been  followed  since  the  ap- 
pointment of  the  new  receivers? 

Mr.  FAGAN.  I  was  just  coming  to  that.  Since  that  time  the  re- 
ceivers have  agreed  upon  the  policy  of  maintaining  the  service  in 
a  proper  way  to  accommodate  the  public.  In  order  to  do  that,  we 
have  been  obliged  to  forego  the  payment  of  the  capital  charges.  In 
addition  to  that,  we  have  not  paid  any  of  these  municipal  obligations. 
And  while  we  have  improved  the  service  and  it  is  admitted  gener- 
ally that  we  have  done  so,  it  has  been  done  at  that  expense,  so  that 
now  the  only  charges  that  are  paid  are  the  wages  of  the  employees 
and  the  payment  of  material  men  and  for  materials. 

Just  shortly  before  the  receivers  took  charge  of  the  company  an 
increase  in  the  wages  of  the  emplo}7ees  had  been  effected.  Imme- 
diately after  the  receivers  were  appointed  it  became  necessary  to- 
raise  fares  in  order  to  have  sufficient  money  to  operate  the  road. 

Commissioner  SWEET.  You  are  speaking  of  the  first  appointment 
now  in  January,  1918? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       613 

Mr.  FAGAX.  About  January,  1918.  We  did  increase  the  fares 
which  at  that  time  were,  in  round  numbers,  about  5^  cents  a  fare. 
In  lieu  of  that  we  established  a  zone  system  consisting  of  two  zones,  in 
the  first  of  which,  extending  about  2  miles  from  the  center  of  the 
city  in  all  directions,  we  made  the  fare  5  cents,  and  in  the  zones 
beyond  that  within  the  city  limits,  7  cents.  The  result  of  that 
increase  in  fares  was  that  the  riders  fell  off  about  14  per  cent,  but 
notwithstanding  that  fact  the  revenue  increased,  I  think,  about 
$600,000  for  the  year,  gauging  it  by  month  to  month. 

Mr.  WARREN.  About  when  was  that  change  made  effective,  Mr. 
Fagan  ? 

Mr.  FAGAX.  I  would  say  in  January,  1918.  We  have  proceeded 
with  those  fares  at  that  basis  up  until  this  time. 

In  the  meantime,  shortly  after  we  went  into  office  we  increased  the 
wages  of  the  workmen.  When  this  governmental  activity  began  the 
men  insisted  upon  another  increase,  which  we  opposed  on  the 
ground  that  the  receipts  of  the  company  did  not  ]ustify  it.  The 
representatives  of  the  War  and  of  the  Navy  Departments  and  of  this 
war  productions  committee  of  the  chamber  of  commerce  insisted 
upon  the  increase  being  granted;  and  thereupon  we  granted  it.  In 
the  meantime,  we  were  using  a  great  deal  of  money  to  rehabilitate 
the  road;  in  fact  all  the  spare  money  we  had.  Things  went  along 
in  that  way  until  the  expiration  of  the  then  existing  contract,  which 
expired  on  the  30th  of  April  of  this  year.  And  under  the  terms  of 
the  contract  the  employees  notified  us  that  they  would  require  an 
increase  of  the  existing  rate  at  that  time,  the  maximum  of  which 
was  48  cents  an  hour  to  CO  cents  an  hour.  We  opposed  that  in- 
crease and,  we  thought,  demonstrated  that  the  revenue  was  not 
sufficient  to  justify  it.  However,  the  matter  was  carried  on  and  we 
had  conferences  covering  a  period  of  nearly  a  month  with  the  result 
that  the  employees,  becoming  dissatisfied,  ordered  a  strike ;  and  the 
strike  went  into  effect  last  month  and  lasted  about  4  days.  And  in 
order  to  bring  the  strike  to  a  termination,  we  agreed  with  the  work- 
men that  we  would  join  with  them  in  the  submission  of  the  con- 
troversy to  the  National  War  Labor  Board  for  arbitration;  which 
we  did.  That  matter  is  now  pending  before  the  National  War 
Labor  Board.  No  decision  has  been  rendered  on  it. 

Now  that  is  about  the  situation. 

The  CIIAIRMAX.  Is  there  anything  in  that  agreement  which  would 
prevent  the  men  from  striking  if  they  are  not  satisfied  with  the  action 
of  the  War  Labor  Board? 

Mr.  FAGAX.  No.  There  is  a  provision  in  the  agreement,  first, 
that — we  were  responsible  for  this  covenant  in  the  agreement — that 
the  decision  of  the  National  War  Labor  Board  was  to  be  subject  to 
the  approval  of  the  United  States  district  court,  that  we  agreed  that 
we  would  recommend  for  the  approval  of  the  United  States  courts 
the  decision  of  the  National  War  Labor  Board.  And  on  the  other 
hand,  the  men  exacted  a  covenant  that  in  the  event  that  they  would 
not  agree  to  the  final  award  that  they  would  have  20  days  in  which 
to  resume  their  strike. 

Mr.  WARREN.  That  was  the  agreement  submitting  it  to  the  Na- 
tional War  Labor  Board? 

Mr.  FAGAX.  To  the  National  War  Labor  Board. 


614       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Did  you  have  an  agreement  with  them  otherwise? 
Are  they  members  of  the  Amalgamated  Association? 

Mr.  FAGAN.  They  are— well,  I  do  not  know;  the  Federation  of 
Labor  I  think  £hey  call  it. 

Mr.  WARREN.  I  guess  if  they  are  street-railway  men  it  is  more 
likely  to  be  the  Amalgamated  Association. 

Mr.  FAGAN.  Well,  whatever  it  is,  they  belong  to  the  national  or 
international  association,  I  have  forgotten  the  technical  name  of  it. 

Mr.  WARREN.  The  Amalgamated  Association  of  Street  Railway 
Employees  of  America. 

Mr.  FAGAN.  Yes.  I  do  not  know  the  name  of  it.  I  can  not  recall. 
Amalgamated.  I  know  they  belong  to  the  street-car  employees'  as- 
sociation to  which  all  of  these  other  concerns  belong. 

Commissioner  GADSDEN.  They  belong  to  the  Amalgamated  Asso- 
ciation. 

Mr.  FAGAN.  Well,  I  do  not  know. 

Mr.  WARREN.  I  ask  only  to  identify  it.  Was  there  a  written 
agreement  with  them  as  regarded  their  wages? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  Between  the  company  and  the  men? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  That  was  the  agreement  which  expired  on  the 

Mr.  FAGAN.  The  30th  of  last  April. 

Mr.  WARREN.  On  the  30th  of  last  April  ? 

Mr.  FAGAN.  In  other  words,  on  the  1st  of  May. 

Mr.  WARREN.  Do  you  happen  to  know  whether  that  contained  a 
provision  for  arbitration  of  grievances? 

Mr.  FAGAN.  I  think  it  did ;  yes,  I  am  sure  it  did. 

Mr.  WARREN.  The  Amalgamated  usually  has  an  arbitration  agree- 
ment in  it. 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  But  anyhow  the  strike  took  place? 

Mr.  FAGAN.  Yes.  We  agreed  to  submit  it  to  the  United  States 
court  and  they  declined  to  do  it. 

Mr.  WARREN.  They  declined  to  submit  it  to  the  court? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  As  I  have  followed  your  statement,  you  increased 
the  wages  twice  before  the  strike? 

Mr.  FAGAN.  The  wages  were  increased  just  before  we  went  into 
office. 

Mr.  WARREN.  That  was  by  the  old  company  ? 

Mr.  FAGAN.  Yes.  I  would  say  that  would  be  in  December,  1917. 
Immediately  upon  our  going  into  office  we  increased  the  wages. 
Then  when  this  Government  activity  began  we  increased  the  wages 
again,  and  then  if  this  award  should  be  made  we  will  have  increased 
the  wages  four  times. 

Mr.  WARREN.  And  the  last  time  raised  it  to  48  cents,  which  wras 
the  maximum  of  the  War  Labor  Board. 

Mr.  FAGAN.  Yes.  These  wages,  as  I  understand  it,  about  five 
years  ago  were  30  cents  an  hour,  the  maximum  wages.  If  these 
gentlemen  in  their  application  should  be  successful  they  will  get  60 
cents,  which  would  be  just  double  what  they  got  five  years  ago. 

Commissioner  GADSDEN.  What  does  that  mean  in  dollars  and  cents? 

Mr.  FAGAN.  From  30  cents  an  hour  to  60  cents  an  hour. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       615 

Commissioner  GADSDEN.  I  mean  do  you  happen  to  cany  in  your 
head  the  figures  it  means  to  the  company  approximately  ? 

Mr.  FA^AN.  We  have  8,500  employees  who  are  members  of  this 
association.  We  have  3,500  other  employees  who  are  not  members 
of  the  association.  And  the  rule  heretofore  has  been  that  when  the 
union  employees  were  raised  the  nonunion  ;men  should  be  raised 
a  commensurate  amount.  It  costs  $80,000  a  cent  to  raise  these  wages. 
In  other  words — well,  in  round  figures  I  figured  out  in  my  mind  one 
day  it  would  cost  us  $2,1000,000  to  make  this  increase  per  annum. 

Mr.  WARREN.  That  of  <rourse  would  mean  a  further  increase  of 
passenger  rates. 

Mr.  FAGAN.  Now,  I  forgot  about  that.  Just  about  the  time  that 
tiiis  labor  dispute  was  on  and  before  that  time  we  recognized  that 
if  we  wanted  to  carry  on  this  company  we  would  have  to  have 
another  increase  in  rates. 

We  have  a  public  service  commission  in  Pennsylvania  which  re- 
quires that  a  notice  of  30  days  shall  be  given  of  any  intended  in- 
crease. As  I  said,  we  had  our  minds  made  up  about  the  time  this 
came  along  to  ask  for  an  increase,  and  while  this  question  was  pend- 
ing we  made  an  application  for  the  increase  because  we  finally  figured 
out  that  it  would  not  be  fair  to  these  men  to  postpone  the  time  of 
asking  for  the  increase  until  this  case  was  decided,  that  the  War 
Labor  Board  ought  to  have  all  the  information  on  the  subject,  and  we 
therefore  did  it  before  the  argument  before  the  War  Labor  Board 
in  Washington  here.  That,  of  course,  provides  for  a  flat  rate  of 
7f  cents  without  regard  to  zones.  We  obliterated  the  zone.  And 
by  the  sate  of  tickets  it  is  7£  cents,  which  would  mean  tickets  of  four 
for  SO  cents  or  multiples  of  that  and  10  cents  if  a  cash  fare  was 
paid.  Now,  we  figured  that,  under  ordinary  circumstances,  we  could 
get  along  with  that  and  operate  the  road  and  possibly  pay  something 
on  these  capital  charges. 

Commissioner  SWEET,  Did  you  include  in  that  an  increase  in 
wages  or  leave  them  as  they  were  ? 

Mr.  FAGAN.  Well,  I  apprehend  that,  considering  the  falling  off 
in  passengers,  which  appears  to  be  the  inevitable  result  of  these 
increases  in  fares,  if  these  wages  were  increased  a  substantial  amount 
we  would  be  then  or  now  just  about  where  we  are  and  there  would 
be  nothing  left  to  pay  on  account  of  the  capital  charges  nor  on 
account  of  these  municipal  obligations. 

Mr.  WAB«EN.  In  other  words  should  you  say  that  you  were  not 
earning.  <H-  gust  earning,  your  operating  expenses  at  the  present  time  ? 

Mr.  FAGAN.  That  is  all  we  are  doing,  after  paying  the  wages 
and  material  men  and  for  materials. 

Mr.  WARREN.  Nothing  left  after  paying  operating  expenses? 

Mr.  FAGAN.  Nothing  left  at  all. 

Mr.  WARRENS  Nothing  left  to  pay  these  municipal  charges? 

Mr.  FAGAN.  Not  a  cent. 

Mr.  WARREN.  Is  there  enough  left  to  pay  your  regular  taxes? 

Mr.  FAGAN.  Well,  we  have  paid  our  State  taxes,  our  corporate 
taxes. 

Mr.  WARBEN.  You  stated,  I  think,  that  you  raised  the  fares  in 
January,  1918,  and  you  stated  how  much  the  traffic  fell  off,  but  I  did 
not  catch  it. 

Mr.  FAGAN.  Fourteen  per  cent  I  said. 


616       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  But  you  gained  nevertheless  about  how  much? 

Mr.  FAGAN.  About '$600,000. 

Mr.  WARREN.  Did  you  follow  during  1918  the  street-railway  sta- 
tistics of  any  other  road  enough  to  notice  whether  the  traffic  of  all 
roads  fell  off  in  1918  ? 

Mr.  FAGAN.  That  was  my  recollection;  yes. 

Mr.  WARREN.  That  was  the  year,  if  I  am  not  mistaken,  when  the 
weather  was  so  very  severe  in  Januar}^  and  February. 

Mr.  FAGAN.  Yes.     I  think  all  railways  fared  about  the  same. 

Mr.  WARREN.  So  that  part  of  your  loss -of  revenue  or  of  traffic 
might  be  due  to  that? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  There  were  also  the  coldest  days,  socalled,  in  Janu- 
ary and  extending  into  February. 

Mr.  FAGAN.  Yes;  and  in  season,  as  I  say,  this  road  absolutely  fell 
down. 

Mr.  WARREN.  And  then  Pittsburgh,  I  suppose,  suffered  from  the 
influenza  epidemic  as  all  the  rest  of  the  country  did  ? 

Mr.  FAGAN.  Yes;  we  suffered  from  that,  and  during  that  time  our 
income  was  depleted  about  one-half. 

Mr.  WARREN.  Are  all  those  losses  included  in  this  loss  of  14  per 
cent  of  traffic? 

Mr.  FAGAN.  Yes.  I  might  say,  I  just  overlooked  an  item.  When 
we  were  appointed,  under  the  decree  of  the  court  appointing  us,  we 
were  required  to  pay  the  prereceivership  debts,  amounting  to  $900,- 
000,  which  had  accrued  within  four  months  of  the  time  of  our 
appointment.  We  have  been  able  up  to  now  to  pay  only  20  per  cent 
of  those.  We  have  paid  two  installments  of  10  per  cent  each  since 
we  have  become  receivers. 

Commissioner  SWEET.  What  is  the  nature  of  those  debts? 

Mr.  FAGAN.  For  materials  wholly — materials  furnished  to  the 
company  for  the  upkeep  of  the  road  for  the  four  months  preceding 
the  appointment  of  the  receivers. 

Commissioner  SWEET.  Was  that  after  the  application  of  the  ap- 
pointment of  the  receivers  and  before  they  were  actually  appointed  ? 

Mr.  FAGAN.  Yes.  WThen  they  were  appointed  the  court  in  its  de- 
cree appointing  them  provided  that  they  should  pay  the  obligations 
owing  by  the  company  for  materials  furnished  within  four  months 
of  the  time  of  the  appointment  of  the  receivers. 

Mr.  WARREN.  I  suppose  the  court  anticipated  that  you  might  be 
able  to  pay  those  in  addition  to  paying  your  current  expenses? 

Mr.  FAGAN.  Yes ;  I  think  so. 

Mr.  WARREN.  But  it  did  not  prove  so. 

Mr.  FAGAN.  No,  only  to  the  extent  I  say — that  we  paid  two  in- 
stallments of  10  per  cent  each. 

Mr.  WARREN.  In  the  entire  period  covered  by  the  receivership? 

Mr.  FAGAN.  Yes;  and  one  of  those  just  within  a  week. 

Mr.  WARREN.  In  your  judgment,  Mr.  Fagan,  is  a  substantial  in- 
crease of  rates  necessary  to  rehabilitate  that  company? 

Mr.  FAGAN.  Absolutely,  if  it  will  bring  the  revenue.  The  revenue 
is  the  last  guess  about  the  thing.  I  do  not  know  to  what  extent  this 
will  bring  an  increase.  During  the  period  of  this  strike  about  which 
I  have  spoken  it  wras  demonstrated  in  our  community  that  this  com- 
pany of  ours  was  not  a  monopoly.  That  strike  lasted  for  four  days 


PROCEEDINGS  OF  FEDERAL  ELECTRIC.  RAILWAYS  COMMISSION.       617 

and  nobody  complained  about  being  discommoded.  We  have  15 
steam-railroad  lines  running  out  of  our  city  through  the  suburbs 
and  in  the  city,  with  stations  in  the  city;  and  among  them,  plus  a 
disposition  upon  the  part  of  everybody  who  had  an  automobile  to 
pick  up  people  and  help  them  along  and  carry  them  back  and  forth, 
there  was  decidedly  little  inconvenience,  so  that  I  think  on  that 
question  it  narrows  itself  down  to  the  riding  habit. 

Mr.  WARREN.  And  yet  you  anticipate  a  considerable  increase  in 
revenue  ? 

Mr.  FAGAN.  Of  course  we  do.  We  hope  to  have  an  increase,  but 
judging  the  future  by  the  past  we  can  not  count  on  the  revenue  being 
commensurate  with  the  increase. 

Mr.  WARREN.  The  percentage  of  increase? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  I  think,  though,  that  you  may  be  not  quite  hopeful 
enough  if  you  base  that  judgment  on  the  1918  figures,  because  I 
think  you  will  find  you  would  have  had  a  considerable  loss  of  traffic 
if  you  had  left  your  fares  the  same  in  1918. 

Mr.  FAGAN.  Yes ;  I  think  so,  too. 

Mr.  WARREN.  I  judge  from  the  method  you  are  adopting  of  in- 
creasing the  fare  this  time — a  flat  increase  to  7£  cents  for  tickets  and 
10  cents  for  cash — that  you  have  reached  the  conclusion  that  in  Pitts- 
burgh a  flat  increase  is  more  desirable  than  dividing  the  city  into 
two  or  more  zones. 

Mr.  FAGAN.  We  thought  so;  because  when  the  city  was  divided 
into  zones,  we  got  no  credit  from  the  people  who  lived  in  the  cheaper 
zone,  and  it  gave  an  argument  to  the  people  who  lived  in  the  higher 
zone  against  the  inequity  of  the  proposition. 

Mr.  WARREN.  Well,  those  charges,  as  I  understood  Mr.  George  and 
as  I  have  otherwise  gained  the  impression  from  literature  upon  the 
subject— M;he  7-cent  fare  in  the  outer  zone,  if  I  may  call  it  that,  was 
charged  to  everybody  whether  he  rode  only  in  that  zone  or  whether 
he  rode  in  both  zones. 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  Did  you  consider  at  all  the  possibility  of  making 
two  5-cent  zones  for  the  local  rides  within  either  zone? 

Mr.  FAGAN.  No;  we  did  not.  Well,  we  did  consider  that,  but  we 
did  not  think  it  was  feasible.  We  also  considered  having  in  the  7- 
cent  zone  a  lower  rate  for  collateral  streets,  cross  streets,  where  you 
would  ride  only  three  or  four  squares;  but  we  were  argued  out  of 
that  by  experts  and  managers  of  the  road  and  those  who  had  had 
experience. 

Mr.  WARREN.  That  is  all  that  I  wish  to  ask,  Mr.  Chairman. 

The  CHAIRMAN.  When  will  that  7^-cent  fare  go  into  effect? 

Mr.  FAGAN.  The  1st  of  August. 

The  CHAIRMAN.  And  that  applies  in  this  5-cent  zone  as  well  as. 
in  the  7-cent  zone? 

Mr.  FAGAN.  Yes. 

The  CHAIRMAN.  Was  that  ordered  by  the  public-service  com- 
mission? 

Mr.  FAGAN.  Under  the  act  establishing  the  public-service  com- 
mission, upon  filing  application  we  are  authorized,  or  any  railway 
company  is  authorized,  to  establish  the  fare,  the  hearing  upon  which 
may  take  place  30  days  afterwards.  Of  course,  this  is  all  subject, 

1«0<U30— 20 40 


618       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

to  the  decision  of  the  public-service  commission.  And  I  might  say 
in  passing  that  the  public-service  commission  has  not  yet  approved 
of  these  prior  increases  we  made. 

The  CHAIRMAN.  Do  you  think  that  the  7|-cent  fare  in  your  con- 
gested zone  will  result  in  a  material  reduction  in  the  number  of  pas- 
sengers ? 

Mr.  FAGAX.  I  apprehend  that  it  will. 

The  CHAIRMAN.  Do  you  expect  it  will  result  in  an  increase  in  the 
gross  earnings? 

Mr.  FAGAN.  Well,  we  calculate  it  will. 

The  CHAIRMAN.  Do  you  hope  that  the  increase  will  be  sufficient  to 
take  care  of  your  operating  expenses  on  fixed  charges  ? 

Mr.  FAGAN.  I  do  not. 

The  CHAIRMAN.  What  will  be  the  result  if  it  does  not? 

Mr.  FAGAN.  Well,  one  result  already  that  has  obtained  is  that  one 
of  these  underlying  companies  has  asked  the  court  for  leave  to  fore- 
close its  mortgage  and  the  court  has  granted  the  leave,  and  we  are 
getting  ready  to  make  the  foreclosure. 

The  CHAIRMAN.  Assuming  that  property  is  sold,  what  is  the  ulti- 
mate result  ? 

Mr.  FAGAN.  Now  this  particular  property  could  be  operated  as  an 
independent  unit.  It  is  not  absolutely  dependent  upon  cooperation 
with  the  general  system. 

The  CHAIRMAN.  What  is  its  mileage? 

Mr.  FAGAN.  Our  whole  mileage  is  620  miles,  and  this  is  about  20 
per  cent  of  that,  about  120  or  130  miles. 

The  CHAIRMAN.  Does  it  occupy  the  streets  in  the  important  part  of 
the  city  ? 

Mr.  FAGAN.  Well,  in  an  important  part  for  a  railroad  system,  but 
not  in  the  valuable  part. 

The  CHAIRMAN.  Then  if  it  operates  as  an  independent  system,  you 
will  have  the  sum  of  two  local  fares  if  a  person  is  traveling  from  one 
line  to  another. 

Mr.  FAGAN.  I  can  not  see  any  way  out  of  it. 

The  CHAIRMAN.  Has  the  commission  the  power  to  order  physical 
connection  and  a  through  rate  between  those  lines  ? 

Mr.  FAGAN.  I  do  not  think  so. 

The  CHAIRMAN.  Very  well,  that  is  one  thing.  Now  suppose  that 
that  company  is  not  sold  on  the  foreclosure  of  the  mortgage,  then 
what  is  going  to  be  the  result  ? 

Mr.  FAGAN.  Then  that  company  would  take  the  same  place  as  other 
underlying  companies  and  have  to  depend  for  any  return  upon  the 
prosperity  of  the  whole  system. 

The  CHAIRMAN.  Looking  at  the  system  as  a  whole,  what  does  the 
future  hold  in  store  for  it  if  the  7^-cent  fare  does  not  bring  sufficient 
revenue  ? 

Mr.  FAGAN.  I  can  not  see  anything  except  severance  of  the  under- 
lying companies  from  the  system. 

The  CHAIRMAN.  How  many  underlying  companies  are  there? 

Mr.  FAGAN.  Well,  at  the  base  there  are  about  208. 

The  CHAIRMAN.  I  am  sure  you  do  not  mean  that  there  would  be 
208  independent  companies  operating  in  the  city. 

Mr.  FAGAN.  Well,  there  are  not  208  companies  except  in  this 
respect :  This  entire  system  is  built  upon  about  208  underlying  com- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       619 

panics.  Those  208  underlying  companies  have  been  merged  and  con- 
solidated and  remerged  and  reconsolidated  until  they  now  consist  of 
practically  three  underlying  systems. 

The  CHAIRMAN.  Then  you  might  have  three  independent  systems 
operating  in  the  city  ? 

Mr.  FAGAN.  Yes. 

The  CHAIRMAN.  Very  well.  Would  that  seriously  affect  the 
public  ? 

Mr.  FAGAN.  Well,  it  would  seriously  affect  them  inasmuch  as  they 
would  probably  have  to  pay  two  fares  where  they  have  now  to  pay 
only  one;  or  in  some  cases  would  have  to  pay  three  where  they  pay 
now  only  one. 

The  CHAIRMAN.  Suppose  these  companies  operated  independ- 
ently, do  you  think  they  could  subsist  on  a  5  cent  fare? 

Mr.  FAGAN.  I  apprehend  that  two  of  them  could. 

Mr.  WARREN.  On  a  5-cent  fare? 

Mr.  FAGAN.  On  a  5-cent  fare;  yes. 

The  CHAIRMAN.  What  makes  you  think  so? 

Mr.  FAGAN.  Well,  they  happen  to  be  companies  that,  as  I  say, 
might  be  operated  independently.  They  run  through  districts  not 
very  long  and  where  a  great  many  passengers  could  be  served,  and  I 
think  perhaps  they  could  operate  at  a  profit. 

Commissioner  GADSDEN.  On  5  cents? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  Even  with  these  present  rates  of  wages? 

Mr.  FAGAN.  Well,  now,  I  have  not  taken  into  consideration  the 
increased  cost  of  labor  and  materials  and  material  men.  Why, 
looking  at  it  from  that  viewpoint,  I  think  it  is  very  doubtful 
whether  they  could  or  not. 

The  CHAIRMAN.  You  have  got  to  have  more  money  if  you  are 
going  to  maintain  that  as  a  single  system. 

Mr.  FAGAN.  Yes. 

The  CHAIRMAN.  If  the  7-cent  fare  does  not  produce  sufficient  rev- 
enue do  you  think  that  8  cents  will  ? 

Mr.  FAGAN.  Seven  and  a  half  cents  is  the  proposed  increase — 1\ 
cents  for  tickets  and  10  cents  for  individual  cash  fares. 

The  CHAIRMAN.  Yes. 

Mr.  FAGAN.  Why,  we  hope  it  will ;  and  that  is  as  strong  as  I  can 
put  the  feature  of  that  situation.  It  is  an  experiment  largely. 

The  CHAIRMAN.  How  does  the  public  look  upon  this  increased 
fare? 

Mr.  FAGAN.  The  public  in  a  general  way,  so  far  as  individuals 
are  concerned  and  so  far  as  trades  bodies — civic  bodies,  of  which  we 
have  a  great  number,  have  not  indicated  very  much  about  what 
their  feeling  is.  Some  of  the  minor  municipalities,  the  boroughs, 
have  shown  a  disinclination  to  the  increase.  The  principal  muni- 
cipality— the  city  of  Pittsburgh,  consisting  of  the  council  and  the 
mayor,  who  look  after  such  things  as  this,  privately  sympathize  and 
commiserate  with  us  and  say  it  has  to  be  done,  but  publicly  they  op- 
pose it  and  have  filed  an  objection  before  the  public-service  com- 
mission against  the  increase. 

The  CHAIRMAN.  Have  you  paid  any  of  the  capital  charges  since 
you  became  receiver? 


620       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  FAGAN.  Yes,  sir;  that  is,  the  receivers — or  while  I  was  re- 
ceiver under  the  first  receivership;  none  since  the  other  receivers 
were  appointed  in  last  January;  none  has  been  paid  at  all. 

The  CHAIRMAN.  The  condition  that  confronts  you  is  due  entirely 
to  the  increased  cost  of  labor,  supplies  and  materials,  and  fuel ;  is  it 
not? 

Mr.  FAGAN.  I  would  say  yes  to  that  question. 

The  CHAIRMAN.  Because  up  to  the  rising  tide  of  prices  you  were 
operating  successfully;  were  you  not? 

Mr.  FAGAN.  Well,  if  you  mean  that  from  a  financial  standpoint, 
by  paying  the  interest  on  the  capital  charges — yes.  If  you  mean 
satisfactorily  so  far  as  the  service  of  the  system  was  concerned,  I 
would  say  no.  In  other  words  I  think  this  system  is  about  at  least 
six  years  behind  in  the  rehabilitation  and  upkeep  of  the  physical 
system. 

The  CHAIRMAN.  How  many  years  ago  did  this  let  down  in  the  main- 
tenance and  condition  of  the  property  become  apparent  ? 

MR.  FAGAN.  About  six  years  ago. 

The  CHAIRMAN.  What  was  the  cause  of  it  six  years  ago? 

Mr.  FAGAN.  Well,  my  opinion  is  that  the  company  in  the  beginning 
or  at  these  different  times  was  overcapitalized ;  that  the  capital  stock 
was  too  high ;  that  the  bonds  wrere  not  sold  at  par ;  that  favorite  con- 
tractors were  given  the  contracts  for  the  building  and  the  rehabilita- 
tion of  the  road ;  and  that  all  of  those  things  tended  to  the  situation 
which  finally  developed. 

The  CHAIRMAN.  To  what  extent  was  the  system  overcapitalized? 

Mr.  FAGAN.  Well,  now,  as  I  tell  you,  the  bonds  of  this  company 
amount  to  about  $50,000,000.  I  do  not  know  this  of  my  own  knowl- 
edge, but  the  conditions  are  that  those  bonds  were  not  sold  at  par — 
they  were  negotiated  through  favorite  banks  at  a  sum  below  par,  a 
great  many  of  them. 

The  CHAIRMAN.  How  much  below  par?  What  did  it  cost  to  sell 
them  ? 

Mr.  FAGAN.  Well,  in  some  cases  I  have  understood  they  were  sold 
at  about  20  per  cent  below  par. 

Mr.  WARREN.  What  rate  were  they  bearing? 

The  CHAIRMAN.  What  about  the  stock  ? 

Mr.  FAGAN.  Well,  most  of  the  stock,  I  mean  of  the  common  stock — 
there  are  two  classes  of  stock  in  this  company,  the  preferred  and  com- 
mon stock — my  information  is  that  the  common  stock  was  very 
largely  taken  by  promoters  for  the  payment  of  their  compensation, 
for  the  compensation  of  engineers,  and  for  the  compensation  of  law- 
yers and,  in  some  instances,  I  think  as  a  bonus  for  the  sale  of  the 
bonds. 

The  CHAIRMAN.  Do  you  know  whether  the  common  stock  represents 
any  money  that  was  actually  put  into  the  plant  ? 

Mr.  FAGAN.  I  think  it  does  not.     Now,  I  do  not  know  that. 

The  CHAIRMAN.  How  much  common  is  there? 

Mr.  FAGAN.  About  $50,000,000, 1  think. 

Mr.  WARREN.  In  addition  to  the  preferred  ? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  How  much  is  that? 

Mr.  FAGAN.  It  is  equally  divided. 

The  CHAIRMAN.  Equally  divided? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       621 

Mr.  FAGAN.  Yes. 

The  CHAIRMAN.  Fifty-fifty — fifty  million  more  preferred? 

Mr.  FAGAN.  Yes. 

The  CHAIRMAN.  Did  the  preferred  represent  any  money  actually 
invested  in  the  plant  ? 

Mr.  FAGAN.  Well,  really,  I  can  not  say  that. 

The  CHAIRMAN.  Has  this  property  been  valued  by  any  public  body  £ 

Mr.  FAGAN.  It  is  in  the  process  of  being  valued  and  has  been  under 
a  body  called  the  valuation  conference,  which  is  a  subordinate  body 
to  the  public-service  commission,  from  which  we  expect  a  report 
almost  any  day  now.  That  has  been  in  process  of  investigation  I 
think  for  about  a  year  and  a  half  and  at  the  enormous  cost  of  five  or 
six  hundred  thousand  dollars.  Now,  I  understand — by  the  way,  this 
may  be  interesting  to  you — that  the  basis  upon  which  this  valuation 
is  being  made  is  first  upon  the  original  cost  of  the  company  and 
secondly 

The  CHAIRMAN.  Have  you  figures  to  show  the  original  cost? 

Mr.  FAGAN.  I  think  so.  They  have  access  to  all  our  books  and 
they  just  go  down  there  and  take  charge  of  them  as  if  they  owned 
them. 

The  CHAIRMAN.  What  do  they  find  the  original  cost  to  be? 

Mr.  FAGAN.  They  have  not  reported.  We  are  waiting  for  the  re- 
port. It  is  to  be  based  upon  the  original  cost  and  then  upon  what 
they  call  the  historical  value,  which  is  based 

The  CHAIRMAN.  I  think  I  am  quite  familiar  with  the  theory. 

Mr.  FAGAN.  Yes,  and  then  the  ultimate  object  is  to  ascertain  what 
is  the  fair  value. 

The  CHAIRMAN.  The  present  fair  value? 

Mr.  FAGAN.  The  fair  present  value. 

The  CHAIRMAN.  You  need  not  explain  the  theory.  That  is  quit& 
well  understood. 

Mr.  FAGAN.  Yes.  Upon  that  they  give  their  idea  of  what  th& 
fares  ought  to  be,  based  upon  this  fact. 

The  CHAIRMAN.  Do  you  believe,  if  a  fair  value  of  that  property 
is  established  and  the  whole  operated  as  one  system  economically  and 
still  giving  good  public  service,  that  a  6-cent  fare  will  be  fair  and 
reasonable  to  the  investors  as  well  as  to  the  public  ? 

Mr.  FAGAN.  I  think  not. 

The  CHAIRMAN.  You  think  you  have  to  have  more  than  6  cents 
under  those  conditions? 

Mr.  FAGAN.  Absolutely.  I  do  not  think  there  is  any  question  about 
it.  My  own  judgment  is  that  under  the  present  living  conditions 
and  wage  conditions  and  costs  of  material  that  this  road  can  not  b& 
operated  and  pay  a  decent  return  to  the  people  who  own  it — I  mean 
the  bondholders — under  a  fare  less  than  10  cents. 

The  CHAIRMAN.  You  stated  that  there  is  more  or  less  suspicion 
of  municipal  corruption  and  collusion  in  fixing  the  contracts  and 
things  of  that  kind.  Has  anything  of  that  kind  been  going  on  while 
the  road  has  been  in  the  hands  of  the  receivers,  to  your  knowledge? 

Mr.  FAGAN.  Absolutely  not.    I  know  that. 

The  CHAIRMAN.  Contracts  are  let  on  open  bids? 

Mr.  FAGAN.  Openly.  No  contract  could  be  let  under  this  receiver- 
ship unless  it  is  open. 


622       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  CHAIRMAN.  Had  the  city  or  the  State  commission  attempted 
to  exercise  any  jurisdiction  over  the  operation  or  the  construction  or 
the  letting  of  contracts  or  the  expenditure  of  money  prior  to  the  time 
you  became  receiver? 

Mr.  FAGAN.  No.  The  only  activity  that  the  city  has  shown  in  re- 
lation to  this  railway  company  has  been  to  always  criticize  it,  and 
since  the  public-service  commission  was  established — this  public- 
service  commission  is  a  recent  creation ;  it  has  only  been  in  existence 
about  five  years — is  to  file  petitions  against  anything  that  the  rail- 
way company  wanted.  Now,  they  among  others  were  anxious  to 
have  this  receivership  created  and  we  thought  that  when  the  receiver- 
ship was  created  that  that  would  probably  end  the  antagonism  of  the 
city,  but  instead  of  that  they  just  carried  it  on  the  same  as  they  al- 
ways have.  This  railway  company  heretofore  has  not  been  a  very 
popular  function  in  the  city  of  Pittsburgh  and  politicians  have  al- 
ways taken  advantage  of  the  virtue  of  having  a  propaganda  against 
the  railway  company.  Now,  as  I  say,  we  thought  that  would  end 
with  the  appointment  of  receivers,  and  it  did  end  to  a  very  large 
extent;  but  when  any  concrete  proposition  is  made  like  the  increase 
of  fares,  the  city  immediately  comes  in  and  files  objections  to  it. 

The  CHAIRMAN.  Were  the  politicians  holding  the  company  up? 

Mr.  FAGAN.  Do  you  mean  for  sordid  purposes? 

The  CHAIRMAN.  Yes.  I  have  heard  it  intimated  that  sometimes 
they  do — not  in  Pittsburgh. 

Mr.  FAGAN.  In  what  period  of  time  do  you  mean  ? 

The  CHAIRMAN.  Prior  to  the  receivership,  sir.  I  do  not  make  any 
such  imputation  since  you  have  taken  charge. 

Mr.  FAGAN.  I  wanted  to  fix  the  time.  The  politicians  and  the  pro- 
moters of  street  railways  when  these  affairs  were  going  on  were 
usually  acting  in  conceit,  at  least  they  were  in  our  bailiwick;  I  do 
not  know  how  they  were  in  other  places,  although  I  have  heard  of 
som,i  other  places  where  that  situation  did  exist. 

The  CHAIRMAN.  If  these  properties  go  back  to  private  operation 
and  control  again,  how  are  you  going  to  prevent  a  recurrence  of 
that  old  condition? 

Mr.  FAGAN.  Well,  of  course — do  you  mean  these  receivers  or  the 
public  ? 

The  CHAIRMAN.  The  public. 

Mr.  FAGAN.  I  do  not  know  except  by  the  different  standards  of 
honesty  that  prevails  now  and  the  difference  in  the  publicity  that  is 
given  to  all  these  public  questions.  And  in  our  State  by  the  existence 
of  this  public-service  commission,  which,  by  the  way,  is  a  very 
efficient  and  capable  body  which  did  not  exist  at  the  time  when 
these  corporations  were  put  together — at  the  time  when  they  were 
put  together  and  when  these  securities  were  exploited  the  only  test 
was  whether  you  could  sell  them.  You  had  to  get  no  consent  from 
anybody  like  the  public-service  commission. 

The  CHAIRMAN.  Have  you  attempted  to  sell  any  bonds  since  you 
were  appointed  receiver? 

Mr.  FAGAN.  No,  we  have  not  any  to  sell;  but  I  know  something 
about  the  market. 

The  CHAIRMAN.  Have  you  had  to  raise  any  new  capital  ? 

Mr.  FAGAN.  No;  we  have  not  raised  any  capital.  We  have  issued 
no  certificates. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       623 

The  CHAIRMAN.  You  have  heard  something  about  this  cost-of- 
service  plan,  have  you  not?  • 

Mr.  FAG  AN.  I  just  read  it  in  the  paper  the  other  day  at  home  when 
Mr.  George,  one  of  my  coreceivers,  testified  here,  and  I  left  town 
the  day  he  got  back  to  town.  I  did  not  have  time  to  go  into  the 
subject  with  him. 

The  CHAIRMAN.  You  are  not  sufficiently  familiar  with  that  sub- 
ject to  discuss  whether  or  not  that  would  afford  a  suitable  remedy  for 
the  Pittsburgh  situation? 

Mr.  FAGAN.  I  do  not  know  enough  about  it  to  say  that,  except 
this,  that  if  the  cost-of-service  plan  means  that  a  railway  company 
should  be  run  at  cost,  I  think  it  is  a  very  dangerous  thing,  because 
then  the  door  would  be  open  to  the  labor  to  ask  the  highest  cost 
possible  that  could  be  obtained,  and  so  as  to  materials  and  as  to 
material  men.  It  might  be  all  right  if  it  was  properly  safeguarded 
under  suitable  limitations,  but  if  it  is  as  the  term  implies  I  do  not 
think  it  would  be  a  good  thing. 

Mr.  WARREN.  It  would  be  a  supervised  cost. 

Commissioner  GADSDEN.  I  understand  that  the  bonded  indebted- 
ness in  that  company  is  about  $50,000,000  ? 

Mr.  FAGAN.  Yes. 

Commissioner  GADSDEN.  And  your  recollection  is  that  the  bonds 
sold  at  about  80? 

Mr.  FAGAN.  Well,  I  say  that  I  have  heard  that  some  of  them  sold 
as  low  as  80.  That  would  be  an  issue  or  part  of  an  issue  to  a  bank 
who  would  take  them  up  and  then  the}'  would  probably  sell  them  at 
par  and  the  profit  would  go  to  the  bank  and  not  to  the  company. 

Commissioner  GADSDEN.  That  would  represent  about  $40.000,000 
of  real  money  in  this  property,  would  it  not  ? 

Mr.  FAGAN.  If  they  all  sold  at  that  price.  I  never  heard  that  they 
all  did. 

Commissioner  GADSDEN.  So  that  even  if  the  common  and  preferred 
stock  represented  nothing  it  would  look  as  if  there  was  real  money 
in  that  property  to  the  extent  of  about  $40.000,000  or  in  that  neighbor- 
hood? 

Mr.  FAGAN.  Yes,  I  would  say  that;  although  in  the  face  of  this 
investigation  being  made  by  the  public-service  commission  and  which 
report  will  probably  be  made  public  in  a  few  days,  it  looks  a  little 
mal  apropos  for  me  to  give  an  opinion. 

Commissioner  GADSDEN.  What  I  was  getting  at  is,  if  that  is  so  or 
approximately  so,  how  is  that  $40,000,000  or  any  part  of  it  to  be  taken 
care  of  under  existing  conditions? 

Mr.  FAGAN.  As  I  tell  you,  this  road  has  approximately  600  miles 
of  line — that  is,  300  miles  of  double  track.  Under  the  present  con- 
ditions, costs,  it  would  take  $70,000  a  mile  to  build  that  road.  That 
would  be'  $42,000,000.  Now  that  is  without  regard  to  the  rolling 
stock;  and  we  have  as  many  cars  on  our  road,  I  heard  it  testified 
recently  by  the  vice  president  of  the  Baltimore  &  Ohio  Railroad,  as 
the  Baltimore  &  Ohio  Railroad  has  passenger  cars.  Now  that  is  plus 
power  houses,  barns,  and  all  that  sort  of  thing,  so  that  there  is  actu- 
ally, according  to  present  prices,  $42,000,000  invested  in  the  tracks, 
and  I  would  say  in  a  rough  guess,  twelve  or  fifteen  million  dollars 
in  these  other  things  I  have  mentioned. 


624        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  GADSDEN.  Now,  Mr.  Fagan,  even  allowing  6  per  cent, 
which  of  course  is  too  low*a  rate  of  interest  for  these  days,  and  allow- 
ing 4  per  cent  depreciation  that  property  ought  to  earn — that  would 
be  10  per  cent  on  $40,000,000  or  $4,000,000  net  earning.  Do  you  see 
any  possible  way  it  can  earn  anything  like  that? 

Mr.  FAGAN.  I  can  not. 

Commissioner  GADSDEN.  Under  an}7  system  of  charges,  I  mean? 

Mr.  FAGAN.  Oh.  yes.  You  could  get  up  a  system  of  charges  that 
would  earn  it,  provided  the  passengers  would  continue  to  ride. 

Commissioner  GADSDEN.  Yes ;  that  is  what  I  mean. 

Mr.  FAGAN.  Yes. 

The  CHAIRMAN.  What  have  you  to  say  as  to  the  proposition  that 
the  city  has  got  to  appropriate  sufficient  money  out  of  its  taxes  to  take 
care  of  the  deficit  and  provide  proper  service? 

Mr.  FAGAN.  I  think  I  told  you  we  have  all  these  bridges  which 
are  free  to  everybody  except  the  railway  company  and  upon  which 
we  pay  tolls.  We  pay  tolls  for  cleaning  the  streets  which  do  not  need 
any  cleaning  at  our  hands.  Those  obligations  were  imposed  in  the 
days  of  horse  cars  to  clear  up  the  drippings  from  the  horses.  We 
pay  40  per  cent  of  the  paving  expenses  of  the  streets  over  which  we 
run,  and  I  thought  as  one  of  the  means  by  which  this  difficulty  could 
be  obviated,  it  was  to  have  the  city  forego  these  charges,  and  we  in- 
tend to  take  that  question  up  with  the  city  in  the  near  future. 

Commissioner  GADSDEN.  My  recollection  is  that  Mr.  George  testi- 
fied that  that  was  about  $200,000 ;  did  he  not  ? 

Mr.  FAGAN.  I  think  in  the  aggregate  it  amounts  to  $385,000. 

Commisisoner  GADSDEN.  That  goes  far  toward  paying — 

Mr.  FAGAN.  We  pay  $75,000  a  year  for  this  alleged  cleaning.  Well, 
we  do  not  have  anything  that  causes  cleaning.  Electric  cars  do  not 
make  the  same  drippings  that  horses  do,  and  we  are  the  only  people, 
as  I  say,  who  pay  any  tolls  on  bridges.  Automobiles  and  evei^thing 
else  are  free. 

The  CHAIRMAN.  Of  course,  we  people  who  use  automobiles  are  in  a 
special  class.  [Laughter.] 

Mr.  FAGAN.  Yes.  Well,  we  poor  fellows  have  to  ride  in  cars  once 
in  awhile. 

Mr.  WARREN.  Do  you  reside  in  Pittsburgh  yourself? 

Mr.  FAGAN.  Yes,  sir. 

Mr.  WARREN.  And  is  it  your  opinion  that  the  unified  system  which 
now  exists  there  should,  if  possible,  be  preserved? 

Mr.  FAGAN.  Absolutely. 

Mr.  WARREN.  It  serves  the  city  much  better  than  if  it  were  split 
up,  even  in  three  ? 

Mr.  FAGAN.  Yes,  sir;  there  is  no  doubt  about  that,  and,  further 
than  that,  the  people  are  satisfied  with  it,  the  way  it  is  running  now. 

Mr.  WARREN.  Is  there  any  reason,  under  the  law  of  Pennsylvania, 
why  there  should  have  been  so  many  companies  originally  entering 
into  this  combination? 

Mr.  FAGAN.  No.  This  was  just  the  natural  growth  that  occurred 
there,  the  same  as  it  did  in  every  other  place,  through  those  days  of 
mergers  and  combination  and  exploitation  and  sexploitation. 

Mr.  WARREN.  I  had  an  impression  that  it  was  easier  to  get  a  char- 
ter in  Pennsylvania  in  one  borough  than  it  was  to  go  through  three 
or  four.  That  is  not  so  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       625 

Mr.  FAGAN.  No. 

Commissioner  SWEET.  These  companies  have  not  all  been  operating 
companies,  have  they? 

Mr.  FAGAX.  Originally. 

Mr.  WARREX.  The  200? 

Mr.  FAGAX.  Originally  they  were. 

Commissioner  SWEET.  I  understood  Mr.  George  to  say  that  some 
of  them  were  only  paper  companies  and  never  had  actually  operated. 

Mr.  FAGAX.  Well,  there  may  have  been  some  of  that  class.  I  would 
not  say  that  is  not  correct.  It  appears  to  be  preposterous  that  there 
should  be  208  companies  in  a  combination  that  comprises  only  625 
miles  of  track,  but  some  of  those,  companies  run  over  a  very  small 
territory — some  of  them  only  half  a  mile. 

Mr.  AVARKEX-.  It  would  be  an  average  of  3  miles  to  a  company. 

Mr.  FAGAX.  Yes,  sir.  I  think  they  were  all  real  bona  fide  com- 
panies in  the  beginning. 

Mr.  WARREX.  Have  you  had  any  occasion  to,  or  have  you  made  any 
attempt  to,  issue  receivers'  certificates? 

Mr.  FAGAX.  No,  we  have  not. 

Mr.  WARREX.  You  spoke  of  capital  charges  which  were  paid  dur- 
ing the  last  six  years  before  the  receivership. 

Mr.  FAGAX.  Yes. 

Mr.  WARREX.  What  did  you  include  in  that — the  interest  on  those 
bonds? 

Mr.  FAGAX.  The  interest  on  the  bonds  and  the  rentals  to  the  under- 
lying companies. 

Mr.  WARREX.  What  is  the  occasion  of  this  valuation?  Why  is  it 
being  made  at  this  time  ? 

Mr.  FAGAX.  The  purpose  of  it  is  to  ascertain  the  present  value  of 
the  property,  and  upon  that  to  base  what  should  be  a  proper  return, 
for  the  purpose  of  furnishing  funds  to  operate  the  company  and 
pay  the  capital  charges. 

Mr.  WARREX.  Looking  to  a  reorganization,  perhaps. 

Mr.  FAGAX.  Well,  eventually,  I  presume.  In  fact,  this  valuation 
board  began  its  functions  before  the  receivers  were  appointed. 

Mr.  AVARREX.  Yes. 

Mr.  FAGAX.  This  trouble  as  to  the  financial  condition  of  this  com- 
pany has  been  prevalent  for  four  or  five  years.  It  was  not  a  new 
thing  when  the  receivers  were  appointed. 

Mr.  WARREX.  So  the  public-service  commission  took  steps  to  have 
this  valuation  made? 

Mr.  FAGAX.  Yes. 

Mr.  WARREX.  That  is  all. 

Mr.  FAGAX.  I  was  told  when  I  came  here  that  if  I  had  any  sug- 
gestions to  make  about  this  matter,  I  ought  to  make  them. 

The  CIIAIRMAX.  We  would  be  glad  to  have  them. 

Mr.  FAGAX.  This  one  thing  has  occurred  to  me,  and  this  arises 
from  the  fact  that  I  was  here  recently  appearing  before  the  National 
War  Labor  Hoard.  That  board,  of  course,  as  everybody  knows,  is  a 
Federal  institution,  and  during  the  existence  of  the  war  was  given 
authority  to  fix  the  wages  of  the  men.  I  presume  that  that  function 
will  cease  as  soon  as  the  war  is  over;  in  fact,  I  understand  that  our 
case  is  about  the  last  one  of  which  they  can  take  cognizance. 


626       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Now,  take  our  case,  for  instance.  The  Public  Service  Commission 
of  Pennsylvania  is  vested  with  the  power  to  fix  the  rate  of  wages — 

Mr.  WARREN.  The  rate  of  wages? 

Mr.  FAG  AX.  I  mean  the  rate  of  fare. 

Mr.  WARREN.  The  rate  of  fare. 

Mr.  FAGAN.  And  it  occurred  to  me  that  these  two  companies,  be- 
ing so  closely  correlated,  ought  to  be  under  the  jurisdiction  of  one 
body. 

The  CHAIRMAN.  Wages,  as  well  as  rates? 

Mr.  FAGAN.  Wages  as  well  as  rates.  Rates  consist  of  all  the  in- 
come of  the  company  and  that  is  now  under  the  jurisdiction  of  the 
public-service  commission.  Wages  consist,  in  our  case,  of  at  least 
two-thirds  of  the  disbursements,  and  I  think,  therefore,  that  both  of 
those  things,  which  are  the  largest  and  most  import-ant  items  that 
enter  into  this  operation,  should  be  under  the  jurisdiction  of  one 
body,  whether  it  be  the  War  Board  or  somebody  tantamount  to  that, 
or  the  public-service  commission ;  but  I  think  it  would  have  to  be  the 
public-service  commission,  from  the  fact  that  a  Federal  institution 
would  not  have  any  jurisdiction,  except  over  interstate  affairs. 

Commissioner  GADSDEN.  Do  you  think  you  could  get  the  laboring 
men  to  agree  with  you  on  that? 

Mr.  FAGAN.  I  don't  knowr.  The  thought  just  occurred  to  me,  and 
I  thought  I  would  give  it  to  you. 

Commissioner  SWEET.  The  War  Labor  Board  will  go  out  of  exist- 
ence as  soon  as  peace  is  declared,  as  you  have  said. 

Mr.  FAGAN.  Yes. 

Commissioner  SWEET.  So  that  would  not  be  a  permanent  body. 

Mr.  FAGAN.  Well,  when  I  was  here  appearing  before  the  War 
Labor  Board,  it  was  suggested  that,  after  they  did  actually  go  out  of 
existence,  they  would  probably  be  replaced  by  a  commission  to  be 
established  by  the  Labor  Department.  I  did  not  pay  any  attention 
to  it  at  that  time,  but  in  evolving  this  thought,  it  just  occurred  to  me 
that  any  Federal  body  could  not  have  any  jurisdiction,  except  in 
interstate  matters,  and,  therefore,  the  natural  body  to  which  the 
power  should  be  given,  if  it  should  be  given,  would  be  a  State  body. 

Commissioner  SWEET.  With  the  idea 

Mr.  FAGAN.  That  they  would  have  practically  the  whole  situation 
before  them. 

Commissioner  SWTEET.  Certainly,  and  if  they  would  permit  an  in- 
crease of  wages,  a  corresponding  increase  in  revenue  could  be  made. 

Mr.  FAGAN.  Yes;  and  then  one  of  the  defenses  which  we  gave  to 
the  National  War  Labor  Board  wras  that  we  were  an  insolvent  con- 
cern. We  gave  them  all  our  figures — everything  wre  had — and  that 
under  no  circumstances  wrould  we  be  able  to  meet  the  increase  in 
these  wages;  and  we  were  politely  informed  that  that  wras  not  their 
business — that  their  business  was  to  fix  the  wages,  and  our  business 
was  to  find  the  money.  [Laughter.] 

Mr.  WARREN.  That  has  been  one  of  your  chief  duties  since  you 
became  receiver;  has  it  not,  Mr.  Fagan? 

Mr.  FAGAN.  Yes. 

Mr.  WARREN.  Thank  you  very  much. 

Mr.  FAGAN.  Not  at  all. 

Mr.  WARREN.  I  will  ask  Mr.  Head  to  take  the  stand. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       627 

STATEMENT  OF  MR.  W.  B.  HEAD. 

Mr.  WARREN.  Give  your  full  name,  Mr.  Head. 

Mr.  HEAD.  W.  B.  Head. 

Mr.  WARREN.  Where  do  you  reside? 

Mr.  HEAD.  In  Dallas,  Tex. 

Mr.  WARREN.  In  Dallas,  Tex.? 

Mr.  HEAD.  Yes,  sir. 

Mr.  WARREN.  Are  you  connected  with  the  street  railway  there? 

Mr.  HEAD.  Vice  president  of  the  Dallas  Railway  Co. 

Mr.  WARREN.  How  long  have  you  been  vice  president  of  that 
company,  Mr.  Head? 

Mr.  HEAD.  Since  it  was  organized.  The  Dallas  Railway  is  a 
new  company,  however. 

Mr.  WARREN.  When  was  it  organized? 

Mr.  HEAD.  It  was  organized  in  1917. 

Mr.  WARREN.  That  company  practically  succeeded  a  prior  street- 
railway  company;  did  it  not? 

Mr.  HEAD.  Yes,  sir. 

Mr.  WARREN.  Of  the  same  name? 

Mr.  HEAD.  No,  sir. 

Mr.  WARREN.  What  was  the  name  of  the  old  company? 

Mr.  HEAD.  There  were  several  companies  operating  in  the  city 
of  Dallas,  but  under  one  management,  owned  by  a  holding  company. 

Mr.  WARREN.  And  this  new  company  was  organized  to  take  them 
all  over? 

Mr.  HEAD.  Yes,  sir. 

Mr.  WARREN.  And  merge  them  into  one? 

Mr.  HEAD.  Yes,  sir. 

Mr.  WARREN.  And  in  connection  with  that  organization — that 
new  organization — was  anything,  and  if  so,  what,  done  in  respect  to 
a  new  franchise?  Were  some  of  the  old  franchises  expiring? 

Mr.  HEAD.  Yes,  sir;  all  of  the  old  franchises  of  the  various  com- 
panies had  practically  expired. 

Mr.  WARREN.  So  that  a  new  franchise  was  necessary  either  for  the 
old  or  new  company? 

Mr.  HEAD.  Yes,  sir. 

The  CHAIRMAN.  Did  all  of  the  old  franchises  have  a  fixed  fare? 

Mr.  HEAD.  I  do  not  think  so.    Some  of  them  had. 

Mr.  WARREN.  Now,  will  you  describe  to  the  commission  the  prin- 
cipal features  of  the  new  franchise,  which  you  think  they  would 
be  interested  in,  this  plan  being  the  service-at-cost  plan,  as  it  is 
sometimes  called. 

Mr.  HEAD.  As  a  preface,  the  things  the  present  franchise  has 
negotiated,  it  might  be  well  to  state  to  the  commission  some  of  the 
peculiarities  of  the  Texas  laws. 

We  have  no  public-service  commission  in  Texas,  but,  on  the  other 
hand,  have  what  is  known  as  home  rule,  an  act  passed  by  the  legis- 
lature in  1913,  giving  to  all  cities  of  5,000  or  more  practically  all 
the  powers  of  rate  regulation  that  the  legislature  itself  would  have. 

Prior  to  this  time,  however,  there  had  been  some  laws  passed 
with  reference  to  the  operation  of  street-railway  properties.  We 
have  a  State  law  that  requires  a  railway  company  to  pave  Iwtween 
its  rails  and  2  feet  outside  the  rails.  No  city  has  authority  to  waive 
that  charge,  even  if  it  wanted  to. 


628        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

We  also  have  laws  with  reference  to  carrying  school  children. 

Mr.  WARREN.  Is  that  because  the  court  has  so  decided,  about  the 
paving,  or  because  the  statute  is  so  clear? 

Mr.  HEAD.  The  statute  is  quite  clear  that  that  is  the  case.  It 
has  never  been .  repealed.  It  was  not  repealed  when  the  home-rule 
act  was  passed. 

Mr.  WARREN.  Well,  does  the  statute  say  that  the  municipality 
can  not  waive  it,  or  shall  not  do  it  ? 

Mr.  HEAD.  No;  I  do  not  think  so. 

Mr.  WARREN.  And  the  court  has  not  said  so  ? 

Mr.  HEAD.  No;  there  has  been  no  ruling  of  the  courts.  The  opin- 
ions of  various  attorneys  are,  however,  that  the  city  can  not  waive 
that  charge. 

Mr.  WARREN.  It  is  an  interesting  thing,  Mr.  Chairman,  because 
we  had  a  law  in  Massachusetts  quite  like  that — prescribing  exactly 
what  the  street-railway  companies  should  do;  and  our  supreme 
court  held  that  the  municipality  could  extend  the  amount  required 
of  the  company. 

Mr.  HEAD.  It  has  never  been  attacked,  and  in  the  development  of 
our  franchise  we  asked  the  opinion  of  several  attorneys  with  refer- 
ence to  whether  or  not  these  paving  charges  could  be  eliminated 
from  the  franchises. 

We  were  undertaking  to  work  a  service-at-cost  franchise,  and  the 
effort  was  made  to  get  relief  of  all  burdens,  and  we  did  get  re- 
lieved of  numerous  burdens  that  heretofore  had  been  imposed  on 
the  railway  companies,  such  as  pole  and  wire  taxes,  a  gross  receipt 
tax,  and  other  things  of  that  kind  which  we  were  specifically  re- 
lieved of  in  the  contract.  The  paving  burden  was  one  that  we 
discussed  a  great  deal,  and  we  came  to  the  conclusion — both  parties 
to  the  contract — that  the  franchise  would  have  to  carry  with  it 
paving  burdens. 

We  also  have  in  Texas  the  initiative  and  referendum,  and  we  have 
reached  the  point  that  the  street-car  rider,  or  the  electric-light  user, 
or  the  user  of  any  public  utility,  practically  fixes  the  fare.  It  re- 
quires only  500  signers  to  order  an  election  and  pass  on  any  ordinance 
that  may  have  been  passed. 

The  CHAIRMAN.  Has  the  referendum  been  exercised  ? 

Mr.  HEAD.  Yes.  sir. 

Mr.  WARREN.  This  is  a  local  referendum. 

Mr.  HEAD.  Yes,  sir;  a  local  referendum,  under  the  home-rule  act. 

In  the  city  of  Houston,  the  street  railway  company,  the  Houston 
Kailway  Co.,  went  before  the  city  commission  and  asked  for  an  in- 
creased fare,  and  after  laying  all  the  facts  before  the  commission, 
the  ordinance  was  passed  granting  a  6-cent  fare.  Five  hundred  peo- 
ple signed  a  petition  asking  for  a  referendum  on  the  ordinance,  and 
it  was  voted  down. 

Mr.  WARREN.  That  was  in  Houston  ? 

Mr.  HEAD.  That  was  in  Houston.  I  merely  cite  that  to  the  com- 
mission to  show  the  situation  in  Texas  with  reference  to  utility  rates 
in  general. 

The  CHAIRMAN.  Perhaps  that  was  after  the  people  of  Houston 
began  to  experience  great  reductions  in  telephone  and  telegraph 
rates  made  by  the  Postmaster  General,  who  was  from  Texas. 
{Laughter.] 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       629 

Mr.  HEAD.  Possibly  so. 

To  get  back  to  the  history  of  the  development  of  the  present  Dal- 
las franchises,  I  will  state  that  not  only  the  railway  franchises,  but 
the  light  and  power  franchises,  and  the  franchises  of  the  gas  com- 
pany— all  separate  corporations — are  under  service-at-cost  plan.  I 
say  "service  at  cost."  They  are  not  real  service-at-cost  franchises, 
which  I  will  explain  a  little  later  on. 

Under  the  former  management,  after  having  a  great  deal  of  agita- 
tion, running  over  some  six  or  seven  years,  in  an  effort  to  get  these 
separate  railway  companies  consolidated  and  get  the  franchises  for 
the  electric-light-and-power  company  the  city  of  Dallas  suggested 
the  cost-of-service  franchise. 

The  mayor — it  was  in  1914, 1  believe — was  active  in  trying  to  work 
out  a  utility  situation,  both  railway  and  lighting,  and  the  Cleveland 
franchise  was  brought  to  Dallas.  The  city  employed  experts  to 
make  a  valuation  of  the  railway  properties.  The  company  employed 
its  engineers  and  experts. 

They  failed  to  agree  on  a  valuation ;  also  they  could  not  agree  on 
a  kind  of  a  franchise — the  rate  of  return,  and  other  things  in  con- 
nection with  it. 

The  city's  charter  had  to  be  amended  before  a  service-at-cost  fran- 
chise could  be  granted. 

The  city,  in  the  April  election,  I  believe,  of  1914,  prepared  an 
amendment  to  the  charter,  so  that  a  service-at-cost  franchise  could 
be  granted,  and  at  the  same  election  put  up  to  the  people,  on  a  kind 
of  a  straw  vote,  the  controversy,  or  the  model  franchise,  that  the 
city  was  offering  the  companies  operating  at  that  time. 

The  company  opposed  the  franchise  and  used  every  effort  possible 
to  prevent  even  the  amending  of  the  charter. 

The  election  resulted  favorably  to  the  city's  side  of  the  contro- 
versy. The  company  refused  to  accept  the  franchises  as  favorably 
indicated  by  the  straw  vote.  Some  gentlemen  in  Dallas  then  went 
to  the  owners  of  the  properties  and  secured  an  option  at  a  figure 
somewhat  lower  than  the  value  that  was  placed  on  them  by  the  com- 
pany's engineers  and  opened  up  negotiations  with  the  city,  with  a 
view  to  organizing  two  separate  companies,  one  for  the  lighting  and 
one  for  the  railway.  These  negotiations  went  on  for  about  a  year. 

The  present  franchises  were  voted  upon  by  the  people,  as  a  result 
of  those  negotiations,  at  an  election  in  1917. 

Mr.  WARREN.  By  "  an  election  "  you  mean  a  referendum  vote,  do 
you? 

Mr.  HEAD.  Well,  the  franchises,  being  entirely  different  from  the 
ones  the  people  had  approved  before,  it  became  necessary  that  they 
be  ratified  or  adopted  by  the  people.  In  the  Dallas  city  charter 
franchises  must  be  voted  on. 

The  CHAIRMAN.  The  electric-lighting  company  and  the  other  com- 
panies are  entirely  separate? 

Mr.  HEAD.  Yes.  The  companies  were  organized  under  public  laws 
and  the  capitalization  based  upon  the  value  agreed  upon  in  the  fran- 
chise contract.  In  substance,  the  Dallas  Railway  franchise  starts 
out  as  of  a  certain  date,  with  a  fixed  value,  known  as  propeijjy  value, 
and  every  dollar  that  is  added  to  the  property  value,  thereafter  that 
value  becomes  the  basis  for  making  rates.  The  franchises  provide, 
for  a  very  rigid  supervision. 


630       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  CHAIRMAN.  First,  who  fixed  the  value? 

Mr.  HEAD.  Who  fixed  the  value? 

The  CHAIRMAN.  Yes. 

Mr.  HEAD.  The  original  value  was  fixed  in  the  contract,  in  the 
franchise. 

The  CHAIRMAN.  Who  determined  the  value? 

Mr.  HEAD.  It  was  a  value  agreed  upon  between  the  men  who  had 
the  option  on  the  property  and  the  city,  approved  by  the  people. 

The  CHAIRMAN.  Go  ahead. 

Mr.  WARREN.  Based  on  the  previous  engineers'  study  ? 

Mr.  HEAD.  Yes ;  it  was  a  compromise  value. 

Mr.  WARREN.  Yes. 

Mr.  HEAD.  Based  on  the  valuations  which  were  made  by  the  city's 
experts  and  by  the  company's  experts. 

This  figure,  the  property  value,  then  becomes  the  basis  of  rates. 

The  franchises  are  different  from  the  Cleveland  franchises  in  this 
respect :  The  city  undertakes  no  control  whatever  of  the  issuance  of 
the  securities,  except  there  is  a  limit  placed  upon  the  amount  of 
bonds  that  may  be  issued  in  terms  of  property  value.  You  can  not 
issue  bonds  in  excess  of  85  per  cent  of  the  property  value.  The  con- 
tract states  that  the  city  will  not  be  concerned  in  and  will  have  noth- 
ing to  do  with  the  issuance  of  stocks  and  bonds,  other  than  the  pro- 
viso that  I  have  just  mentioned ;  but  the  grantee  may  issue  securities 
without  a  lot  of  legal  questions  on  the  part  of  the  city,  in  any  law- 
ful manner.  We  have  some  State  laws  that  regulate  the  issuance  of 
securities.  There  is  no  provision  made  for  the  cost  of  obtaining 
money.  It  is  the  actual  bare  bones  amount  that  goes  into  the  prop- 
erty. 

The  CHAIRMAN.  What  goes  in  is  the  only  money  that  is  reckoned 
with? 

Mr.  HEAD.  Yes. 

Mr.  WARREN.  That  is,  up  to  this  original  amount. 

Mr.  HEAD.  Yes ;  and  every  dollar  that  goes  into  the  property  must 
be  approved  by  the  city.  The  contract  provides  for  what  is  known  as 
a  supervisor  of  the  utilities,  .and  when  wre  want  to  make  an  extension 
of  the  plant,  or  spend  any  money  that  is  to  go  into  property  value,  a 
requisition  is  made  for  the  expenditure,  and  it  is  laid  before  the 
supervisor.  If  it  is  a  good  large  amount— I  can  not  give  you  the  ex- 
act figure ;  I  think  possibly  even  as  small  an  amount  as  $10.000 — it 
requires  not  only  the  approval  of  the  supervisor  but  of  the  city  com- 
mission itself. 

Mr.  WARREN.  Is  that  a  commission  city  ? 

Mr.  HEAD.  Yes,  sir;  a  commission  city. 

The  supervisor  has  his  engineers  and  his  accountants,  and  the  com- 
pany furnishes  an  office,  a  room,  in  the  office  building  of  the  railway 
company  for  his  use,  so  that  he  can  come  there  and  examine  the  books. 
Our  accounts  are  open.  We  publish  every  month  a  statement  of  what 
the  company  has  done.  We  keep  an  account  and  present  the  city 
each  month  with  just  what  the  books  show  as  to  what  the  property 
value  is,  how  it  is  growing,  and  what  the  additions  have  been. 

Mr.  WARREN.  And  also  of  the  earnings? 

Mr.  HEAD.  And  of  the  earnings — a  complete  statement  and  that 
statement  is  published  every  month  in  the  daily  papers  in  the  city. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       631 

The  rate  of  return  was  6  or  7  per  cent  on  the  property  value.  That 
was  the  allowed  return.  You  could  make  that,  if  you  could.  Ths 
serious  defect  in  the  railway  franchise 

The  CHAIRMAN.  Is  that  rate  of  return  a  preferred  charge? 

Mr.  HEAD.  Xo,  sir.  The  first  thing  you  must  do  is  that  out  of  your 
income  you  pay  operating  expenses,  and  these  franchises  provide  re- 
serves. Depreciation  and  replacement  reserve  must  come  out  next. 
Then,  6  per  cent  accident  reserve,  and  the  balance  to  surplus  reserve. 
That  is  the  division  of  the  operating  expenses. 

Mr.  WARREN.  That  surplus  reserve  is  what  is  sometimes  called  the 
barometer. 

Mr.  HEAD.  Yes,  sir. 

These  reserves  are  all  figured  in  terms  of  property  value.  When 
the  depreciation  reserve  gets  to  a  certain  per  cent  of  the  property 
value,  it  is  considered  normal.  When  the  accident  reserve  becomes  a 
certain  per  cent  of  the  gross  receipts,  it  is  normal ;  and  when  the  sur- 
plus reserve  becomes  a  certain  per  cent  of  the  property  value,  it  is 
normal.  Then,  whenever  the  surplus  reserve  reaches  the  point  of  so 
many  per  cents  above  normal,  fares  are  reduced  for  six  months,  until 
we  see  where  that  reserve  is  going. 

The  great  defect,  as  it  turned  out,  in  the  railway  franchise,  on  ac- 
count of  the  war  situation,  is  the  fact  that  it  has  a  top  limit  and,  to 
that  extent,  is  not  a  service  at  cost.  You  can  not  go  above  a  5-cent 
fare,  and,  therefore,  it  is  not  a  service-at-cost  franchise,  to  that  ex- 
tent. 

Mr.  WARREN.  In  that  respect,  however,  it  is  like  the  Cleveland  ono 
originally. 

Mr.  HEAD.  Yes. 

Mr.  WARREN.  Until  the  Cleveland  franchise  was  changed. 

Mr.  HEAD.  It  has  this  top  limit.  In  addition  to  the  top  limit,  we 
introduced  into  the  franchise  the  London  sliding  scale.  The  fran- 
chise provides  that  we  are  allowed  a  certain  per  cent  return  on  the  5- 
cent  fare.  If  by  efficiency  in  operation  and  economies,  we  sell  six 
tickets  for  25  cents,  they  allow  us  to  make  7£  per  cent,  if  we  can. 
Then  it  goes  down.  There  are  three  items  in  the  schedule,  the  idea 
being  that  the  rate  of  return  would  rise  as  the  rate  of  fare  descended. 

That  system  in  the  lighting  company's  franchise  has  worked  ex- 
ceedingly well,  and  there  have  been  reductions  in  the  lighting  rates. 
The  maximum  in  the  lighting  franchise,  which  had  the  top  limit  in 
it,  too,  but  it  was  such  a  limit  that  it  could  never  interfere,  because 
of  the  fact  that  it  only  dealt  with  the  maximum  lighting  rate,  giving 
you  an  opportunity  to  get  your  revenue  from  the  long-hours  con- 
sumer, and  hence  it  has  been  working  quite  well  in  the  lighting 
franchise. 

I  personally  am  very  much  of  the  opinion — I  feel  quite  sure — that 
but  for  this  top  limit,  it  would  lie  working  quite  well  in  the  railway 
franchise  in  Dallas  to-day. 

We  find  a  hearty  cooperation  on  the  part  of  the  city  and  the  man- 
agement. Each  side  seems  to  remember  that,  or  to  understand  that 
what  is  to  one's  interest  is  to  the  other's  interest.  We  have  it  demon- 
strated in  the  lighting  franchise  in  several  instances.  For  instance, 
just  prior  to  the  time  that  we  took  over  the  property,  the  ducts  had 
been  laid  for  a  large  amount  of  the  underground  wires  in  the  busi- 
ness section  of  the  city  of  Dallas,  and  the  time  was  up  in  which  to 


632        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

begin  putting  this  copper  underground.  The  city  said,  "  Don't  put 
that  in  now  while  copper  is  so  high,  because  we  think  we  could  afford 
to  wait,  rather  than  have  possibly  a  million  dollars  of  excess  money 
in  these  ducts  and  have  a  lot  of  money  that  the  city  of  Dallas  would 
have  to  pay  a  return  on." 

The  same  thing  came  up  in  the  power  plant  about  the  installation 
of  a  large  turbine,  under  present  prices.  They  said  it  would  pos- 
sibly be  better,  rather  than  to  spend  all  of  this  money  at  this  par- 
ticular time,  to  wait  a  while  and  buy  it  when  we  could  get  it  at 
quite  reasonable  rates. 

We  have  found  the  same  sort  of  cooperation  on  the  part  of  the 
citv  officials  in  the  railway  franchise. 

"The  question  that  we  are  up  against  now  is  to  get  this  top  limit 
off.  Under  the  present  cost  of  material  and  labor,  we  are  not — well, 
we  have  made  about  4  per  cent  on  the  property  value. 

Mr.  WARREN.  For  wrhat  period,  Mr.  Head? 

Mr.  HEAD.  Well,  it  has  been  an  average  for  the  past  twelve 
months. 

Mr.  WARREN.  How  long  has  it  been  operating  under  the  franchise  ? 

Mr.  HEAD.  It  will  be  two  years  next  October. 

The  CHAIRMAN.  Have  you  made  any  extensions  to  the  property 
during  that  time? 

Mr.  HEAD.  No,  sir;  that  is  the  very  question  I  was  getting  to. 
The  city  of  Dallas  is  not  properly  served.  We  need  more  cars. 
The  city  is  growing  very  rapidly. 

Mr.  WARREN.  How  large  is  Dallas  now? 

Mr.  HEAD.  It  was  165,000  when  I  left.  I  don't  know  what  it  is 
now.  [Laughter.] 

Mr.  WARREN.  You  think  it  has  increased  since  then  ? 

Mr.  HEAD.  Possibly  200,000.  Well,  that  is  one  of  the  great  troubles 
in  the  utility  business  in  Dallas  to-day,  to  keep  up  with  the  very 
rapid  growth  of  these  cities. 

If  you  will  pardon  me  for  just  a  word  or  two  on  that,  I  can  show 
you  cities  in  Texas  of  20,000  to-day  that  had  20  people  in  them  a  year 
ago.  It  is  remarkable.  During  this  oil  development,  possibly 
150,000  or  200,000  people  have  come  to  Texas  in  the  last  year,  in  this 
particular  section  lying  immediately  northwest  of  the  city  of  Dallas. 

We  are  not  properly  serving  the  city.  We  are  not  making  any 
extensions.  We  have  not  the  money,  and  we  can  not  get  the  money. 
We  need  new  equipment,  and  we  can  not  get  money  with  which  to 
purchase  that  equipment. 

The  CHAIRMAN.  If  you  are  making  4  per  cent,  I  think  your  credit 
would  be  good  enough  to  get  out  and  get  new  money  for  cars  and 
necessary  extensions. 

Mr.  HEAD.  No;  not  in  Texas. 

The  CHAIRMAN.  Not  in  Texas? 

Mr.  HEAD.  No. 

The  CHAIRMAN.  How  about  New  York? 

Mr.  HEAD.  I  mean  money  invested  in  Texas.  Rates  of  interest  are 
very  much  higher  in  our  section  than  they  are  up  in  this  section. 

Mr.  WARREN.  You  suffer,  too,  from  the  general  collapse  of  the 
street-railway  credit,  I  suppose? 

Mr.  HEAD.  Yes.  We  know  that  we  are  not  maintaining  the  prop- 
erty as  it  should  be  maintained.  And  that  is  not  all.  We  have 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       633 


nursed  it  every  way  we  possibly  could,  in  order  to  get  the  return  out 
of  it  that  we  have.  The  management  of  the  Dallas  Kailway  Co.  also 
managers  some  other  large  properties  in  the  State  whose  general  offices 
are  in  Dallas.  As  to  the  matter  of  salaries  for  officials,  we  are  in  a 
position  where  we  can  favor  the  railways,  in  the  matter  of  salaries 
for  management.  We  have  done  everything  that  we  possibly  could 
to  keep  our  heads  above  water.  Our  increases  in  operating  expenses 
have  been  about  like  the  increases  that  you  have  heard  testified  to. 
I  have  heard  the  testimony  of  a  great  many.  I  have  some  figures 
which  might  be  interesting  to  show  some  of  the  increases  in  Texas. 

The  maximum  paid  motormen — 

The  CHAIRMAN.  Do  you  have  this  in  writing? 

Mr.  HEAD.  Yes,  sir. 

The  CHAIRMAN.  Suppose  you  file  it  with  the  reporter. 

Mr.  HEAD.  Yes,  sir — showing  the  increase  in  motormen's  wages 
from  25  cents  to  42  cents,  and  other  wages  in  proportion. 

The  statement  referred  to  by  Mr.  Head  is  as  follows : 

Statement  of  the  Dallas  Railway  Co.  showing  icages  per  hour  or  month,  and 
hours  worked  per  day,  July,  191^,  and  July,  1919. 


July,  1914. 

July,  1919. 

Rate  per  hour 
or  mouth. 

Hours 
per  day. 

Rate  per  hour 
or  month. 

Hours 
per  day. 

TRAINMEN. 

First  six  months  of  service  

$0.20 
.21 
.22 
.23 
.24 
.25 

UOJ 

Second  six  months  of  service  

Second  year  of  sen-ice  

Third  year  of  service  
Fourth  year  of  service  

»$0.3S 
.40 
.42 

175.  00 
160.00 
160.00 
160.00 
160.00 
160.00 
.47J-.60 
.60 
.40-.  45 
.47i 
.45 
.38-.  40 
.38-.  45 
.42}-.  56 
.40-.  60 
.45 
.70 
.50 
.32 
.38-.  45 
.30 
.30 

SO.  00 
160.00 
.55 
95.  00-145.  00 
.35 

10J 

9 
9 
9 
9 
10 
10 
9 
9 
9 
10 
9 
9 
10 
9 
9 
10 
9 
9 
10 
9 
10 
10 

10 
9 
9 
9 
9 

Fifth  year  and  thereafter  

First  three  months  of  service  

Next  nine  months  

Second  year  and  thereafter  

SHOPMEN. 

General  foreman  

115.00 
110.00 
.35 
.32J 
.324 
.23* 
.22J-.32J 
.30 
.25-.  30 
.22-.  274 
.27$ 
.17J-.25 
.20-.27J 
.25 
.25 
.24 

.m 

.20 
.18 
.17i 
.16 
.15 

55.00 
.37* 
.27*-.  25 
.20-.  261 
.17} 

10 
10 
10 
10 
10 
13 
10 
10 
10 
10 
10 
10 
10 
10 
10 
11 
10 
10 
10 
10 
10 
10 

10 
10 
10 
10 
10 

Truck-shop  foreman  

Carpenter  foreman  

Paint-shop  foreman  

Inspector  foreman  (day)  

Inspector  foreman  (night)  

Carpenters  

Armature  winders  

Truckmen  

Carpenter  inspectors  

Machinists  

Machinists'  helpers  

Truck  i  nspectors  

Electricians  

Painters  

Car  shifter  

Blacksmith  

Blacksmith  helper  

Shop  cleaners  

I'  itmen  

Car-house  cleaners  

Car  cleaners  

TRACKMEN  AND  LINEMEN. 

Watchman  at  material  yard  

Line  foreman  

Lint-men  

Track  foreman  

Common  laborers.  ................................. 

1  Approximate  number  of  hours  in  regular  runs. 

'The  company  owns  12  one-man  cars.    Operators  of  these  cars  receive  4  cents  per  hour  in  addition 
regular  rate. 

160643°— 20 41 


634       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  What  you  want  to  do  now  is  to  get  your 
franchise  amended  so  as  to  permit  you  to  charge  higher  fares  ? 

Mr.  HEAD.  Yes,  sir. 

Commissioner  SWEET.  Is  that  right? 

Mr.  HEAI>.  Yes,  sir;  to  get  that  top  limit  off. 

Commissioner  SWEET.  Would  that  require  another  referendum? 

Mr.  HEAD.  Yes,  sir.  You  can  not  change  a  franchise  in  Texas  in 
any  of  the  larger  cities  without  an  election. 

Mr.  WARREN.  What  is  the  term  of  the  franchise,  Mr.  Head  ? 

Mr.  HEAD.  It  is  indeterminate.  The  city  has  an  option  to  purchase 
the  property  after  20  years. 

Commissioner  SWEET.  At  par? 

Mr.  HEAD.  What  is  that? 

Commissioner  SWEET.  At  a  hundred  cents  on  the  dollar? 

Mr.  HEAD.  No,  sir ;  I  believe  it  is  a  hundred  and  five.  I  forget  just 
the  figure,  but  it  is  slightly  above  the  property  value  as  fixed. 

Commissioner  SWEET.  Yes;  somewhat  like  the  Cleveland  plan. 

Mr.  HEAD.  Yes,  sir ;  very  much.  I  think  it  is  identically  the  same 
figures  as  in  the  Cleveland  plan. 

Mr.  WARREN.  But  is  this  matter  of  the  maximum  limit  the  only 
criticism  that  you  would  make,  after  working  under  this  franchise 
for  a  couple  of  years  ? 

Mr.  HEAD.  I  think  so,  Mr.  Warren.  Of  course,  we  have  not  been 
going  long  enough  to  find  some  defects  in  it.  The  question  came  up 
and  was  discussed  at  great  length,  with  reference  to  the  question  of 
regulating  on  a  basis  of  the  actual  money  that  goes  into  the  property, 
under  city  supervision  and  the  regulation  of  securities.  The  city, 
after  considering  the  matter,  was  agreeable  to  this  basis  of  regula- 
tion; in  facty  a  discussion  as  to  whether  or  not  we  should  be  allowed 
something  for  the  cost  of  obtaining  money,  and  they  said  that  they 
would  prefer  that  they  rather  regulate  on  the  actual  money  in  the 
property  and  make  the  rate  of  return  somewhat  higher,  in  order  that 
we  might  absorb  whatever  costs  there  might  be  in  obtaining  money. 

The  CHAIRMAN.  What  rate  was  your  company  charging  before 
this  contract  was  made  ? 

Mr.  HEAD.  What  did  you  say? 

The  CHAIRMAN.  What  rate  was  your  company  charging  before 
this  contract  was  made? 

Mr.  HEAD.  Five  cents. 

The  CHAIRMAN.  A  5-cent  fare? 

Mr.  HEAD.  A  5-cent  fare,  with  a  universal  transfer. 

The  CHAIRMAN.  And  you  are  now  charging  a  5-cent  fare? 

Mr.  HEAD.  A  5-cent  fare,  with  universal  transfers. 

The  CHAIRMAN.  A  maximum  of  5  cents? 

Mr.  HEAD.  Yes,  sir. 

The  CHAIRMAN.  Has  it  not  looked  to  you  as  if  the  city  got  every- 
thing in  this  contract,  and  you  got  nothing? 

Mr.  HEAD.  Well,  I  quite  agree  with  you,  Mr.  Commissioner,  that 
they  got  the  best  of  it. 

The  CHAIRMAN.  Well,  what  did  you  get  out  of  it? 

Mr.  HEAD.  If  conditions  had  continued  as  they  were  in  1913  and 
1914,  as  to  the  cost  of  materials  and  labor,  I  think  that  we  would 
have  been  earning  at  this  time  about  8  per  cent  on  the  property  value, 
and  the  people  would  have  been  riding  at  six  tickets  for  a  quarter. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       635 

Now,  we  did  not  have  to  support  that,  or  rather,  some  of  us  did  feel 
that  there  might  come  a  time  when  the  fare  would  have  to  be  made 
above  5  cents  as  a  straight  fare;  but  at  the  time  the  franchises  were 
negotiated  we  had  the  severe  jitney  competition — that  is,  the  old 
company  management  had  jitney  competition — and  one  of  the  agree- 
ments of  the  city  was — what  you  might  term  a  side  agreement — that 
they  would  pass  an  ordinance  that  would  relieve  the  railway  com- 
pany of  this  jitney  competition. 

The  CHAIRMAN.  Has  that  been  done? 

Mr.  HEAD.  Yes,  sir ;  but  it  took  a  good  long  time.  It  got  into  the 
courts ;  and  we  have  only  been  relieved  of  it  in  the  month  of  May  of 
this  year.  That  was  the  first  month  that  we  have  had  in  which  to 
make  a  comparison. 

Mr.  WARREN.  What  was  the  result  of  that  comparison,  Mr.  Head  ? 

Mr.  HEAD.  It  is  interesting.  The  receipts  jumped  up  in  May  of 
this  year  over  May  of  last  year  about  50  per  cent.  We  never  knew 
how  much  they  were  taking. 

Mr.  WARREN.  Fifty  per  cent  ? 

Mr.  HEAD.  Yes. 

The  CHAIRMAN.  Of  course,  you  know  Dallas  is  still  growing  and 
has  been  growing  some  since  last  May. 

Mr.  WARREN.  You  think  30  per  cent  may  have  been  the  normal 
growth  ? 

Mr.  HEAD.  The  June  statement  showed  an  increase  in  June  this 
year  over  June  of  last  year,  with  no  jitneys  last  year,  of  about  10 
per  cent.  The  increase  in  May  this  year  over  May  last  year  was 
48.3  per  cent.  May,  1919,  as  compared  with  May,  1918,  increased 
48.3  per  cent: 

Mr.  WARREN.  And  the  next  month  it  increased  10  per  cent? 

Mr.  HEAD.  The  next  month  it  was  10  per  cent. 

Mr.  WARREN.  Because  they  had  been  cut  off  in  June  a  year  ago? 

Mr.  HEAD.  Yes ;  because  they  had  been  cut  off  in  June  a  year  ago. 

Commissioner  SWEET.  How  did  they  get  rid  of  the  jitneys? 

Mr.  HEAD.  Well,  it  is  a  very  long  stor^y,  Mr.  Sweet. 

Commissioner  SWEET.  Well,  briefly  outline  it. 

Mr.  HEAD.  It  was  done  by  creating  a  zone  in  which  they  were  not 
allowed  to  operate,  and  that  zone  comprises  practically  all  of  the 
business  section. 

Mr.  WARREN.  That  was  taken  into  litigation? 

Mr.  HEAD.  That  was  taken  into  litigation  and  had  to  go  through 
the  con  its. 

Mr.  WARREN.  And  it  was  sustained,  was  it? 

Mr.  HEAD.  It  was  sustained ;  yes,  sir.  There  had  been  other  ordi- 
nances passed,  the  requiring  of  bonds  and  things  of  that  kind. 
There  were  altogether  four  or  five  lawsuits  in  the  court. 

The  CHAIRMAN.  So  far  as  this  contract  is  concerned,  you  can  not 
got  more  than  a  7  per  cent  return  upon  your  capital? 

Mr.  HEAD.  I  did  not  understand  it. 

The  CHAIRMAN.  Under  this  contract  you  can  not  get  more  than 
7  per  cent  upon  the  capital,  no  matter  what  the  earnings  are? 

Mr.  HEAD.  Yes,  sir. 

The  CHAIRMAN.  Can  you? 

Mr.  HEAD.  Yes;  we  have  this  London  sliding  scale.  If  the  earn- 
ings will  permit  we  can  get  8  per  cent  if  we  sell  6  tickets  at  25  cents. 


636        PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  That  is  somewhat  academic  under  the  present  con- 
ditions; is  it  not,  Mr.  Head? 

Mr.  HEAD.  Very;  yes,  sir. 

The  CHAIRMAN.  Do  you  expect  to  be  able  to  get  the  lid  off  that 
maximum  fare? 

Mr.  HEAD.  I  rather  think  we  will,  for  this  reason:  One  of  the 
trading  points  of  the  city  was  that,  on  account  of  the  fact  that  they 
put  this  lid  on,  we  introduced  certain  clauses  in  the  franchises  by 
which  they  can  not  force  extensions  when  we  are  not  making  the  al- 
lowed return,  and  we  are  hopeful  of  using  that  to  be  able  to  get 
this  lid  off,  so  that  the  property  can  grow.  That  was  one  of  the 
offsets  to  the  limit's  being  placed. 

Commissioner  SWEET.  How  do  the  people  seem  to  feel  about  it? 

Mr.  HEAD.  I  think  the  great  majority — well,  I  know  that  all  the 
business  men,  the  thinking  people,  understand  that  an  increase  in 
fare  is  necessary .  and  are  perfectly  willing  to  pay  it.  Of  course, 
we  have  an  element  in  our  city,  like  you  find  everywhere  else,  that 
wants  to  hold  on  to  everything  they  can  get  and  will  oppose — 

Commissioner  SWEET.  They  have  a  prejudice  against  the  company, 
I  suppose,  in  its  present  shape? 

Mr.  HEAD.  Yes,  sir. 

Commissioner  SWTEET.  As  wrell  as  the  old  one. 

Mr.  HEAD.  Well,  there  has  not  been  a  great  deal  of  prejudice 
now.  This  company  is  managed  by  a  board  of  21  directors.  Prac- 
tically all  of  them  have  lived  in  the  city  of  Dallas  and  were  selected 
with  a  view  to  creating  public  sentiment  favorable  to  the  company 
and  to  give  it  what  you  would  call  a  moral  standing  in  the  com- 
munity. 

The  CHAIRMAN.  You  said  the  business  men  favored  this  contract. 
Do  they  use  the  cars  very  much,  or  do  they  use  their  own  auto- 
mobiles ? 

Mr.  HEAD.  I  did  not  understand  you. 

The  CHAIRMAN.  You  said  the  business  men  favored  this  contract. 
I  was  wondering  if  they  used  your  cars  very  much  or  whether 
they  ride  in  their  own  automobiles? 

Mr.  HEAD.  Well,  I  expect  most  of  them  ride  in  automobiles. 

The  CHAIRMAN.  What  does  the  ordinary  citizen  of  Dallas  think 
about  that  system? 

Mr. -HEAD.  You  mean  about  the  franchise? 

The  CHAIRMAN.  Yes. 

Mr.  HEAD.  When  the  franchises  were  voted  on,  they  wrere  carried 
by  a  majority  of  about  2  to  1,  and  that  with  one  of  the  evening 
papers  violently  opposing  the  franchises  as  drawn,  and  also  with 
the  mayor  who  negotiated  the  franchises  coming  out  at  the  very  last 
hour  and  saying  that  they  were  bad. 

The  CHAIRMAN.  Saying  that  they  were  bad  ? 

Mr.  HEAD.  Yes,  sir. 

The  CHAIRMAN.  Well,  a  politician  has  a  right  to  change  his  mind. 

Commissioner  GADSDEN.  Is  there  any  agitation  in  Texas  for  a  State 
commission,  Mr.  Head? 

Mr.  HEAD.  Yes,  sir ;  there  has  been  a  great  deal  of  agitation  for  a 
State  commission,  which  comes  from  two  angles.  The  long-distance 
toll  service  in  Texas  is  not  regulated  by  any  authority.  The  smaller 
communities,  in  the  towns  of  less  than  5,000,  have  no  rate  regulation. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       637 

Commissioner  GADSDEN.  What  is  the  attitude  of  the  public  utilities 
toward  that? 

Mr.  HEAD.  The  public  utilities  have  taken  the  attitude  of  being 
favorable  to  a  State  commission  if  the  State  commission  has  final 
authority.  There  was  a  bill  introduced  in  the  last  session  of  the 
legislature,  and  it  passed  the  house  but  did  not  get  by  the  senate, 
although  it  did  not  reach  a  vote,  that  undertook  to  create  a  State  com- 
mission, making  the  commission's  jurisdiction  in  home  rule  cities 
appellate  or  upon  the  request  of  the  municipality.  That,  I  think, 
will  really  solve  the  situation  in  Texas. 

Mr.  WARREN.  Was  there  not  formerly  a  railroad  commission  in 
Texas? 

Mr.  HEAD.  There  is  a  railroad  commission  there  now. 

Mr.  WARREN.  It  has  jurisdiction  only  over  the  railroads? 

Mr.  HEAD.  Only  over  the  railroads. 

The  CHAIRMAN.  At  this  point,  we  will  adjourn  until  to-morrow 
morning  at  10*  o'clock. 

(Whereupon,  at  10  o'clock  p.  m.,  the  further  hearing  of  this  case 
was  adjourned  until  to-morrow,  Wednesday,  July  23,  1919,  at  10 
o'clock  a.  m.) 

WASHINGTON,  D.  C.,  July  23,  1919. 
Met  pursuant  to  adjournment  at  10  a.  m. 
Present:  Parties  as  before. 
The  CHAIRMAN.  Are  you  reacty,  Mr.  Warren? 
Mr.  W^ARREN.  All  ready;  yes,  sir.     Prof.  Bullock,  take  the  stand. 

STATEMENT  OF  PROF.  CHARLES  J.  BULLOCK. 

Mr.  WARREN.  Your  full  name,  Prof.  Bullock,  is  Charles  J.  Bul- 
lock? 

Mr.  BULLOCK.  Charles  J.  Bullock. 

Mr.  WTARREN.  You  are  connected  with  Harvard  University? 

Mr.  BULLOCK.  I  am.  as  professor  of  economics. 

Mr.  WARREN.  And  you  have  had  occasion  repeatedly  to  make 
special  study  of  questions  of  taxation,  I  think? 

Mr.  BULLOCK.  1  have. 

Mr.  WARREN.  You  have  advised  various  Massachusetts  legislative 
commissions  and  assessment  commissions  as  to  taxation  along  various 
lines? 

Mr.  BULLOCK.  I  have. 

Mr.  WARREX.  And  if  I  am  not  mistaken,  you  had  a  groat  deal  to 
do  with  the  drafting  of  the  Massachusetts  income  tax  adopted  a  few 
years  ago? 

Mr.  BULLOCK.  I  had. 

Mr.  WARREN.  Have  you  also  had  occasion  to  study  the  actual  meth- 
ods of  taxation  of  public  utilities  and  of  street  railways? 

Mr.  BULLOCK.  I  made  a  study  of  the  taxation  of  corporations  in 
general  for  the  purpose  of  working  out  a  revision  of  our  own  corpora- 
tion tax  laws  in  Massachusetts.  I  have  also  served  as  chairman  of  a 
committee  appointed  by  the  National  Tax  Association  to  investigate 
the  taxation  of  public  service  corporations,  which  committee  submit- 
ted a  report  of  which  I  furnished  you  a  copy. 


638        PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  WARREN.  And  have  you  made  a  study  of  street-railway  taxa- 
tion for  the  purpose  of  submitting  certain  data  and  views  to  this 
commission  ? 

Mr.  BULLOCK.  I  have  recently  made  a  special  study  of  street-rail- 
way taxation  for  the  purpose  of  presenting  a  memorandum  to  this 
commission,  and  I  have  prepared  a  memorandum. 

Mr.  WARREN.  Now,  will  you  take  up  that  memorandum  and  go 
through  it  without  my  questioning  you  ? 

The  CHAIRMAN.  Have  you  extra  copies  ef  it  ? 

Mr.  BULLOCK.  I  have  left  with  Mr.  Warren  three  copies  of  this 
memorandum  and  also  a  copy  of  the  report  of  the  National  Tax  Asso- 
ciation, that  he  will  supply  you,  and  with  your  permission  I  will  not 
read  the  memorandum,  but  undertake  to  summarize  as  briefly  as  pos- 
sible the  main  points. 

The  CHAIRMAN.  Very  well. 

Mr.  BULLOCK.  The  memorandum  begins  by  setting  forth  what  are 
the  existing  methods  of  taxing  street  railways,  nationally  and  locally. 
The  Federal  taxes,  such  as  the  Federal  income  and  excess-profits-taxes 
and  the  capital  stock  tax,  are  doubtless  known  to  your  commission. 
In  the  aggregate  they  are  not  a  particularly  important  part  of  the 
total  burden  of  taxes  paid  by  street  railways,  because  the  capital-stock 
tax  is  not  very  heavy  and  the  income  of  street  and  electric  railwaj^s 
in  recent  years  has  been  small.  However,  the  rates  of  those  taxes  have 
increased  in  recent  years.  I  judge  that  the  increase  in  rates  of  the 
tax  has  been  greater  than  the  decrease  in  the  net  income  of  the  street 
railways,  so  that  probably  during  the  last  two  or  three  years  there 
has  been  some  increase  in  the  Federal  taxes  levied  upon  street  rail- 
ways. 

The  State  and  local  taxes  are  various  in  form  and  not  easy  to  sum- 
marize. Generally  speaking,  in  most  of  the  States  the  property  of 
street  railways  is  subject  to  local  taxation.  In  about  22  of  the  States 
all  the  operating  property  and  sometimes  the  whole  property  of  the 
concern  as  a  unit  is  valued  by  the  State  board  and  then  a  State  tax 
levied  at  the  average  State  rate,  for  instance,  as  in  Wisconsin ;  or  the 
valuation  determined  by  the  State  board  is  certified  back  to  the  local 
taxing  authorities  and  included  in  the  local  assessment  rolls,  and  is 
subject  to  local  tax. 

Those  property  taxes  in  principle  are  perfectly  equal  and  perfectly 
just,  but  it  sometimes  happens  that  the  State  boards  under  the  law 
are  required  to  assess  at  true  value,  whereas  the  general  mass  of 
properties  subject  to  local  taxation  are  under  value,  assessed  at  one- 
half  or  two-thirds  of  what  they  are  worth,  with  the  result  that  street 
railroads,  like  other  public-service  corporations,  are  assessed  at  a 
higher  valuation  than  other  properties  subject  to  the  general  prop- 
erty tax.  In  a  few  States  relief  is  afforded  by  equalization,  as  set 
forth  in  the  report  of  the  committee  of  the  National  Tax  Association. 
But  in  the  average  State  the  statutes  do  not  permit  the  average  State 
board  to  give  effective  relief. 

In  addition  to  the  property  taxes  you  find  a  variety  of  miscellaneous 
taxes,  which  I  have  classified  here  as  taxes  on  gross  earnings,  on  cap- 
ital stock,  and  license  taxes.  In  three  States,  Maine,  Connecticut,  and 
California,  the  operating  property  of  street  railroads  is  exempt  from 
taxation. 

Commissioner  SWEET.  What  was  the  second  State  ? 


PROCEEDINGS  OF  FEDERAL,  ELECTBIC  RAILWAYS  COMMISSION.       639 

Mr.  BULLOCK.  Maine,  Connecticut,  and  California  the  operating 
property  is  exempt  from  local  taxation,  and  from  State  taxation  for 
that  matter,  as  property,  and  the  railroads  pay  a  tax  on  their  gross 
receipts  in  lieu  of  taxation  on  their  operating  property. 

In  some  other  States,  enumerated  in  the  memorandum,  they  levy 
gross-receipts  taxes  in  addition  to  property  and  franchise  and  capital 
stock  and  license  and  other  taxes,  such  gross-receipts  taxes  usually 
being  at  a  lower  rate  than  those  prevailing  in  Connecticut  and  Cali- 
fornia. The  gross-receipts  tax  is  therefore  extensively  used,  it  being 
the  only  tax  on  operating  property  in  three  States  and  it  being  a  sup- 
plementary tax  in  10  or  a  dozen  others. 

Then  there  is  a  capital-stock  tax  which  electric  railways  usually 
in  common  with  other  corporations,  pay,  which  ordinarily  is  not 
heavy.  It  is  a  small  fraction  of  1  per  cent.  But  in  times  like  this 
small  taxes  mount  up,  especially  when  one  small  tax  is  added  to  an- 
other small  tax  and  that  to  another.  In  Pennsylvania  the  capital- 
stock  tax  is  the  principal  tax  levied  on  street  railroads  outside  of 
Philadelphia  and  Pittsburgh.  That  capital-stock  tax  is  at  the  rate 
of  5  mills  on  the  dollar  of  the  valuation  of  the  capital  stock,  and  it  is 
in  lieu  of  other  taxation  of  the  property  of  the  railroad.  But  there 
is  in  addition  to  the  capital  stock  tax  a  gross-receipts  tax. 

Commissioner  SWEET.  I  did  not  quite  understand  that  last. 

Mr.  BULLOCK.  In  addition  to  the  capital-stock  tax  in  Pennsyl- 
vania there  is  a  gross  receipts  tax  as  well,  so  that  that  of  5  mills  on 
the  dollar  is  not  the  only  tax  paid.  There  is  also  a  tax  on  the  bonds 
and  obligations  of  electric  railroads,  which  is  a  part  of  a  general 
tax  levied  on  all  corporation  obligations.  That  corporations  are 
authorized  to  deduct  from  payments  made  to  bondholders,  and  in 
many  times  past  they  have  assumed'  the  payment  of  that  tax  and 
did  not  deduct  it. 

Then  there  is  a  great  variety  of  license  taxes  and  charges  about 
which  it  is  very  difficult  to  get  comprehensive  information.  There 
are  State  license  taxes  in  a  few  States  and  a  great  variety  of  local 
license  taxes;  especially  in  the  Southern  States,  you  will  find  a 
pretty  comprehensive  system  of  privilege  taxes  which  are  license 
taxes  of  one  sort  or  another,  applicable  to  a  great  variety  of  indus- 
tries. I  have  run  through  the  different  taxes  in  the  strict  sense  of 
the  word  that  the  street  railroads  pay  locally  and  nationally  and 
will  presently  present  some  figures  thereon. 

In  addition  to  those  taxes  there  are  a  multitude  of  other  pay- 
ments, other  public  contributions,  made  in  connection  with  their 
occupation  of  the  streets  or  made  in  payment  for  franchises  under 
arrangements  in  effect  in  times  past.  These  payments  are  fre- 
quently of  a  contractual  character;  they  are  legally  not  taxes  at  all. 
In  fact,  however,  they  amount  to  extra  contributions  made  to  the 
public  treasury  which  the  street-railroad  industry  has  to  support, 
and  therefore  they  should  be  mentioned  here  and  statistics  auout 
them  will  presently  be  presented. 

Now,  in  regard  to  the  taxes  paid,  there  are  some  statistics  con- 
tained in  this  memorandum.  The  data  have  been  carefully  pre- 
pared by  the  American  Electric  Railway  Association,  and  I  have 
made  an  analysis  of  them  which  gives  the  following  rather  inter- 
esting results: 


640       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

The  taxes  on  real  and  personal  property  paid  locally  by  the  electric 
railways  in  1917  amounted  to  $21,800,000,  and  the  miscellaneous  and 
other  taxes  paid  to  State  and  local  governments  together  with  the 
taxes  paid  to  the  Federal  Government  amounted  to  $23,900,000. 

Commissioner  SWEET.  In  addition  to  the  twenty-one  million? 

Mr.  BULLOCK.  In  addition  to  the  twenty-one  million;  the  total 
taxes  proper  amounting  to  $45,756,000.  The  other  public  contribu- 
tions which  I  have  just  been  referring  to  amounted  to  $17,500,000  in 
addition  to  the  taxes;  so  that  the  total  public  contributions  of  the 
street  railways  amounted  to  $63.200,000  in  round  numbers. 

Of  course,  a  total  figure  of  that  sort  does  not  mean  much  until 
you  take  it  in  its  relation  to  the  earning;  power  of  the  railroads 
and  some  other  things.  Now  that  figure  of  $63,000,000  in  round  num- 
bers amounted  to  8.67  per  cent  of  the  gross  earnings  of  the  electric 
railways.  That  will  show  you  that  the  tax  burden 'is  a  heavy  one, 
particularly  with  reference  to  this  industry. 

In  the  street-railway  industry  it  used  to  be  said  or  the  figures 
used  to  show  that  you  invested  $5  or  $6  of  capital  to  get  $1  of  gross 
receipts.  That  means  to  get  $100,000  of  gross  receipts  you  have  an 
investment  of  $500,000  to  $600,000  of  capital.  Assuming  that  the 
cost  of  capital — your  interest  charge  in  other  words — is  6  per  cent, 
you  have  got  a  charge  of  $30,000  to  $36,000  for  capital  against  your 
$100,000  of  earnings.  Therefore  a  tax  burden  of  8  per  cent  on  top 
of  your  capital  charge  that  may  amount  to  30  per  cent  or  more 
mortgages  a  very  large  part  of  the  available  revenue  of  the  street 
railways.  In  an  industry  where  you  invest  $100,000  and  turn  it 
over  two  or  three  times  a  year,  getting,  say,  $300,000  gross,  you 
have  an  interest  charge  of  $6.000  against  $300,000  gross,  and  a 
gross  receipts  tax  of  8  per  cent,  while  it  is  a  larger  tax,  because  the 
gross  is  larger,  it  comes  out  of  a  larger  margin  of  earnings  above 
operating  expenses;  8.6  per  cent  for  an  industry  where  the  capital 
charges  are  necessarily  as  large  as  they  are  in  the  street-railway 
industry  is  a  heavy  tax.  .1  further — 

Commissioner  SWEET.  That  is  not  all  tax.  That  includes  the  con- 
tractual- 
Mr.  BULLOCK.  It  includes  all  these  public  contributions.  It  is  not 
all  taxes.  It  is  about — 

Commissioner  SWEET.  But  it  represents  money  that  has  to  be 
earned  by  the  companies  and  is  made  to  the  public? 

•Mr.  BULLOCK.  It  has  to  be  earned  and  is  made  to  the  public. 

Commissioner  SWEET.  Either  in  the  form  of  taxes  or  by  con- 
tractual agreement? 

Mr.  BULLOCK.  Yes. 

The  CHAIRMAX.  Does  that  include  your  assessment  taxes,  your 
paving  tax? 

Mr.  BULLOCK.  It  includes  everything  that  the  figures  gathered  by 
the  association  identified  as  a  public  contribution  for  the  use  of 
streets  and— 

Commissioner  SWEET.  I  take  it  that  that  was  practically  paid  over 
in  money  and  not  in  service,  like  paving  ? 

Mr.  BULLOCK.  Sometimes  these  contributions  take  the  form  of 
carrying  public  employees  without  charge  or  doing  work  on  the 
streets,  such  as  snow  removal.  Now  whether  the  statistician  of  the 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       641 

association  has  included  the  money  spent  for  snow  removal  in  this 
item  I  can  not  tell  you,  but  he  can. 

Commissioner  SWEET.  We  ought  to  know  that. 

Mr.  BULLOCK.  I  have  assumed  those  figures  are  in  here,  so  these 
are  outside  figures.  If  they  are  not,  then  that  estimate  of  8.6  per 
cent  should  be  raised.  I  assume  that  that  is  included  here,  and  if  it 
is  not  the  statistician  of  the  railroad  association  can  correct  that 
figure. 

Commissioner  SWEET.  Very  well. 

Mr.  BULLOCK.  The  gross  operating  revenues  have  increased,  but 
while  the  net  operating  revenue  has  decreased  in  recent  years,  the 
taxes  down  to  the  year  1918  have  gone  on  increasing;  that  is,  the 
taxes  and  other  public  contributions.  In  1912  the  total  taxes  and 
other  public  contributions  amounted  to  $50,000,000  in  round  num- 
bers; in  1916  they  had  increased  to  $62,000,000;  in  1918  they  had 
risen  to  $65,500.000.  I  leave  out  the  intermediate  years,  which  sim- 
ply show  the  steps  in  the  ladder. 

Now  during  that  period  the  net  revenue  from  operations  has 
diminished.  The  net  revenue  was  $228.000,000  in  round  numbers 
in  1917  and  it  decreased  to  $192,000,000  in  round  numbers  in  1918, 
a  decrease  of  $36,000,000.  At  the  same  time  the  taxes  proper,  leav- 
ing out  these  public  contributions,  increased  from  $45,700,000  to 
$49,500,000. 

Still  more  striking  perhaps  is  the  fact  that  the  net  income  after  all 
charges  in  1917  was  $56,000,000  in  round  numbers,  and  in  1918  it  fell 
to  $20,000,000  in  round  numbers.  In  1917  the  net  income  after  charges 
of  $56,000,000  may  be  compared  with  taxes  paid  to  the  amount  of 
$45,000,000,  public  charges  or  contributions  being  ignored.  In  1918 
the  net  income  of  $20.000.000  after  paying  all  charges  including  taxes 
may  be  compared  with  the  total  amount  of  taxes  paid  amounting  to 
$49^,000,000.  The  taxes  alone  apparently  took  $2.50  for  every  dollar 
of  net  income  left  after  meeting  the  charges  against  the  operating 
revenue,  The  industry  apparently  is  not  only  heavily  taxed,  but  up 
to  1918  at  least,  the  last  year  for  which  figures  are  available,  the 
tax  burden  had  increased. 

Now  I  pass  to  a  discussion  of  the  principles  that  ought  to  govern 
the  taxation  of  street  railways.  I  will  first  discuss  the  matter  in 
a  general  way,  referring  for  further  details  to  the  report  of  that  com- 
mittee of  the  National  Tax  Association. 

There  are  three  theories  that  have  been  entertained  at  different 
times  about  the  taxation  of  public-service  corporations.  The  earlier 
theory  of  the  three — and  it  was  the  one  that  prevailed  20  or  30  years 
ago — was  that  public  service  corporations  were  possessed  of  very 
valuable  franchises  from  which  they  were  deriving  a  large  profit 
and  that  they  ought  to  be  specially  taxed.  The  period  of  the  nine- 
ties was  a  period  of  continual  discussion  of  franchise  taxation.  That 
theory  was  perfectlv  logical  in  those  days.  It  was  the  theory  that  I 
taught  classes  in  college.  The  public  utilities,  with  the  exception  of 
the  railroads,  were  not  under  effective  public  regulation  in  most 
States.  The  street-railway  industry  was  a  profitable  industry,  and 
the  companies  possessed  valuable  franchises  which  in  many  cases 
they  had  received  on  very  favorable  terms.  Under  those  conditions 
it  was  perfectly  natural  to  look  upon  them  as  offering  a  fit  subject 


642       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

for  special  taxation.  The  special  franchise  tax  of  the  State  of  New 
York  is  the  best  illustration  of  the  special  taxation  of  franchises  that 
came  in  in  that  period. 

Under  those  conditions  of  unregulated  operation  of  street  and 
electric  railways  by  public  corporations,  which  were  frequently  very 
profitable,  that  theory  was  justified.  The  companies  were  the  pos- 
sessors of  valuable  special  privileges  and  it  was  proper  to  tax  them. 

With  the  coming  of  regulation,  however,  of  the  public  utilities, 
the  basis  for  that  theory  changed.  Under  public  regulation  I  take 
it  we  have  got  to  assume  that  public  utilities  are  limited  to  a  reason- 
able return  upon  the  capital  investment  and  that  their  service  also 
is  subject  to  regulation.  Under  those  conditions,  any  special  charges 
that  are  put  upon  them  shifted  to  the  public.  Before  regulation 
came  in  these  special  taxes  might  have  been  assumed  to  be  paid  out 
of  the  company's  monopoly  profit.  Under  a  system  of  regulation, 
special  taxation  of  public-service  corporations  simply  increases  the 
cost  of  rendering  the  service  and  in  one  way  or  another  has  got  to  be 
taken  into  account.  If  it  is  not  recognized  in  rate  making,  then  it 
will  simply  come  out  of  the  service.  The  public  has  to  pay  either  in 
higher  rates  or  in  service,  in  less  service  or  in  poorer  service. 

So  then,  when  we  pass  to  a  regime  of  regulation  and  pretty  effec- 
tive regulation  of  public-service  corporations  the  situation  changes, 
and  the  matter  of  the  proper  method  of  taxation  seems  to  need  to  be 
reconsidered.  Two  theories  have  been  advanced  premised  on  effec- 
tive regulation  of  public  utilities.  One  of  those  theories  is  that  with 
the  regulation  of  public  utilities  you  do  not  need  to  consider  whether 
their  taxation  is  more  or  less  heavy  than  that  of  other  companies ;  it 
all  comes  out  of  the  consumers  of  the  service  and  not  out  of  the  com- 
panies. You  can  employ  the  companies  as  an  agency  for  collecting 
special  taxes  from  people  who  ride  upon  the  cars.  Upon  the  other 
hand,  you  can,  if  you  please,  exempt  them  from  all  taxes.  The  com- 
panies will  not  profit  because  their  rates  are  regulated  accordingly, 
and  the  consumers  will  get  untaxed  service. 

In  the  report  of  this  committee  which  I  submit  with  my  memo- 
randum the  objections  to  that  view  of  the  case  are  set  forth,  and  I 
believe  they  are  valid.  Under  normal  conditions  it  would  seem  that 
street-car  riders  ought  to  pay  just  what  the  service  costs,  and  not 
more  nor  less.  If  you  exempt  public  utilities  from  taxation  and 
give  the  riders  untaxed  service,  you  increase  by  so  much  the  taxes 
that  owners  of  property  have  to  pay,  and  that  is  something  that  a 
city  ought  not  to  do  and  can  not  afford  to  do  under  normal  con- 
ditions. 

There  are  many  demands  for  city  expenditure.  To  fritter  away 
your  source  of  revenue  by  giving  untaxed  service,  by  granting  ex- 
emptions which  benefit  the  rider,  is  bad  municipal  finance  and  it  is 
not  fair  as  between  the  car  riders  and  taxpayers  who  are  not  neces- 
sarily the  same  people  or,  if  they  are  the  same  people,  do  not  use  the 
cars  in  the  same  proportion  that  they  pay  taxes.  Our  municipal 
taxes  fall  very  largely  upon  real  property  and  that  may  be  very 
largely  owned  by  nonresidents  who  get  no  benefit  from  the  street- 
railroad  service  whatever  and  never  patronize  it.  Then,  even  those 
that  own  property  in  the  city  and  pay  taxes  there  do  not  use  the 
street  railways  in  precise  proportion  to  their  ownership  of  property. 
Putting  part  of  the  cost  of  furnishing  street-railway  service  into 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       643 

the  tax  levy  is  not  under  normal  conditions  good  finance.  The 
proper  theory  would  seem  to  be  that  of  equal  treatment  of  the  in- 
dustry with  other  property.  It  should  not  be  burdened  beyond 
other  property  in  business;  it  should  not  pay  tax  less  than  other 
property  in  business.  If  you  levy  upon  the  industry  of  the  electric 
railways  taxes  precisely  like  those  levied  upon  other  similar  objects 
of  taxation,  you  hold  the  balance  level  between  the  taxpayers  and 
the  car  riders  and  you  do  substantial  justice  to  all  parties  in  in- 
terest, and  the  correct  theory  seems  to  be  that  of  equal  taxation  of 
public  utilities  under  normal  conditions. 

Now  every  general  theory  has,  of  course,  certain  limitations.  The 
limitations  to  this  theory  of  equal  taxation  are  implied  in  the  ex- 
pression "  normal  condition "  that  I  have  used.  In  time  of  war 
when  revenue  is  the  paramount  need,  the  Government  may  very 
properly  levy  a  tax  on  transportation,  as  it  has  just  recently  done 
during  the  war.  And  similarly,  in  times  when  transportation  facili- 
ties are  needed  and  it  is  not  practicable  to  get  them  in  any  other 
way,  governments  may  properly  offer  exemptions  from  taxation,  as 
they  have  often  done.  The  exemption  policy  has  been  abused.  Per- 
petual grants  of  exemption  have  been  given  which  were  never  justi- 
fied, but  exemption  for  n  limited  number  of  years  of  companies  un- 
dertaking public-service  enterprises  which  it  is  not  likely  can  prove 
immediately  profitable  may  be  justified  under  special  conditions. 

So,  then,  I  conclude  that  your  commission  might  very  well  find 
that  street  railways  under  normal  conditions  ought  to  be  taxed  like 
other  similar  enterprises,  neither  more  nor  less,  and  it  might  at  the 
present  time?  if  it  finds  a  serious  emergency  existing  which  can 
not  be  effectively  remedied  in  other  ways,  it  might  perfectly  con- 
sistently recommend  relief  from  some  of  the  taxation  that  street  rail- 
ways now  bear ;  and  I  shall  make  some  suggestions  on  that  point. 

Nothing  but  an  emergency  would  lead  me  to  think  that  street  rail- 
ways ought  to  be  relieved  from  equal  taxation.  I  have  always 
maintained  the  theory  of  equal  taxation — that  is  for  20  years  past-— 
but,  however,  always  with  this  qualification — that  circumstances  that 
would  justify  levying  a  tax  on  water  or  transportation  or  lighting 
would  justify  heavier  taxation  of  regulated  public-utility  companies, 
and  circumstances  that  would  offer  levying  a  tax  to  pay  a  bounty  for 
a  needed  public  service  that  you  could  not  otherwise  get  would  jusify 
reducing  the  burdens  of  railroad  taxation. 

Now  looking  over  the  taxes  that  street  railways  pay,  you  find  that 
Federal  income  and  excess-profits  taxes  so  far  as  they  fall  upon 
street  railways  are  perfectly  conformable  to  the  theory  of  equality 
and  ought  not  to  be  removed  unless  there  is  an  emergency  that 
justifies  it.  You  find  that  local-property  taxes  are  in  principle 
perfectly  conformable  to  the  theory  of  equality  and  that  they  ought 
not  to  be  removed  unless  there  is  a  very  serious  emergency  that 
justifies  it.  You  find  that  these  miscellaneous  taxes  on  gross  receipts, 
capital  stock,  and  license  charges  levied  in  addition  to  property 
taxes,  are  frequently  more  in  the  aggregate  than  other  properties 
bear.  Sometimes  they  are  not.  You  will  find  in  various  Stntes — I 
have  alluded  to  the  Southern  States  and  some  of  the  Western  States — 
you  will  find  their  property  subject  to  special  taxes,  and  also  to 
privilege,  and  license  taxes,  and  under  those  conditions  there  is  no 
inequality  in  imposing  similar  charges  on  street  railways.  But 


644       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

where,  as  in  New  York  or  Pennsylvania,  you  have  taxation  on  prop- 
erty and  have  in  addition  a  gross-receipts  tax  or  some  other  kind  of  a 
tax  that  other  property  does  not  pay,  you  have  a  departure  from 
the  principle  of  equal  taxation  and  you  have  a  special  taxing  on 
transportation  which  is  not  consistent  with  the  theory  of  equal  taxa- 
tion. 

Now  I  come  to  the  miscellaneous  public  contributions  that  I  have 
already  alluded  to,  which  in  the  aggregate  are  so  large;  and  I  in- 
vite your  attention  to  them.  They  are  an  inheritance  from  the 
past.  They  came  from  the  days  when  street  railways  were  not 
regulated  and  frequently  derived  large  profits  from  the  use  of  the 
franchise  which  they  enjoyed.  Under  a  system  of  regulation  of 
public  utilities,  the  charges  must  be  assumed  to  fall  upon  the  street- 
car rider  and  they  amount  to  a  special  tax  on  the  transportation 
industry  in  all  cases  where  they  exceed  a  figure  which  fairly  repre- 
sents the  special  charges  that  the  presence  of  the  street-railway  tracks 
in  the  streets  occasions  the  city. 

About  that  point — about  the  amount  of  special  expense  to  a 
city  occasioned  by  street-railway  tracks — there  has  always  been  dif- 
ference of  opinion.  The  companies  have  been  inclined  to  think 
that  the  presence  of  the  tracks,  at  least  under  modern  conditions,  did 
not  occasion  great  expense  and  wearing  out  of  the  pavement  and 
the  surface  was  due  to  the  use  of  the  tracks  by  other  vehicles  than 
the  cars.  The  cities,  on  the  other  hand,  have  undoubtedly  made  this 
theory  of  charging  for  upkeep  of  the  streets  an  excuse  for  levying 
special  taxes  on  the  transportation  industry  far  in  excess  of  the  legiti- 
mate charges  that  the  users  of  street  cars  should  pay.  The  correct 
principle  seems  to  be,  however  hard  it  may  be  to  apply  it,  that  any 
special  damage,  any  special  extra  expense  for  upkeep  of  streets  under 
normal  conditions  may  very  properly  be  put  upon  the  street-car 
riders.  It  should  be  considered  just  like  an  equal  amount  of  tax 
similar  to  that  which  other  similar  enterprises  pay  and  the  car 
riders  should  pay  it.  Anything  beyond  that  point  under  normal 
times  violates  the  principle  of  equality  in  taxation  and  in  a  crisis 
like  the  present  is  in  every  way  objectionable.  A  thorough  revision  of 
those  charges  in  all  cases  where  they  exceed  a  fair  charge  for  extra 
cost  of  upkeep  of  streets  would  seem  to  be  one  of  the  things  needed. 

Now  in  conclusion — 

Mr.  WARREN.  The  only  principle  upon  which  it  would  be  justified 
would  be  that  stated  in  this  report  of  the  committee,  would  it  not, 
Prof.  Bullock,  where  it  is  stated  somewhat  graphically  as  follows: 
"  The  principle  of  nlucking  the  most  feathers  with  the  least  squawk  "? 

Mr.  BULLOCK.  Well,  I  am  not  sure  about  that.  As  I  have  said, 
there  has  always  been  difference  of  opinion  as  to  whether  the  pres- 
ence of  the  car  tracks  occasioned  special  extra  cost  for  keeping  up  the 
street.  I  have  supposed  that  it  did.  My  opinion  of  that  point  is  that 
of  a  layman.  I  am  not  an  engineer  and  am  not  expert  in  the  matter 
of  street  construction.  But  of  course  it  is  perfectly  clear  that  these 
charges  in  many  cases  vastly  exceed  any  such  figure,  and  if  charges 
could  be  reduced  to  that  figure,  substantial  relief  could  be  given. 

In  the  concluding  part  of  my  brief  I  suggest  first  the  revision  of 
these  special  charges.  They  used  to  be  a  means  of  securing  to  the 
public  treasury  a  part  of  the  frequently  excessive  profits  of  unregu- 
lated monopolies.  They  are  to-day  a  special  charge  on  the  industry 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       645 

of  railway  transportation  and  they  are  not  consistent  with  the  prin- 
ciple of  equal  taxation. 

I  suggest',  in  the  next  place,  that  the  other  special  taxes  levied  by 
the  States — the  additional  taxes,  gross  receipts,  and  capital  stock 
and  licenses — ought  also  to  be  reconsidered,  and  in  so  far  as  they 
lead  to  a  burden  of  taxation  on  street  railways  exceeding  that  borne 
by  other  business  enterprises,  they  should  be  reduced  or  abolished. 

I  suggest,  in  the  third  place,  that  relief  from  the  ordinary  taxes 
imposed  upon  property  ought  to  be  the  last  remedy.  It  can  be  justi- 
fied only  upon  the  ground  of  extreme  emergency  and  the  failure  of 
other  relief  measures.  Before  you  reduce  the  ordinary  taxes  levied 
on  property  you  should  raise  your  fares  to  the  maximum  point  that  is 
practicable,  looking  at  the  matter  from  the  revenue  result.  The  in- 
dustry should  not  be  relieved  of  the  ordinary  property  taxes  which 
other  property  pays  except  as  a  last  resort.  In  some  cases,  appar- 
ently we  are  about  at  that  point.  The  increase  of  fares  in  my  own 
State  has  certainly  reached  the  revenue  point,  and  the  revenue  result 
is  somewhat  disappointing.  We  very  likely  have  got  to  give  relief 
in  taxation  if  we  want  to  keep  a  good  many  of  our  street-railroad 
tracks  down. 

Commissioner  SWEET.  That  is  in  Massachusetts  ? 

Mr.  BULLOCK.  That  is  in  Massachusetts.  I  suggest,  in  the  next 
place,  that  if  relief  is  to  be  given  from  the  property  tax  it  would  be 
better  not  to  repeal  the  tax  but  to  suspend  its  operation  for  a  term 
of  years  and  to  provide  for  an  income  tax  on  the  companies  during 
that  interval,  if  there  are  any  companies — 

Commissioner  SWEET.  Would  that  be  on  gross  or  net  income? 

Mr.  BULLOCK.  A  tax  on  net  income,  if  there  are  any  companies  that 
are  prosperous.  We  have  one  company  in  Massachusetts,  if  I  re- 
member, that  was  prosperous,  or  was  prosperous  six  months  ago ;  at 
least  it  was  not  unprosperous.  If  any  companies  are  earning  a  sub- 
stantial amount  of  net  income  they  might  pay  a  moderate  income 
tax.  This  substitution  for  a  term  of  years  of  a  tax  on  net  income 
for  a  tax  on  property  would  maintain  the  principle  that  street  rail- 
ways ought  to  be  taxed  and  it  would,  as  the  industry  revived  and 
begins  to  see  better  days,  bring  in .  a  normal  contribution  to  the 
public  treasury. 

I  finally  suggest  that  if  the  Federal  Government  is  to  lead  the 
way,  reduction  might  very  well  be  made  or  total  exemption  might 
very  well  be  granted  from  the  Federal  income  and  excess-profits 
taxes.  The  revenue  sacrifice  by  the  repeal  of  those  taxes  would  be  a 
small  thing  for  the  Federal  Government.  The  Federal  Government 
by  a  very  small  sacrifice  can  afford  substantial  relief.  For  the  State 
and  local  governments  to  set  aside  their  property  taxes  means  a  com- 
paratively large  sacrifice  for  a  particular  locality. 

Mr.  WARREN.  You  stated,  I  think,  that  there  was  no  sound  prin- 
ciple on  which  the  general  taxpayer  could  be  relieved  by  the  imposi- 
tion of  special  burdens  on  the  street  railways  not  called  for  by  spe- 
cial conditions — 

Mr.  BULLOCK.  Nothing  but  a  great  emergency  like  war. 

Mr.  WARREN.  And  of  course  you  would  apply  that,  I  assume, 
equally  to  the  taxpayers  on  a  particular  street,  that  they  ought  not 
to  be  relieved  from  the  otherwise  local  assessments  for  sprinkling  a 
street,  repairing  and  similar  items  by  casting  the  burden  on  the 


646       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

street  railway  except  to  the  extent  that  the  car  riders  caused  the 
trouble. 

Mr.  BULLOCK.  Undoubtedly. 

Mr.  WARREN.  You  have  spoken  of  the  present  crisis  in  street  rail- 
ways. Do  you  consider  it  a  very  serious  one? 

Mr.  BULLOCK.  So  far  as  my  observation  and  information  goes,  it 
has  come  to  a  point  in  some  parts  of  the  country  where  it  is  a  ques- 
tion of  having  the  street  railroad.  In  our  part  of  the  country,  as 
you  know,  we  are  tearing  up  tracks,  and  we  have  a  good  deal  more 
miles  of  track  that  ought  to  come  up  because  it  is  absolutely  unsafe 
for  street-cars  to  run  over  them. 

Mr.  WARREN.  Unsafe? 

Mr.  BULLOCK.  Absolutely  unsafe. 

Mr.  WARREN.  That  is,  the  companies  have  been  absolutely  unable, 
or  at  any  rate  they  have  not  maintained  the  tracks  in  safe  condition 
in  many  cases? 

Mr.  BULLOCK.  They  have  been  absolutely  unable.  There  are  streets 
in  Massachusetts  where,  if  you  drive  an  automobile,  you  do  well  to 
get  over  on  the  other  side  of  the  street  if  a  street-car  comes  along ;  you 
do  not  know  whether  it  is  coming  on  the  track  or  is  not  coming  on 
the  track  as  it  reaches  you.  I  refer,  of  course,  to  our  rural  lines. 

Mr.  WARREN.  In  view  of  the  injury  the  automobiles  have  done  to 
the  revenues,  that  might  not  be  an  unmitigated  evil. 

Mr.  BULLOCK.  I  was  referring  to  the  condition  of  the  industry. 
The  tracks  ought  to  come  up. 

Mr.  WARREN.  Yes,  I  know  it,  but  if  only  the  automobile  driver 
were  going  to  suffer  from  the  unsafeness,  I  do  not  know  that  we 
should  shed  so  many  tears.  Under  those  circumstances,  should  you 
say  that  the  imposition  of  these  special  burdens  or  special  taxes  not 
called  for  by  the  injury  done  by  the  car  riders  to  the  street  are  really 
indefensible  ? 

Mr.  BULLOCK.  I  should  say  it  was  absolutely  indefensible. 

Mr.  WARREN.  I  do  not  know  that  you  expressed  any  definite  opin- 
ion as  to  whether  in  some  cases  this  emergency  is  so  great  that  the 
relief  temporarily  from  the  ordinary  taxation  should  be  extended 
at  this  time 

Mr.  BULLOCK.  Well,  there  are  companies  that  are  not  earning  op- 
erating expenses ;  and  if  a  proper  allowance  for  depreciation  is  made, 
of  course  vast  numbers  of  companies  are  not  earning  their  operating 
expenses,  and  conditions  are  getting  worse.  That  is,  wages  are  ris- 
ing and  costs  of  materials  and  supplies  have  not  begun  to  decline. 
So  far  as  I  kno\y,  there  has  been  no  improvement  in  the  operating 
ratio;  the  operating  ratio  has  been  going  up.  If  there  has  been  any 
improvement  it  is  very,  very  recent,  and  I  have  not  heard  about  it. 

Now  under  those  conditions  we  are  likely  to  reach  a  point  in  Mas- 
sachusetts where  we  have  got  not  only  to  abolish  taxes  but  we  have 
got  to  go  down  into  our  pockets  and  make  up  deficits,  if  we  are  going 
to  have  street  railway  service. 

Mr.  WARREN.  If  we  are  going  to  have  it 

Mr.  BULLOCK.  We  have  got  to  have  it. 

Mr.  WARREN.  In  Massachusetts,  you  are  familiar  with  the  laws 
there  relative  to  the  issue  of  securities  and  the  length  of  time  those 
laws  have  been  in  effect? 

Mr.  BULLOCK.  Yes. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       647 

Mr.  WARREN.  So  that  in  the  ordinary  sense  of  the  term,  should  you 
say  to  the  commission  that  there  is  substantially  no  stock  watering 
affecting  the  situation  of  street  railways  in  Massachusetts? 

Mr.  BULLOCK.  There  has  been  none  since  the  nineties.  Our  anti- 
stock-watering  laws  date  back  to  about  1893,  1894,  or  1895 ;  do  they 
not? 

Mr.  WARREN.  Yes. 

Mr.  BULLOCK.  And  alt  issues  of  securities  have  been  subject  to  the 
approval  of  the  commission,  and  the  securities  outstanding  that  were 
issued  before  that  time  are  a  small  part  of  the  whole  proposition. 
Even  with  those  securities  the  amount  of  stock  watering  was  not  so 
large  in  many  cases.  Our  first  street  railroads  were  built  in  days 
when  corporations  in  our  part  of  the  country  were  financed  by  capi- 
tal stock  and  when  bonds  were  not  known.  Our  early  railroads  were 
built  by  capital  stock,  and  there  was  a  period  in  the  seventies  and 
eighties  when  there  was  stock  watering,  but  there  has  been  none  since 
the  nineties. 

Mr.  WARREN.  And  in  many,  if  not  all,  cases  when  those  laws  were 
first  put  into  effect  in  1894,  current  issues  were  made  dependent  upon 
appraisals  of  the  property  to  verify  the  integrity  of  the  past  issues; 
were  they  not.  as  a  general  practice? 

Mr.  BULLOCK.  The  commission  passed  upon  the  amount  of  securi- 
ties to  be  issued  and  it  has  checked  up  the  cost.  We  can  say  sub- 
stantially there  has  been  no  stock  watering. 

Mr.  WARREN.  So  that  the  plight  of  the  street  railways  in  Massa- 
chusetts, whatever  it  is  due  to,  is  not  due  to  that? 

Mr.  BULLOCK.  In  the  case  of  roads  like  the  Boston  Elevated  every 
share  of  stock  represents  a  payment  of  more  than  par.  The  stock 
has  been  put  out  at  premiums.  I  do  not  remember  the  Elevated 
figures,  but  every  share  of  Elevated  stock  represents  something  like 
$110  or  $115  of  money  put  into  the  property. 

Mr.  WARREN.  And  that  company  was  not  incorporated  until  after 
the  laws  you  refer  to  were  put  in  the  statute  books  ? 

Mr.  BULLOCK.  Not  until  about  1898. 

Mr.  WARREN.  That  is  all  I  want  to  ask  Prof.  Bullock. 

The  memorandum  presented  by  Mr.  Bullock  is  as  follows : 

THE  TAXATION  OF  ELECTRIC  RAILWAYS. 

In  this  statement  the  taxation  of  electric  railways  will  be  considered 
under  the  following  heads:  (1)  The  existing  method  of  taxing  electric  rail- 
ways; (2)  the  amount  of  the  taxes  and  other  public  contributions  paid  by 
electric  railways;  (3)  the  principles  which  ought  to  govern  the  taxation  of 
electric  railways;  (4)  the  measures  which  ought  to  be  adopted  to  relieve  elec- 
tric railways  in  the  present  crisis. 

1.      THE  EXISTING   METHOD   OF  TAXING   EI.ECTKIC   RAILWAYS. 

The  payments  which  electric  railways  are  required  to  make  to  the  various 
governmental  authorities,  Federal,  State,  and  local,  may  be  conveniently  di- 
vided into  two  classes:  (a)  Taxes  proper  and  (b)  other  public  contributions. 
The  former  include  ppoperty,  income,  business,  license,  franchise,  and  other 

Data  on  this  subject  may  be  found  In  the  17.  S.  Census  Report  on  the  Taxation  and 
Revenue  System*  of  Statt*  and  I»cal  (Jovernments,  1914;  the  report  of  the  U.  £•.  Commis- 
sioner of  Corporations  on  the  Taxation  of  Corporations,  1!H)9— 191.%  ;  and  the  report  of 
the  Special  Commission  on  the  Taxation  of  Corporations  of  the  State  of  Connecticut, 
lOl.'l.  Appendix.  Statlntlcs  concerning  the  amount  of  taxes  paid  by  electric  railways 
may  be  found  in  the  various  reports  of  the  IT.  S.  Census  on  the  electric-railway  industry  ; 
other  data  have  been  gathered  by  the  American  Electric  Railway  Association  for  the  in- 
formation of  the  commission. 


648       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

taxes,  which  electric  railways  pay  In  common  with  other  corporations  and,  in 
many  cases,  with  individual  taxpayers.  The  latter  include  a  great  variety  of 
charges  such  as  payment  for  street  paving  and  other  work  in  or  on  the  streets, 
free  transportation  for  public  employees  and  other  similar  services  rendered 
governmental  authorities,  payments,  frequently  of  a  contractual  character,  for 
the  privilege  of  using  the  streets,  and  miscellaneous  minor  items.  Concerning 
these  payments  it  is  impossible  to  make  any  summary  statement  because  they 
differ  so  widely  in  character,  and  all  that  I  can  undertake  is  to  present,  later 
on,  some  statistics  that  will  show  how  important  a  change  these  payments  are 
upon  the  revenues  of  electric  railways. 

The  taxes  which  electric  railways  pay  may  conveniently  be  summarized  as 
follows: 

A.  Property  taxes.     In  43   States  and  the   District  of  Columbia,   electric 
railways  come  under  the  operation  of  the  general-property  tax.     In  22  of  these 
43  States  *  either  all  the  property  of  such  railways  or  all  of  what  is  known  as 
their  "operating"  property  is  valued  by  some  State  official  or  board.     In  a  few 
of  these  22  States,  such  as  Wisconsin  and  Vermont,  the  taxes  levied  are  im- 
posed by  and  payable  to  the  Slate  government,  but  in  most  cases  the  valuation 
fixed  by  State  authorities  is  certified  back  to  the  local  taxing  districts  for  tax- 
ation at  the  prevailing  local  rates. 

In  15  States  a  the  property  of  electric  railways  is  locally  assessed  and  taxed 
exactly  like  any  other  property. 

In  5  States  the  assessment  of  the  electric  railways  is  divided  between  State 
and  local  authorities.  In  Massachusetts,  some  or  all  of  the  tangible  property 
is  subject  to  local  taxation,  while  a  State  tax  is  imposed  upon  the  franchise. 
Colorado  has  State  assessment  of  electric  railways  operating  in  more  than  one 
county  and  local  assessment  of  railways  operating  in  only  one  county.  Illinois 
has  State  assessment  for  railways  incorporated  under  the  general  railroad  act, 
while  for  other  railways  it  prescribes  local  .assessment  of  the  tangible  property 
and  State  assessment  of  the  franchises. 

In  Rhode  Island  and  the  District  of  Columbia  property  taxation  is  confined, 
respectively,  to  tangible  property  and  real  estate,  while  the  intangible  property 
is  reached  by  the  gross-receipts  taxes  and  is  not  subject  to  taxation  as  property. 
In  Rhode  Island  the  assessment  of  the  tangible  property  is  made  by  the  local 
assessors. 

B.  Gross    receipts,     taxes.      In     3     States     (California,     Connecticut,     and 
Maine)  the  "operating"  property  of  electric  railways  is  exempt  from  taxation, 
and  in  lieu  thereof  taxes  are  levied  by  the  State  governments  upon  gross  re- 
ceipts.   Real  estate  not  used  for  "operating"  purposes  is  subject  to  local  taxa- 
tion like  other  real  estate. 

A  considerable  number  of  other  States 3  levy  taxes  upon  -gross  receipts  of 
electric  railways  usually,  as  additional  taxes  or  in  lieu  of  taxes  upon  franchises 
or  intangible  property.  In  Massachusetts,  however,  the  gross-receipts  tax  is 
in  lieu  of  other  contributions  which  the  railways  were  formerly  required  to 
make  in  connection  with  their  right  to  use  the  streets. 

C.  Taxes  on  dividends. — At  least  two  States,  Massachusetts  and  New  York, 
provide  for  taxes  on  dividends  in  excess  of  8  per  cent.     It  does  not  appear, 
however,  that  occasion  has  ever  arisen  for  the  imposition  of  such  taxes  in 
either  State. 

D.  Taxes  on  capital  stock. — In  addition  to  other  taxes,  at  least  14  States4 
impose  taxes  on  the  capital  stock  of  electric  railways.     Usually  these  taxes 
are  comparatively  light,  but  in  times  like  the  present  they  are  not  a  negligible 
factor.     In  Pennsylvania  the  capital-stock  tax  is  levied  at  the  rate  of  5  mills 
upon  the  dollar  and  is  (except  in  Philadelphia  and  Pittsburgh)   in  lieu  of  a 
tax  upon  the  operating  property  of  electric  railways.    This  tax  is  supplemented 
by  a  tax  levied  at  the  rate  of  4  mills  on  the  dollar  upon  corporate  loans,  which 

1  These  States  are  Alabama,  Georgia,  Idaho,  Indiana,  Kansas.  Maryland,  Missouri, 
Nevada,  New  Hampshire,  New  Mexico.  North  Carolina,  North  Dakota.  Ohio,  Oregon, 
Tennessee,  Utah,  Virginia,  Vermont,  Oklahoma,  Washington,  West  Virginia,  Wisconsin. 
It  is  possible  that  Wyoming  should  be  added  to  this  group  of  States,  but  I  have  been 
unable  to  determine  this  opint  and  shall  therefore  omit  Wyoming  from  consideration  in 
this  statement. 

1  These  States  are  Arizona,  Arkansas,  Delaware,  Florida,  Iowa,  Louisiana,  Michigan, 
Minnesota,  Mississippi,  Montana,  Nebraska,  New  Jersey,  South  Carolina,  South  Dakota, 
Texas. 

3  These  States  are  Alabama,  Massachusetts,  New  Jersey,  New  York,  Ohio,  Pennsylvania, 
Rhode  Island,  South  Carolina,  Texas,  Virginia. 

«  Arkansas,  California,  Georgia,  Idaho,  Nevada,  North  Carolina,  Oregon,  Pennsylvania, 
Tennessee,  Texas,  Utah,  Vermont,  Virginia,  West  Virginia. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       649 

tax  is  deducted  by  the  corporations  from  interest  paid  to  the  bondholder,  ex- 
cept in  cases  where  companies  have  assumed  liability  for  the  tax. 

In  addition  to  these  State  taxes  electric  railways  have  been  subject  in  recent 
years  to  a  Federal  tax  upon  their  capital  stock. 

E.  License  taxes. — A  considerable  number  of  States  impose  either  State  or 
local,  and  sometimes  both  State  and  local,  license  taxes  which  take  various 
forms  that  are  very  difficult  to  classify.    The  aggregate  amount  of  such  charges 
is  sometimes  considerable  and,  since  they  are  always  levied  in  addition  to 
other  taxes,  they  are  a  factor  of  no  small  importance. 

F.  Federal  income  tax. — Since  1909  electric  railways  have  been  subject  to  a 
Federal  tax  on  their  net  income,  which  was  at  first  an  excise  imposed  on  cor- 
porations and  since  1913  has  been  a  part  of  a  general  income  tax.     With  the 
shrinkage  of  the  net  income  of  electric-railway  companies  the  amount  of  tax- 
able income  has,  of  course,  decreased,  but  upon  the  other  hand  the  rate  of 
the  normal  income  tax  has  increased  so  that  the  Federal  tax  is  at  the  present 
time  a  substantial  burden.    This  it  is  entirely  in  the  power  of  the  Federal  Gov- 
ernment to  remove  if  it  desires  to  cooperate  with  the  State  and  local  gov- 
ernments in  rehabilitating  the  electric-railway  industry. 

G.  Federal  excess-profits  tax. — The  Federal  excess-profits  tax  must  also  be 
mentioned,  even  though  most  electric  railways  have  shown  so  small  a  return 
upon  the  capital  invested  in  them  as  to  exempt  them  from  the  payment  of  any 
tax  under  this  head. 

2.    THE    AMOUNT    OF    TAXES    AND    OTHER    PUBLIC    CONTRIBUTIONS    PAID    BY    ELECTRIC 

RAILWAYS. 

In  the  year  1917,  according  to  the  United  States  census,  the  electric  rail- 
ways of  the  United  States  paid  taxes  and  other  contributions  amounting  to 
$63,279,000,  which  may  be  classified  as  follows: 

Taxes  on  real  and  personal  property $21,  804,  000 

Taxes  on  earnings  and  capital  and  other  bases 23, 952,  000 


Total  taxes 45,  756,  000 

Other  public  contributions 17,  522,  000 


Total  taxes  and  other  contributions,.: 63,279,000 

The  total  payments  for  taxes  and  other  contributions  amounted  in  this  year 
to  8.67.  per  cent  of  the  gross  earnings  of  the  electric  railways.  This  percentage 
would  be  moderate  in  the  case  of  a  business  where  the  gross  receipts,  or  annual 
turnover,  amounted  to  two  or  three  times  the  capital  investment ;  but  it  is 
exceedingly  heavy  in  an  industry  where  there  is  capital  investment  amounting 
to  several  dollars  for  every  dollar  of  annual  gross  receipts. 

Although  net  operating  revenue  has  actually  decreased  in  recent  years,  the 
taxes  and  other  public  contributions  of  the  street  railways  appear,  at  least 
down  to  the  year  1918,  to  have  increased.  In  1912  the  total  taxes  and  other 
contributions,  according  to  data  compiled  by  the  American  Electric  Railway 
Association  from  census  reports  and  from  replies  from  214  companies,  amounted 
to  $50.086,000.  In  1916  these  charges  had  increased  to  $62,106,000,  while  in 
1918  they  had  risen  to  $65,561 ,000.  The  total  of  these  payments  for  1912 
amounted  to  8.55  per  cent  of  the  gross  earnings  of  the  railways.  In  1918  they 
amounted  to  8.57  per  cent. 

The  most  striking  commentary  upon  the  present  situation  of  the  electric 
railways  with  reference  to  taxation,  is  the  fact  that  in  the  year  1918,  when 
the  revenue  remaining  after  defraying  operating  expenses  decreased  from 
$228.989,999  to  $192,615,000,  the  taxes  paid  by  electric  railways  actually  in- 
creased from  $45,756,000  to  $49,496.000.  Even  more  striking  is  the  comparison 
of  the  amount  paid  in  taxation  with  the  net  income  of  electric-railway  com- 
panies after  making  deduction  for  all  charges.  This  net  Income  In  1917  was 
$56,450,000,  after  the  payment  of  taxes  amounting  to  $45,756,000.  In  1918, 
however,  the  net  income  fell  to  $20,183,000  after  paying  taxes  amounting  to 
$49,496,000.1 

1  I  have  taken  those  statistics  from  the  tables  compiled  by  the  American  Electric  Rail- 
way Association  for  the  Information  of  this  Commission.  The  figures  for  1918  are  in 
part  estimated. 

160643°— 20 42 


650       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

8.   THE  PRINCIPLES  WHICH  OUGHT  TO  GOVERN  THE  TAXATION  OF  ELECTRIC  KAILWAYS. 

There  are  three  theories  which  have  been  advanced  at  different  times  con- 
cerning the  taxation  of  street  railways  and  other  public-service  corporations. 

The  first  of  these  is  the  theory  that  public-service  corporations  should  be 
subject  to  taxation  much  heavier  than  that  imposed  upon  other  classes  of 
business  or  property,  because  they  hold  and  enjoy  special  franchises  of  great 
value.  A  generation  ago,  before  our  Federal  and  State  Governments  had 
undertaken  to  regulate  effectively  the  service  arid  charges  of  public-service 
corporations,  this  theory  provided  a  natural  and  logical  remedy  for  some  of 
the  conditions  which  existed  in  the  days  of  unregulated  monopoly.  Taxes  upon 
the  property  or  business  of  unregulated  monopolies  will  tend  to  fall  upon  the 
profits  of  the  monopolists,  and  by  their  agency  the  Government  may  secure  a 
share  of  the  profits  resulting  from  the  possession  of  valuable  public  franchises. 
But  the  situation  was  radically  changed  when  public-service  corporations  were 
brought  under  effective  regulation.  Under  the  latter  condition,  regulation  ^of 
rates  and  service  must  proceed  upon  the  theory  that  the  corporations  have  a 
right  to  earn  a  reasonable  return  upon  their  investment.  Special  taxes  upon 
regulated  monopolies  increase  the  expense  of  providing  the  service,  and  there- 
fore increase  the  rates  necessary  to  yield  a  reasonable  return  or  diminish  the 
resources  available  for  extending  and  improving  the  service.  Effective  regula- 
tions of  public  utilities  not  only  remove  the  evils  which  in  former  times  led 
to  the  demand  for  special  taxation,  but  also  alters  the  incidence  of  such 
taxation. 

Since  we  are  now  committed  to  the  policy  of  regulation  of  public-service 
corporations,  we  should  readjust  our  theories  of  taxation  to  present-day  facts 
and  conditions.  We  must  assume  that  special  taxes  upon  electric  railways  or 
other  public-service  companies  increase  the  expense  of  providing  the  service 
and,  in  the  long  run,  must  be  borne  by  those  who  use  the  service  either  in  the 
form  of  increased  rates  or  reduced  facilities.  There  may  be  circumstances, 
such  as  extreme  need  for  public  revenue,  that  can  be  provided  in  no  less  in- 
convenient or  objectionable  manner,  which  justify  the  imposition  of  special 
taxation  upon  transportation  and  other  public-service  companies.  But  these 
circumstances  must  be  regarded  as  exceptional,  and  we  must  conclude  that  un- 
der a  regime  of  effective  public  regulation  it  is  undesirable  to  subject  public- 
service  corporations  to  heavier  taxation  than  is  imposed  upon  other  classes 
of  business  or  property. 

The  second  theory  takes  effective  regulation  of  "public  utilities  for  granted  and 
holds  that  such  regulation  makes  it  unnecessary  to  consider  whether  the  taxa- 
tion of  public-service  corporations  is  heavier  or  lighter  than  that  imposed  on 
other  business  or  property.  Such  corporations,  it  is  said,  might  even  be  ex- 
empted from  all  taxation  provided  that  their  charges  were  reduced  or  their 
service  improved  in  a  measure  corresponding  to  the  benefits  they  derive  from 
such  exemption.  And,  on  the  other  hand,  it  is  argued  that  taxes  upon  such 
corporations  may  properly  be  increased  to  any  desired  extent  provided  that 
rates  are  increased  in  a  corresponding  degree.  In  the  former  case  the  public 
will  secure  uaitaxed  service  and  in  the  latter  the  Government  will  employ  the 
corporations  as  an  agency  for  collecting  special  taxes.  In  neither  case  is  the  in- 
terest of  the  corporations  affected,  either  favorably  or  adversely. 

This  theory  upon  examination  will  be  found  to  ignore  the  effect  of  taxa- 
tion upon  the  real  parties  at  interest,  namely,  the  taxpayers  and  those  who  use 
the  services  of  public  service  corporations.  Between  these  two  classes  of 
people  there  is  no  necessary  identity  of  interest.  Here  I  may  be  permitted  to 
cfuote  from  the  report  of  a  committee  of  the  National  Tax  Association  ap- 
pointed to  consider  the  taxation  of  piiblic-service  corporations :  * 

"  With  corporations  national  in  scope  it  may  be  true  that,  if  we  leave  out  of 
account  citizens  residing  abroad  and  foreigners  residing  temporarily  in  the 
country,  the  persons  that  consume  the  service  are  the  same  body  of  people  that 
must  pay  the  taxes;  but  it  is  by  no  means  true  that  the  extent  to  which  par- 
ticular persons  use  the  service  is  the  measure  of  the  contributions  they  make 
to  the  national  revenues.  Even  if  all  taxation  were  direct,  and  were,  in  fact  as 
well  as  theory,  levied  proportionately  upon  property  or  income  without  exemp- 
tions of  any  description,  it  would  be  certain  that  all  taxpayers  would  not  use 
the  services  of  public-service  corporations  in  properties  to  the  amount  of  their 
property  or  income.  When  we  consider  that  direct  taxation  is  not  necessarily 


»  Proceedings  of  the  National  Tax  Association  1913,  pp.  372-3S3. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       651 

proportional,  either  in  theory  or  in  actual  operation,  and  that  exemptions  are 
both  numerous  and  important,  it  becomes  evident  that  the  assumed  identity  of 
interest  between  consumers  and  taxpayers  does  not  exist  With  services  loeal 
in  scope  the  case  is  even  stronger,  since  many  taxpayers  are  likely  to  be  non- 
residents, while  the  service  may  be  used  extensively  by  persons  who  are  em- 
ployed in  one  locality  during  the  day  but  have  their  domicile  elsewhere.  What 
identity  pf  interest  in  this  matter  can  there  be  between  the  taxpayers  of  a  large 
city  and  the  army  of  suburbanites  using  the  local  transportation  facilities? 

"  Since  the  interests  of  taxpayers  and  consumers  are  not  identical,  it  follows 
that  exemption  of  public-service  corporations  from  taxation  confers  a  special 
benefit  upon  consumers  at  the  expense  of  taxpayers ;  and  by  a  parity  of  reason- 
ing it  follows  that  the  imposition  of  special  taxes  upon  such  companies  relieves 
the  taxpayers  at  the  expense  of  the  consumers.  In  exceptional  cases  special 
considerations  may  justify  the  grant  of  what  is  in  effect  a  bounty  to  consumers, 
OF  justify  the  imposition  of  special  taxes  upon  them  ;  the  rule  of  equality  is  not 
an  absolute  one  which  admits  of  no  exception.  But  your  committee  holds  that, 
as  a  general  proposition,  this  second  theory  is  inconsistent  with  the  principle 
of  equality  in  taxation,  and  for  this  reason  we  are  compelled  to  reject  it." 

There  remains  the  third  theory,  that  the  taxation  of  public-service  corpora- 
tions should  be  governed  by  the  general  rule  of  equality,  which  should  be  the 
controlling  principle  in  governmental  affairs.  By  equality  is  not  meant  abso- 
hite  uniformity  of  treatment  irrespective  of  all  differences  in  the  nature  or 
condition  of  the  objects  upon  which  taxation  is  imposed.  Differences  in  the 
form  and  method  of  taxation  are  perfectly  consistent  with  the  principle  of 
equality  provided  they  are  justified  by  the  circumstances  of  the  case  and  result 
hi  a  substantial  equality  of  burden.  Under  normal  Conditions  public-service 
corporations  should  be  taxed  neither  more  nor  less  than  other  classes  of  busi- 
ness concerns.  If  they  are  taxed  more,  consumers  are  burdened  for  the  benefit 
of  the  taxpayers  who  would  otherwise  have  to  contribute  the  amount  of  revenue 
raised  by  special  taxation  of  public  utilities;  if  they  are  taxed  less,  then  the 
consumers  receive  a  subsidy  which  must  be  made  up  by  additional  charges 
exacted  from  taxpayers.  This  theory  has  received  very  general  approval  in 
recent  years  and  may  safely  be  accepted  as  our  point  of  departure  in  the 
present  case. 

But  this  theory  of  equal  taxation  for  public-service  corporations,  like  any 
other  general  theory  of  taxation,  has  its  necessary  qualifications,  A  great 
financial  emergency  would  justify  a  government  in  employing  such  corporations 
as  agencies  for  collecting  heavy  emergency  taxes  from  those  who  use  their 
services.  And,  upon  the  other  hand,  exceptional  circumstances  may  justify  a 
reduction  or  total  abolition  of  taxes  upon  particular  companies  or  particular 
classes  of  public-service  corporations.  To  secure  the  construction  of  a  new  rail- 
road, exemption  from  taxation  for  a  period  of  years  may  be  properly  offered 
as  an  inducement  to  a  eompuny  willing  to  construct  a  road  that  is  not  likely  to 
prove  immediately  profitable.  In  general,  it  may  be  snkl  that  whenever 
special  circumstances  exist  which  justify  the  Government's  levying  special 
taxes  upon  consumers  or  offering  a  bounty  for  some  necessary  public  service. 
It  is  possible  to  justify  a  departure  from  the  general  principle  of  equal  taxation. 

The  application  of  this  theory  of  equal  taxation  to  the  case  of  the  electric 
railways  gives  the  following  result :  Under  ordinary  conditions  the  property  and 
business  of  such  companies  should  be  taxed  like  other  property  or  business. 
Nothing  but  fiscal  emergency  can  justify  the  imposition  of  special  taxation  and 
notliing  but  an  emergency  seriously. impairing  the  earning  powers  of  such  rail- 
ways can  justify  either  a  direct  or  an  indirect  subsidy.  Tlie  only  practical 
difficulty  in  applying  the  principle  arises  from  the  fact  that  the  occupation  of 
the  street  by  railway  companies  seems  to  occasion  some  extra  expense  for 
upkeep  which  the  companies  should  fairly  be  called  upon  to  meet.  This  extra 
exj>ense  is  difficult,  and  perhaiw  impossible,  to  estimnte  with  even  approximate 
accuracy.  It  seems  to  justify  in  normal  times  the  payment  of  an  extra  contribu- 
tion by  such  companies,  but  it  has  sometimes  been  made  an  excuse  for  imposing 
special  taxes  which  considerably  or  even  greatly  exceed  the  figure  which  would 
be  justified. 

Under  the  Federal  income  and  excels  profits  taxes  there  has  been  no  discrimi- 
nation against  electric  railways,  and  if  times  were  normal  there  would  l>e  no 
ground  of  complaint.  The  t:ixes  levied  by  the  State  nnd  local  governments  upon 
tbe  property  of  such  railways  are  in  principle  i»erfectly  justified  and  give  no 
occasion  for  complaint  except  in  cases  where  valuations  have  been  placed  nt  a 
higher  proportlou  of  the  true  value  thuu  is  generally  applied  to  the  property  of 


652       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

individu.nl  taxpayers.  But  the  numerous  additional  taxes  imposed  upon  fran- 
chises, earnings,  and  capital  stock  have  frequently  resulted  in  the  imposition  of 
a  total  amount  of  taxation  considerably  exceeding  that  which  could  be  justified 
under  the  principle  of  equality.  The  same  is  true  of  the  payments,  contractual 
or  other,  which  have  been  required  as  a  condition  of  laying  tracks  in  the  streets. 
In  1917  electric  railways  of  the  United  States,  in  addition  to  all  taxes,  which 
were  undoubtedly  very  heavy,  paid  $17,522.000  in  other  contributions,  a  sum 
which  undoubtedly  exceeded  the  amount  which  they  would  have  had  to  pay  if 
the  theory  of  equal  taxation  had  been  followed. 

4.   THE    MEASURES    WHICH    OUGHT    TO    BE    ADOPTED    TO   RELIEVE    ELECTRIC    RAILWAYS 
IN    THE  PRESENT   CRISIS. 

The  financial  crisis  which  at  present  confronts  the  electric  railways  is  so- 
evident  and  so  urgent  that  argument  is  not  needed  to  demonstrate  that,  along 
with  other  measures  of  relief,  a  substantial  reduction  should  be  made  in  the 
amount  of  taxes  which  they  are  required  to  pay.  How  far  this  reduction  should 
go  must  depend  in  considerable  degree  upon  the  .relief  afforded  in  other  direc- 
tions. The  following  suggestions  are  offered  for  the  consideration  of  the  coin- 
•oiission : 

A.  The  special  contributions  now  required  for  the  use  of  the  streets  ought 
immediately  to  be  reduced  to  an  amount  that  will  no  more  than  cover  the  extra 
cost  of  maintenance  occasioned  by  the  presence  of  car  tracks.    These  contribu- 
tions may  have  been,  and  probably  were,  justified  before  the  days  of  effective 
regulation  of  public  utilities,  but  they  have  no  logical  place  in  our  present 
scheme  of  public  regulation,  except  in  so  far  as  they  do  not  exceed  the  extra 
cost  of  maintenance.     Instead  of  being  a  means  of  securing  for  the  public 
treasury  a  part  of  the  excessive  profits  of  unregulated  monopolies,  they  have 
become  a  special  tax  on  electric-railway  transportation  and  are  inconsistent 
with  the  principle  of  equal  taxation. 

B.  The  other  special  taxes  levied  by  State  and  local  governments  in  excess  of 
those  imposed  on  ordinary  business  enterprises  ought  also  to  be  reduced  or 
abolished,  as  the  case  may  require.     Like  the  special  contributions  for  the  use 
of  streets,  these  taxes  may  have  been  justified  formerly,  but  to-day  they  are 
inconsistent  with  the  principle  which  should  control  the  taxation  of  public- 
service  corporations  in  ordinary  times.     In  an  emergency  like  the  present,  they 
are  utterly  indefensible. 

C.  Relief  from  the  ordinary  taxes  imposed  upon  property  can  be  justified  only 
upon  the  ground  of  extreme  emergency,  and  such  an  emergency  can  not  be  held 
to  exist  until   the   companies   have  been  relieved   of   taxes   that  violate   the 
principle  of  equality  and  have  also  been  permitted  to  increase  their  rates  of 
fare  as  far  as  may  be  expedient  and  practicable. 

D.  If  other  measures  fail  to  give  adequate  relief  and  it  seems  necessary  to 
relieve  the  electric  railways  from  the  property  tax,  the  best  procedure  would 
probably  be  to  exempt  them  from  taxation  on  their  property  for  a  limited  term 
of  years,  and  then  to  impose  a  tax  upon  their  net  income.     Such  a  measure  is 
preferable  in  every  way  to  total  exemption  since  it  maintains  the  theory  that 
public-service  corporations  ought  to  be  taxed ;  it  will  afford  much  relief  in  ex- 
treme cases ;  and  it  will  insure  some  contribution  to  the  public  treasury  as  soon 
as  the  industry  begins  to  see  better  days. 

B.  If  the  Federal  Government  is  to  recommend  measures  of  relief,  which 
the  States  are  expected  to  adopt,  it  would  -obviously  be  appropriate  for  it  to 
lead  the  way  by  relieving  electric  railways,  at  least  for  a  limited  term  of! 
years,  from  some  of  the  Federal  taxation  that  is  now  imposed  upon  them. 

Commissioner  SWEET.  I  was  very  much  interested,  Prof.  Bullock, 
in  what  you  have  said  to  us  about  taxation,  and  in  one  way  I  think 
perhaps  the  ground  has  been  fully  covered,  but  there  are  one  or  two 
little  points  I  would  like  to  ask  some  questions  on. 

With  regard  to  the  taxation  of  street-railroad  companies  or  the 
remission  of  it  as  a  means  of  granting  relief,  do  you  not  think  it 
would  come  too  slowly  now  for  the  kind  of  relief  that  the  companies 
need,  too  slowly  to  be  effectual? 

Mr.  BULLOCK.  Well,  it  would  be  slower  than  some  other  things,  no 
doubt.  If  your  commission  can  work  out  a  solution  without  remis- 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       653 

sion  of  ordinary  equal  property  taxation,  you  ought  to  do  so.  But 
in  so  far  as  State  and  local  taxation  exceeds  the  figure  that  would  be 
consistent  with  equal  taxation  of  the  street-railway  industry,  aboli- 
tion of  the  extra  burdens  ought  to  be  recommended.  You  have  to 
ask  the  street-car  rider  to  do  enough  in  the  way  of  increased  rates 
without  asking  him  to  contribute  now  this  special  transportation  tax. 

Commissioner  SWEET.  If  I  get  your  idea  correctly,  it  is  that  in 
normal  times  and  under  normal  conditions  the  properties  of  street- 
railroad  companies  ought  to  be  taxed  on  substantially  the  same 
basis  as  other  property  in  the  community  ? 

Mr.  BULLOCK.  Undoubtedly. 

Commissioner  SWEET.  No  more  and  no  less? 

Mr.  BULLOCK.  Xo  more  and  no  less. 

Commissioner  SWEET.  But  that  in  times  such  as  wre  are  passing 
through  now,  and  taking  perhaps  as  one  of  the  strongest  examples 
the  situation  in  Massachusetts,  the  situation  is  very  critical.  If 
what  you  said  with  regard  to  the  risk  of  an  automobile  in  the  im- 
mediate vicinity  of  a  track  is  correct- 
Mr.  BULLOCK.  That  is  something  that  occurred  to  a  car  that  I  was 
riding  in  Sunday. 

Commissioner  SWEET.  It  did  occur?  Well,  then,  it  is  not  an  im- 
possible case,  surely.  What  I  was  going  to  say  was  if  there  was 
even  any  remote  justification  for  your  remark,  then  there  is  involved 
the  question  of  public  safety  as  to  the  riders  upon  these  interurban 
roads;  is  there  not? 

Mr.  BULLOCK.  Undoubtedly. 

Commissioner  SWEET.  There  is  also  involved,  as  you  have  practi- 
cally stated,  the  question  of  the  existence  of  some  of  these  roads, 
which  are  not  only  great  conveniences  to  the  public  but  in  many 
cases  necessities,  are  they  not,  for  the  conduct  of  business  and  moving 
from  one  place  to  another  place?  Xow  that  is  very  far  from  normal, 
is  it  not — what  we  regard  as  normal  and  hope  to  be  normal  in  this 
country ;  that  condition  has  not  prevailed  before  and  we  hope  never 
will  again;  is  not  that  true? 

Mr.  BULLOCK.  It  is  so  far  from  normal  that  the  industry  appears 
to  face  ruin. 

Mr.  WARREN.  What? 

Mr.  BULLOCK.  It  faces  ruin ;  that  is.  the  tracks  are  coming  up,  as 
I  see  it. 

Commissioner  SWEET.  Taking  that  into  account  and  looking  at 
the  situation  squarely  as  it  is,  do  you  think  there  would  be  any 
impropriety,  anything  wrong  or  unreasonable,  in  the  total  remission 
of  taxes  for  a  limited  period? 

Mr.  BULLOCK.  I  do  not.  I  think  it  will  come  to  that  in  many 
cases,  or  else  it  will  be  made  up  in  some  other  way.  We  may  go 
through  the  form  of  levying  taxes  and  then  make  up  a  deficit.  That 
is  what  we  are  doing  in  Massachusetts. 

Commissioner  SWEET.  By  levying  more? 

Mr.  BULLOCK.  Yes. 

Commissioner  SWEET.  That  would  simply 

Mr.  BULLOCK.  It  is  whipping  the  devil  around  the  stump. 

Commissioner  SWEET.  Yes;  in  a  sense  practicing  a  species  of 
deception  upon  the  public. 


654     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BULLOCK.  Undoubtedly.  What  is  involved  is  giving  a  sub- 
sidy to  an  industry  that  faces  ruin. 

Commissioner  SWEET.  In  the  matter  of  taxation,  whether  upon 
an  equal  basis  or  upon  the  unfair  basis  that  your  figures  would 
indicate  has  prevailed  in  many  cases,  the  public  has  come  to  look 
upon  the  taxation  of  these  companies  as  a  sort  of  public  asset, 
something  the  public  in  the  past  has  been  entitled  to,  and  to 
give  them  up  would  require  a  good  deal  of  argument  and  dis- 
cussion— would  it  not — and  that  would  be  the  more  difficult  as 
you  get  lower  down  in  the  community  with  regard  to  intelligence; 
would  it  not? 

Mr.  BULLOCK.  Yes;  and  with  regard  to  the  seriousness  of  the 
burden.  As  I  pointed  out,  for  the  Federal  Government  to  give  up 
the  income  tax  is  a  slight  thing,  but  for  some  little  locality  to  give 
up  some  local  charge  may  be  comparatively  a  big  thing. 

Commissioner  SWEET.  Exactly.  People  would  be  more  likely  to 
object  the  nearer  home  it  would  come  to  them. 

Mr.  BULLOCK.  Undoubtedly. 

Commissioner  SWEET.  Then  under  the  circumstances  do  you  not 
think  it  would  be  unwise  for  this  commission  to  attempt  to  help  the 
situation  in  that  way  at  the  present  time?  I  mean  as  a  matter  of 
immediate  and  temporary  relief. 

Mr.  BULLOCK.  I  think  that  undoubtedly  the  adjustment  of  all 
these  inequalities  in  taxation  will  take  time.  Where  the  situation 
is  bad  enough,  however,  the  adjustment  might  be  quickly  reached 
and  a  recommendation  from  the  commission  would  be  helpful.  More- 
over, a  recommendation  of  higlier  rates  to  be  paid  by  car  riders  would 
have  more  force  if  it  were  accompanied  with  a  recommendation  that 
unequal  charges  be  done  away  with.  Whether  your  commission  went 
on  the  theory  that  the  time  had  not  come  to  take  off  ordinary  taxes 
and  recommended  that  ordinary  property  taxes  be  left,  but  that 
taxes  in  excess  of  what  ordinary  property  pays  should  be  remitted 
and  other  charges  cut  down,  such  a  recommendation  would  help  very 
much  a  recommendation  for  higher  rates. 

The  street-car  rider  will  object,  and  justly,  to  higher  rates  that 
enable  the  continuance  of  taxes  which  under  a  scheme  of  public 
regulation  amounts  to  a  special  tax  on  the  transportation  industry 
and  which  he  pays  for  the  benefit  of  property  owners.  It  is  hard 
to  raise  the  fares.  A  street-car  fare  is  not  like  your  gas  bill  that  you 
have  once  a  month ;  you  have  your  bill  presented  to  you  twice  a  day, 
six  or  seven  days  in  the  week,  and  the  increase  comes  to  you,  the  fact 
of  the  increase  is  very  obvious,  it  is  rubbed  into  the  street-car  riders 
twice  every  day.  And  a  recommendation  would  come  with  greater 
weight,  it  seems  to  me,  if  it  were  accompanied  with  a  very  strong 
recommendation  for  the  abolition  of  unequal  taxes. 

Commissioner  SWEET.  It  would  seem  under  present  conditions  as 
if  the  general  public  ought  to  accept  a  recommendation  of  that  kind 
without  very  much  dispute  and  controversy;  would  it  not? 

Mr.  BULLOCK.  They  certainly  ought. 

Commissioner  SWEET.  What  has  been  the  attitude  of  the  news- 
papers in  Massachusetts  since  the  trouble  has  arisen  with  regard 
to  the  street  railroads.? 

Mr.  BULLOCK.  My  newspaper  reading  is  limited  on  account  of 
poor  eyesight.  I  read  two  or  three  papers  in  a  summary  fashion. 


PROCEEDINGS  OP  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       655 

Now  the  newspapers  last  year  generally  were  favorable  to  the  passage 
of  laws  putting  into  application  the  principle  of  service  at  cost. 
At  the  present  time  when  the  trustees  that  are  operating  the  Boston 
Elevated  and  the  Bay  State  Street  Railway,  which  is  now  the 
Eastern  Massachusetts,  undertook  to  raise  fares  and  make  readjust- 
ments which  the  car  riders  complained  of.  I  should  say  that  there 
was  a  tendency  of  the  newspapers  to  favor  the  car  rider  and  to 
tend  on  the  whole  to  make  comments  that  caused  discontent  over 
the  increase  in  fare.  However,  my  observation  is  limited.  Mr. 
Warren  has  followed  that  probably  •  more  than  I  have. 

Mr.  WARREN.  I  have  not  followed  it  very  closely,  but  I  should 
think  that  was  a  correct  statement. 

Commissioner  SWEET.  Have  you  given  personal  consideration  to 
this  plan  of  service  at  cost? 

Mr.  BULLOCK.  I  gave  considerable  attention  to  it  last  year.  It  was 
much  discussed. 

Commissioner  SWEET.  Have  you  been  here  and  heard  the  discus- 
sions and  explanations  concerning  Cleveland  and  Cincinnati  and 
Dallas? 

Mr.  BULLOCK.  I  have  not. 

Commissioner  SWEET.  You  have  not? 

Mr.  BULLOCK.  I  have  not  been  here.  It  had  many  advantages  as 
a  means  of  educating  public  sentiment  on  this  matter.  It  was  a  plan 
well  calculated  to  lead  to  legislation  in  our  State  that  was  fair  to  the 
street  railway.  But  the  continuance  of  high  operating  expenses  and 
the  necessity  of  putting  the  ordinary  fare  up  to  10  cents  has  been 
producing  some  unrest. 

Commissioner  SWEET.  Making  the  plan  unpopular  somewhat? 

Mr.  BULLOCK.  I  do  not  know.  I  think  perhaps  the  people  have 
forgotten  about  the  plan  of  service  at  cost  and  the  only  thing  is  the 
10-cent  fare.  That  is  unpopular  in  Boston  at  the  present  moment. 

Commissioner  MEEKER.  Well,  the  people  certainly  do  not  think 
they  can  get  service  at  less  than  cost,  do  they,  in  Massachusetts  ? 

Mr.  BULLOCK.  I  do  not  know  what  they  think,  but  they  object  to 
paying  the  increase.  Whether  they  think  about  the  cost  I  do  not 
know. 

Commissioner  MEEKEB.  Would  you  advocate  keeping  the  fare  at 
a  lower  level  and  making  up  the  deficit  out  of  general  taxation? 

Mr.  BULLOCK.  I  would  advocate  the  highest  charge  for  the  service 
consistent  with  revenue.  I  would  have  the  rider  pay  the  full  cost 
as  far  as  it  is  practicable  to  make  him  do  so,  but  at  the  same  time 
I  would  remove  unequal  tax  burdens  so  as  not  to  have  him  pay  more 
than  the  eost.  Your  question  simply  related  to  public  sentiment. 

Xow  I  am  a  little  at  a  loss  to  judge  just  what  the  public  sentiment 
in  Massachusetts  at  the  present  moment  is.  I  should  say  the  plan  of 
service  at  cost  was  not  unpopular  but  I  guess  it  has  been  forgotten, 
has  it  not,  Mr,  Warren  ? 

Mr.  WARREN.  I  think  largely  the  interest  centers  in  the  fare. 

Mr.  BULLOCK.  I  think  at  the  present  moment  the  interest  largely 
centers  in  the  fare. 

Commissioner  SWEET.  As  a  national  problem  the  solution  of  it 
depends  very  largely  upon  public  sentiment;  does  it  not? 

Mr.  BULLOCK.  It  does.  Now  sentiment  in  our  State  I  should  say 
worked  admirably  as  a  means  of  molding  public  sentiment  last  year. 


656       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Is  it  not  likely  to  be  so  all  over  the  coun- 
try? 

Mr.  BULLOCK.  Yes. 

Mr.  WARREN.  As  Prof.  Bullock  has  referred  to  me,  I  should  say 
the  amount  of  dissatisfaction  with  the  10-cent  fare  in  Boston  is  neg- 
ligible compared  to  what  it  would  have  been  had  the  company  been 
operating  as  it  did  up  to  a  year  ago.  The  public  would  have  thought 
it  was  being  robbed. 

Mr.  BULLOCK.  I  think  probably  there  will  be  a  change  there  in 
Boston.  I  guess  that  when  the  fare  was  8  cents  and  before  it  was 
raised  to  10  a  great  many  newspaper  readers  paid  8  cents  for  their 
ticket  and  spent  2  cents  for  a  newspaper  and  a  good  many  people 
now  spend  10  cents  for  their  ticket  and  do  not  pay  2  cents  for  the 
newspaper,  and  the  newspapers  are  unhappy. 

Commissioner  SWEET.  Among  the  various  remedies  which  have 
been  suggested  and  those  that  have  been  tried,  has  any  come  to  your 
knowledge  or  have  you  thought  of  any  that  you  think  would  give 
better  results  than  the  service-at-cost  plan? 

Mr.  BULLOCK.  I  have  not.  I  do  not  know  any  fairer  means  of 
presenting  to  the  public,  or  any  more  expedient  and  diplomatic  and 
straightforward  means  of  presenting  to  the  public,  the  idea  that 
they  have  got  to  pay  for  the  cost  of  the  service  and  at  the  same  time 
are  going  to  be  protected  against  undue  exactions  than  that. 

Commissioner  SWEET.  And,  of  course,  you  would  include  among 
your  costs  a  proper  return  upon  the  invested  capital  ? 

Mr.  BULLOCK.  Undoubtedly. 

Commissioner  SWEET.  And  a  sufficient  return  and  with  sufficient 
certainty  to  induce  new  capital  to  come  in  ? 

Mr.  BULLOCK.  Undoubtedly. 

Commissioner  SWEET.  Do  you  regard  that  as  essential  to  the  con- 
tinued prosperity  of  an  industry  of  this  kind  ? 

Mr.  BULLOCK.  Certainly.  Of  course  the  industry  needs  large 
amounts  of  capital.  It  is  in  a  run-down  condition. 

Commissioner  SWEET.  For  safety  or  extensions 

Mr.  BULLOCK.  First  for  safety^  and  then  doubtless  for  extensions 
and  improvements. 

Commissioner  SWEET.  Upkeep  of  the  track  and  rolling  stock 
would  also  be  regarded  as  an  expense  that  must  be  met  under  this 
plan? 

Mr.  BULLOCK.  Undoubtedly. 

Commissioner  SWEET.  Do  you  see  any  economic  flaw  or  defect  in 
the  system? 

Mr.  BULLOCK.  I  have  not  seen  any.  It  seems  to  present  the  mat- 
ter in  a  reasonable  and  fair  way  to  the  public  and  to  offer  a  guaranty 
against  excessive  charges  if  the  plan  is  adopted. 

Commissioner  SWEET.  What  you  have  said  to  us  about  taxation 
has  brought  to  my  mind  more  clearly  than  perhaps  ever  before  what 
seems  to  me  to  be  a  fact;  and  that  is  that  the  whole  subject  of  taxa- 
tion involves  two  propositions:  One,  getting  enough  revenue  to 
carry  on  the  Government  in  some  way;  and  the  other — and  this 
is  the  point  that  has  specially  impressed  itself  upon  my  mind — the 
adjustment  fairly  among  different  elements  in  the  community,  and 
that  perhaps  involves  the  most  difficulties,  does  it  not? 

Mr.  BULLOCK.  It  is  a  very  difficult  problem. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       657 

Commissioner  SWEET.  Now,  then,  on  the  old  plan  based  upon  the 
idea  that  these  companies  were  making  large  profits  and  might  be 
taxed  heavily — more  heavily  than  the  private  owners  of  property 
and  more  than  the  ownership  of  their  more  direct  properties  would 
justify — if  I  understand  you  right,  that  idea  is  now  absolutely  ob- 
solete— it  is  a  thing  of  the  past  and  ought  not  in  any  degree  be 
applied  as  a  principle  of  taxation  to  these  companies.  Is  that 
correct  ? 

Mr.  BULLOCK.  I  think  so.  We  have  got  to  wholly  readjust  our 
ideas.  That  is  a  difficult  thing  for  us  to  do,  but  we  must  do  it. 

Commissioner  SWEET.  In  other  words,  instead  of  fowls  to  be 
plucked  they  are  fowls  to  be  fed,  or  at  least,  if  we  are  to  have  the 
conveniences  of  street  railroads,  they  must  be  treated  with  the  utmost 
fairness? 

Mr.  BULLOCK.  And  where  under  former  conditions  you  were  tax- 
ing what  used  to  be  called  monopoly  profits,  with  a  regulated  in- 
dustry you  are  taxing  the  rider.  That  is  a  change  that  has  come 
about. 

Commissioner  SWEET.  The  paving  tax  when  analyzed  under 
present  conditions  falls  entirely  upon  the  riders  who.  as  you  have 
stated,  are  only  one  part  of  the  community,  and  to  that  extent,  there 
is  a  flaw  in  the  system  as  between  one  group  and  another  in  the  com- 
munity. In  other  words,  as  I  understand  it,  according  to  your  idea 
at  the  present  time  at  least,  it  is  nor  a  proper  or  just  apportionment 
of  the  burdens  to  the  various  parts  of  the  community ;  is  that  correct  ? 

Mr.  BULLOCK.  Undoubtedly.  . 

Commissioner  SWEET.  Then  for  that  reason  as  well  as  the  fact 
that  it  is  putting  a  very  heavy  burden  upon  corporations  which  are 
now  seeking  at  least  to  be  a  benefit  to  the  general  community  and  are 
needed  by  the  general  community,  instead  of  helping  them,  it  is 
putting  a  burden  upon  them  and  in  addition  to  that,  it  is  inequit- 
able as  between  the  various  parts  of  the  community  outside  of  the 
'corporation.  Is  that  true? 

Mr.  BULLOCK.  Yes. 

Commissioner  SWEET.  And  would  the  same  thing  apply  to  bridgfe 
tolls  and  street  cleaning? 

Mr.  BULLOCK.  I  think  the  same  thing  applies  to  every  kind  of  a 
charge  made  upon  a  public-service  corporation  in  excess  of  a  pay- 
ment for  what  they  actually  get  or  what  damage  they  actually  do. 
And  if  I  may  suggest  it,  since  you  brought  up  the  matter  of  service 
at  cost,  it  would  seem  to  be  logical  and  an  essential  part  of  that  plan 
that  a  service-at-cost  scheme  should  be  so  contrived  as  to  determine 
accurately  the  cost,  and  that  can  not  be  done  if  these  excessive  public 
charges  and  contributions  are  exacted.  You  are  not  giving  service 
at  cost;  you  are  giving  service  at  more  than  cost. 

Commissioner  SWEET.  Of  course,  if  those  burdens  are  to  be  con- 
tinued under  the  service-at-cost  plan,  they  would  be  figured  as  a  part 
of  the  expense  ? 

Mr.  BULLOCK.  They  would. 

Commissioner  SWKET.  And  would  have  to  be  paid  for  by  the  riding 
public? 

Mr.  BULLOCK.  Yes. 


658       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  But  as  you  say,  the  nomenclature  would  be 
incorrect,  if  you  call  it  a  service  at  cost  when  strictly  speaking  it 
would  not  be  at  cost.  Have  you  had  your  attention  called  to  the  one- 
man  car? 

Mr.  BULLOCK.  Yes. 

Commissioner  SWEET.  Have  they  been  tried  in  Massachusetts? 

Mr.  BULLOCK.  I  believe  they  have  been  coming  in  within  the  last 
year  or  so.  Formerly  they  were  not  permitted. 

Commissioner  SWEET.  Not  permitted? 

Mr.  BULLOCK.  Xot  permitted.     Is  not  that  correct,  Mr.  Warren  ? 

Mi:  WARREN.  Yes. 

Mr.  BULLOCK.  The  commission  for  a  long  time  did  not  think  they 
were  safe  and  would  not  permit  them. 

Commissioner  SWEET.  Are  they  being  used  now  ? 

Mr.  BULLOCK.  To  some  extent,  but  not  extensively,  so  far  as  I 
know.  It  costs  money  to  buy  them  and  money  is  scarce. 

Commissioner  SWEET.  They  have  not  the  money  ? 

Mr.  WARREN.  Several  companies  want  to  try  them,  but  they  can  not 
get  the  money  to  buy  the  cars. 

Commissioner  SWEET.  As  an  economic  proposition,  Prof.  Bullock, 
do  you  think  there  is  a  place  for  them  in  the  general  regime  of  the 
street-car  industry  ? 

Mr.  BULLOCK.  I  should  think  on  many  car  lines  in  Massachusetts 
there  was  a  good  place  for  the  one-man  car. 

Commissioner  SWEET.  That  it  would  give  reasonable  service  and 
satisfaction  to  the  public  and  at  the  same  time  be  operated  economi- 
cally ? 

Mr.  BULLOCK.  I  should  think  so. 

Commissioner  SWEET.  So  wherever  such  conditions  exist  under 
the  present  emergency,  don't  you  think  it  would  be  reasonable  to 
recommend  that  they  should  be  used  ? 

Mr.  BULLOCK.  Undoubtedly. 

Commissioner  SWEET.  Do  you  think  of  any  other  economies  or  any 
economies  further  than  those  mentioned  that  might  reasonably  be 
recommended  ? 

Mr.  BULLOCK.  I  do  not.  I  am  not  particularly  well  informed  about 
the  street-railroad  industry.  I  know  about  it  just  what  a  layman 
would  know,  and  if  the  industry  were  one  of  expanding  revenues  that 
could  command  plenty  of  capital,  I  have  no  doubt  economies  could 
be  effected  by  extensive  reconstruction  programs ;  but  capital  can  not 
be  had  under  present  conditions. 

Commissioner  SWEET.  That  is  to  say,  the  poverty  of  these  com- 
panies has  brought  about  uneconomical  conditions  ? 

Mr.  BULLOCK.  It  has  absolutely  forced  uneconomical  conditions. 

Commissioner  SWEET.  For  which  the  companies  are  not  really  re- 
sponsible? 

Mr.  BULLOCK.  Undoubtedly. 

Commissioner  SWEET.  That  is  all. 

Commissioner  MEEKER.  I'm  interested  in  the  10-cent  fare  in  Boston. 
I  gathered  from  what  you  say  that  .the  10-cent  fare  is  insufficient,  or 
at  least  it  has  not  furnished  a  fair  return  upon  investment  in  addi- 
tion to  the  cost  of  conducting  the  street-railway  transportation  ? 

Mr.  BULLOCK.  In  Boston  it  has  been  in  operation  but  a  very  short 
time,  and  there  has  been  a  strike  and  we  do  not  yet  know  the  result 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       659 

and  nobody  can  do  anything  but  guess.  Now  my  guess  is  that  the 
10-cent  fare  will  not  give  the  Elevated  the  revenue  that  it  will  need 
to  have,  and  that  there  will  be  a  deficit  which  the  city  of  Boston 
and  other  cities  served  by  it  will  have  to  make  up.  But  that  is  a 
guess  and  it  is  too  early  to  determine.  I  hope  that  the  guess  will 
turn  out  to  be  wrong. 

Mr.  WARREN.  It  would  have  met  it  before  the  last  increase  in 
wages,  would  it  not,  probably?  Did  you  see  the  cost  given  in  the 
papers  at  9.3  cents  per  passenger  under  the  old  wage  scale  before  the 
strike? 

Mr.  BULLOCK.  In  my  answer  I  took  into  account  this  recent  strike. 
Now,  I  think  that  strike  has  just  about  taken  out  of  the  company's 
treasury  and  handed  over  to  the  men  the  increase  of  fare;  at  any 
rate,  the  benefit  of  it  to  the  company  will  not  be  sufficiently  great,  I 
should  guess,  to  put  the  company  in  proper  financial  position. 

Commissioner  MEEKER.  Have  you  compared  the  street-railway  situ- 
ation in  Boston  with  the  situation  in  other  cities? 

Mr.  BULLOCK.  Not  extensively.  I  know  something  about  condi- 
tions in  New  York,  Chicago,  and  Cleveland. 

Commissioner  MEEKER.  The  president  of  the  street-railway  com- 
pany in  Cleveland  testified  yesterday  that  their  o-cent  fare  plus  1 
cent  for  transfer  was  sufficient  to  enable  them  to  operate  on  a  serv- 
ice-at-cost  plan  and  pay  a  yield  on  the  investment,  although  the 
company  was  not  entirely  satisfied  with  the  yield  upon  the  invest- 
ment. How  do  you  account  for  the  great  difference  in  Cleveland  as 
compared  with  Boston? 

Mr.  BULLOCK.  We  have  a  very  extensive  subway  system  in  Boston. 
In  the  old  days  when  money  could  be  had  for  about  4  per  cent,  and 
when  operating  costs  were  low  and  gross  revenues  increasing,  we 
built  a  very  excellent  and  very  expensive  system  of  subways;  so  the 
Boston  Elevated  Railroad  is  under  a  charge  for  subways  which  makes 
the  situation  there  utterly  unlike  the  situation  in  Cleveland. 

Mr.  WARREN.  I  might  bring  out  here,  because  it  might  answer  your 
question  in  pail,  that  the  rental  of  those  subways  which  were  built 
by  the  city  is  charged  as  a  part  of  the  cost  of  the  service;  is  it  not, 
Prof.  Bullock? 

Mr.  BULLOCK.  It  is. 

Mr.  WARREN.  And  includes  a  sufficient  charge  not  only  to  pay  the 
interest  on  the  city  debt  incurred  in  building  the  subways,  but  suf- 
ficient in  addition  to  amortize  the  entire  capital  cost  of  the  subways 
over  a  given  period  of  years.  That  is  all  included  in  the  cost  of 
service. 

Commissioner  MEEKER.  Twenty-five  years? 

Mr.  WARREN.  I  think  it  is  either  40  or  50  years,  but  it  makes  a 
very  substantial  payment  annually  by  the  car  ridel's,  and  it  is  in  part 
being  paid  upon  suoways  which  are  not  yet  completed. 

Mr.  BULLOCK.  When  I  leave  my  house  in  Cambridge  I  get  into  a 
subway  that  carries  rne  into  the  center  of  Boston  in  8  minutes. 

Mr.  WARREN.  That  is  3  or  4  miles. 

Mr.  BULLOCK.  And  it  is  a  very  expensive  service  that  we  get.  New 
York  is  the  only  city  with  any  subway  outlay  like  ours,  and  there,  of 
course,  their  tniftic  is  much  larger  than  ours  in  proportion. 

Commissioner  MEEKRR.  We  must  be  very  careful  in  making  gen- 
eralizations not  to  make  them  too  broad. 


660       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  BULLOCK.  Undoubtedly. 

Commissioner  MEEKER.  And  must  take  the  different  local  condi- 
tions into  account. 
Mr.  BULLOCK.  Undoubtedly. 

Commissioner  MEEKER.  I  would  like  to  get  your  opinion — first  of 
all,  your  statement  as  to  how  the  investment  or  capitalization  was  ar- 
rived at.  Was  it  by  a  physical  valuation  or 

Mr.  BULLOCK.  You  mean  in  Massachusetts  ? 

Commissioner  MEEKER.  Yes,  or 

Mr.  BULLOCK.  The  commission  with  its  engineers  followed  the 
construction  and  checked  it  up;  and  every  application  for  an  issue 
of  stock  was  accompanied  by  statetments  of  the  actual  expenditures, 
etc.,  so  that  the  commission  has  approved  not  only  the  issue,  but  has 
checked  up  the  amount  of  the  issue. 

Commissioner  MEEKER.  So  that  there  is  no  question  of  an  excessive 
valuation  of  property  upon  which  a  fair  income  is  due  to  the  in- 
vestors ? 

Mr.  BULLOCK.  No. 

Commissioner  GADSDEN.  Are  you  familiar  with  the  resolution  re- 
cently passed  in  the  State  of  New  Hampshire  exempting  street  rail- 
ways from  all  taxation  in  case  the  public-service  commission  certifies 
that  they  have  an  operating  deficit?' 

Mr.  BULLOCK.  I  have  seen  a  newspaper  statement  about  it,  but  I 
have  no  other  knowledge. 

Commissioner  GADSDEN.  That  is  in  line  with  your  suggestion. 
|  !     Mr.  BULLOCK.  That  is  in  line  with  the  suggestion. 

Mr.  WARREN.  What  is  the  custom,  Prof.  Bullock,  respecting  taxa- 
tion of  municipally  owned  plants  engaged  in  the  utility  business,  if 
you  know? 

i       Mr.  BULLOCK.  In  the  United  States  ? 
|  I     Mr.  WARREN.  Yes. 

Mr.  BULLOCK.  I  think  the  practice  is  to  tax  them.     Of  course,, 
there  are  some  departures  from  that  rule.    In  our  own  State  where 
j    a  city  or  town  goes  outside  its  limits  and  takes  land  for  waterworks, 
then  the  land  is  taxed,  and  there  are  doubtless  some  other  exceptions ; 
,    but  municipally  owned  plants  in  the  United  States,  so  far  as  I  am 
J    aware,  are  generally  untaxed. 

Mr.  WTARREN.  Presumably  that  would  be  the  result  if  the  munici- 
palities or  any  other  governmental  agencies  took  over  these  street 
railways  ? 

Mr.  BULLOCK.  Presumably  it  would. 

Mr.  WARREN.  Is  it  not  at  least  a  debatable  question  whether  if  a 
I  service-at-cost  plan  or  some  other  form  of  partnership  between  the 
;  corporation  and  the  municipality  were  adopted,  whether  under  those 
\  circumstances  the  property  should  be  taxed? 

Mr.    BULLOCK.  It   is   perhaps   debatable.     I   believe   that   under 
\   normal  conditions  the  property  of  municipal  industries  ought  to  be 
j    taxed. 
j        Commissioner  MEEKER.  Municipally  owned  industries? 

Mr.  BULLOCK.  Yes;  and  of  course  in  England  that  is  done.     If 

the  city  municipalizes  its  gas  works,  it  pays  the  national  income  tax. 

The  exchequer  does  not  lose  thereby  and  the  real  estate  is  supposed 

j    to  be  taxed   for  local  taxation  like  other  things,   exempting  the 

property  of  public  industries  from  taxation  like  other  things.    Ex- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.    661 

empting  the  property  of  public  industries  from  taxation  can  be  car- 
ried only  a  certain  distance  without  producing  conditions  which  lead 
to  a  reversal  of  policy.  In  Europe  the  property  of  municipal  and 
State  industries  is  not  uniformly  taxed.  In  this  country  it  some- 
times is.  Our  Federal  forest  reserves,  for  instance,  are  not  taxed, 
but  a  part  of  the  revenue  is  given  to  the  counties  in  which  they  are 
located. 

Mr.  WARREN.  So  that  in  the  English  system  the  car  rider  or  gas 
consumer  pays  a  proper  proportion  of  tax  ? 

Mr.  BULLOCK.  Pays  a  proper  proportion  of  tax. 

Mr.. WARREN.  Whether  it  is  municipally  or  privately  owned? 

Mr.  BULLOCK.  Whether  it  is  municipally  or  privately  owned. 

Mr.  WARREN.  And  you  see  no  distinction  between  the  principle  of 
taxation  which  ought  to  apply,  whether  the  plant  is  publicly  or 
privately  owned  ? 

Mr.  BULLOCK.  I  do  not.  Under  proper  conditions  the  city — well, 
there  is  an  absolute  limit  to  the  amount  of  property  that  you  can 
withdraw  from  taxation.  The  Prussian  railroads  were  taxed  locally, 
and  they  had  to  be.  They  never  would  have  been  nationalized  other- 
wise. If  our  Government  takes  over  the  railroads  it  has  to  have  the 
consent  to  tax  them,  and  the  proper  condition  is  one  in  which  indus- 
tries of  this  character  if  owned  by  the  municipality  have  charged 
against  them  their  due  share  of  all  taxes. 

Commissioner  MEEKER.  May  I  interject  a  question  here? 

Mr.  WARREN.  Certainly. 

Commissioner  MEEKER.  I  intended  to  ask  this  before,  but  forgot  it. 

You  spoke  of  the  property  tax  being  rescinded  in  favor  of  a  net 
income  tax  for  the  time  being.  Would  it  not  be  better  to  adopt  the 
taxation  of  net  income  as  a  permanent  policy? 

Mr.  WARREN.  On  these  utilities? 

Commissioner  MEEKER.  Yes. 

Mr.  BULLOCK.  I  doubt  if  it  would.  At  least,  so  far  as  all  the  real 
estate  is  concerned.  Keal  estate  can  not  be  taxed  on  its  net  income 
for  local  purposes. 

Commissioner  MEEKER.  But  what  real  estate  does  the  street-rail- 
way company  own? 

Mr.  BULLOCK.  Well,  it  has  its  power  houses  and  barns  and  electric- 
railway  rights  of  Avay  which  they  own  in  a  good  many  cases.  The 
real-estate  element  with  the  electric  railway  is  not  as  important  an 
element  as  with  steam  railways,  but  still  it  is  an  element.  I  should 
say  such  real  estate  as  they  own  should  not  be  exempted  from  the 
property  tax  under  any  condition.  Their  other  property,  their  cars 
and  other  things,  might  very  well  be  exempted  from  taxation,  and 
you  might  very  well  have  an  income  tax  on  the  railroads  and  then  a 
real-estate  tax  on  their  real  estate.  Now,  that  solution  might  be  a 
very  good  ultimate  solution.  To  illustrate,  in  other 

Mr.  WARREN.  Under  normal  conditions? 

Mr.  BULLOCK.  Yes. 

Mr.  WARREN.  You  are  not  proposing  to  modify  what  you  said 
about  the  possible  exemption  in  view  of  the  peculiar  conditions? 

Mr.  BULLOCK.  My  income-tax  suggestion  which  I  make  on  the  last 
page  of  the  brief  has  reference  to  an  immediate  measure  of  relief. 
To  suspend  the  property  tax  for  5  or  10  years  and  impose  a  tax  on  the 


662       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

net  income  would  give  a  very  large  amount  of  relief,  and  it  is  fairly 
justified  if  the  emergency  is  as  great  as  I  think  it  is  in  many  cases. 

Commissioner  MEEKER.  But  you  think  it  should  not  be  adopted  as 
a  permanent  policy 

Mr.  BULLOCK.  I  think  it  should  not  be  adopted  as  a  permanent 
policy. 

Commissioner  MEEKER.  Except  as  you  have  indicated,  in  a  modi- 
fied form? 

Mr.  BULLOCK.  In  a  modified  form. 

(Witness  excused.) 

Mr.  WARREN.  Mr.  Nash,  will  you  resume  the  stand,  please? 

STATEMENT  OF  MR.  L.  R.  NASH— Resumed. 

Mr.  WARREN.  I  have  here  Mr.  Nash's  printed  article,  and  I  thought 
it  might  be  convenient,  as  he  testified,  if  the  members  of  the  Com- 
mission had  it  to  look  at,  as  some  questions  might  be  answered  in 
the  article. 

Commissioner  SWEET.  Yes. 

(Mr.  Warren  thereupon  handed  copies  of  Mr.  Nash's  printed 
article  to  the  members  of  the  commission.) 

Mr.  WARREN.  Mr.  Nash,  when  your  testimony  was  interrupted 
day  before  yesterday,  you  had  just  finished  your  outline,  I  think,  of 
the  general  principles  that,  in  your  judgment,  should  govern  the 
service-at-cost  franchise.  Is  that  correct  ? 

Mr.  NASH.  That  is  correct ;  yes,  sir. 

Mr.  WARREN.  You  had  not,  however,  taken  up  the  result  of  your 
study  with  the  various  service-at-cost  plans  which  had  actually 
been  adopted  and  put  in  operation  in  this  country  and  Canada,  had 
you? 

Mr.  NASH.  No. 

Mr.  WARREN.  And  since  then  you  have — necessarily,  because  of 
not  being  put  on  the  stand — heard  the  testimony  here  with  respect 
to  Dallas  and  the  testimony  with  respect  to  Cincinnati  and  the 
testimony  with  respect  to  Cleveland  ? 

Mr.  NASH.  I  have. 

Mr.  WARREN.  I  think  it  would  help  the  commission  in  its  con- 
sideration of  this  service-at-cost  plan  if  you  would  briefly  compare 
the  different  plans  of  service  at  cost,  pointing  out  the  differences  in 
effect  in  the  different  franchises. 

Mr..  NASH.  This  paper  that  has  been  handed  the  commission  sum- 
marizes in  an  analytical  and  historical  way  the  various  franchises  on 
this  service-at-cost  form  that  have  been  put  into  effect  in  the  United 
States  and  Canada,  with  one  exception.  The  city  of  Yonngstown. 
Ohio,  early  this  year,  granted  a  franchise  of  that  form.  It  did  not 
differ  radically  from  those  which  are  summarized  in  this  paper. 

The  testimony  that  was  presented  yesterday  from  these  cities 
which  Mr.  Warren  has  mentioned  simplifies  the  view  that  I  need  to 
make  of  the  details  of  these  different  franchises  to  a  material  ex- 
tent, and  I  think  it  would  be  unnecessary  to  go  into  any  great  de- 
tail of  the  features  of  these  different  franchises;  so  that  I  will  re- 
view rather  briefly  what  I  consider  the  important  features,  and  leave 
to  the  commission,  through  questions,  to  bring  out  such  further 
details  as  they  may  wish. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       663 

I  think  one  of  the  fundamental  features,  and  one  of  the  necessary 
features,  of  this  form  of  franchise  is  the  so-called  barometer  fund. 
It  is  through  this  barometer  fund  that  the  automatic  feature  has  its 
effect.  All  of  these  service-at-cost  franchises  have  this  fund  under 
one  name  or  another.  The  amount  has  been  testified  to  in  the  cases 
that  came  up  yesterday.  In  most  cases,  that  amount  is  fixed — fixed 
with  the  idea  that  the  upper  and  lower  limits  will  be  far  enough 
apart  so  that  any  ordinary  variations  in  either  revenues  or  cost  of 
operation  will  not  require  frequent  changes  in  the  rate  of  fare,  which 
would  be  confusing  to  the  public.  I  think  if  changes  ordinarily 
occur  at  intervals  of  six  months,  or  even  a  year,  the  best  results  are  in 
the  end  accomplished,  and  the  fund  should  be  large  enough  for  that 
purpose.  Rather  than  to  have  a  fixed  fund,  I  think  it  would  be 
better — and  that  is  embodied  in  one  of  the  recent  franchises — to 
have  a  fund  varying  with  the  size  of  the  property.  The  Dallas 
franchise  fixes  the  fund  on  a  per  cent  of  the  capital  value;  so  that, 
proportionately,  as  the  property  grows,  the  amount  of  this  barometer 
fund  and  its  upper  and  lower  limits  increase. 

Mr.  WARREX.  How  is  that  fund  provided,  Mr.  Nash? 

Mr.  XASH.  In  different  ways.  In  some  eases,  by  the  borrowing 
of  money  charged  wholly  to  the  capital  account  or  property  value. 
In  other  cases,  part  of  it — and  this  is  the  case  in  Cincinnati,  for  ex- 
ample— a  part  of  it  is  furnished  by  the  company  and  included  in  its 
capital  value,  and  the  balance  gradually  accumulated  through  the 
surplus  earnings  from  operation.  This  latter  method  has  the  ad- 
vantage that  a  large  sum  of  money  is  not  necessarily  borrowed  at 
once  on  which  the  car-riders  are  required  to  pay  the  specified  rate 
of  return. 

It  is  true  that  that  fund  is  not  kept  as  a  fund  in  cash,  but  perhaps 
it  is  not  needed,  in  the  same  way  as  a  corporate  surplus.  It  may  be 
invested  in  additions  to  the  property;  but  I  think  there  are  some 
advantages,  in  building  up  at  least  a  part  of  this  barometer  fund 
through  surplus  revenues.  I  think  a  very  useful  purpose  is  served 
by  this  automatic  feature  arising  through  the  barometer  fund,  as  is 
evidenced  by  the  testimony  which  was  presented  yesterday  and  the 
day  before  by  several  witnesses, 

It  was  brought  out  that  in  Cleveland,  in  Cincinnati,  and  other 
places  possibly,  the  increases  in  fares  which  have  been  made  under 
the  service-at-cost  franchises  have  occasioned  comparatively  littlo 
reduction  in  riding.  In  other  cities  where  increases  have  been  made 
through  negotiations  with  the  city,  or  through  orders  of  public-service 
commissions,  where  a  6-cent  rate  has  been  put  into  effect,  for  exam- 
ple, involving  a  theoretical  increase  in  revenue  of  20  per  cent,  the 
actual  increase  in  revenue  has  averaged  not  i»r  from  10  per  cent.  In 
other  words,  there  has  l>een  a  material  loss  in  traffic.  I  think  that 
loss  arises  almost  entirely,  not  localise  the  car  riders  can  not  afford  to 
pay  the  additional  cent,  but  because  of  the  agitation  and  resentment 
arising  in  connection  with  the  negotiations  for  the  increase.  City 
councils,  city  officials,  where  an  appeal  is  taken  to  a  public-service 
commission  for  an  increase  of  fare,  always  feel  it  incumbent  upon 
them  to  protest  the  increase;  and  the  public  press  and  professional 
politicians  take  that  opportunity  to  very  loudly  and  at  great  length 
express  their  opinion  or  the  public  utility  who  would  impose  addi- 
tional burdens  upon  the  poor  working  people.  The  result  is  that  there 


664       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

is  bound  to  be  a  large  amount  of  popular  attention  to  the  subject  and  a 
lot  of  misunderstanding,  and  consequent  resentment,  without  which, 
I  feel  quite  sure — and  the  testimony  before  the  commission  has  borne 
it  out — that  the  reduction  in  riding  would  be  comparatively  small. 
In  other  words,  the  operation  of  the  service-at-cost  franchises  tends  to 
minimize  the  unfriendly  public  relations,  and  yield  revenues  from 
fare  changes  that  should,  under  normal  conditions,  be  yielded — the 
kind  of  increases  in  revenue  that  actually  take  place  in  private  busi- 
ness where,  as  a  matter  of  course,  the  charges  for  commodities  have 
increased  in  these  days  as  the  cost  of  the  commodities  increased. 

So  that  I  think  that  that  feature  of  the  service-at-cost  franchises  is 
of  very  particular  importance. 

Another  essential  feature,  a  universal  feature,  of  these  franchises 
is  supervision.  It  has  a  variety  of  forms.  In  the  majority — I  think 
I  am  safe  in  saying  in  the  majority  of  cases — supervision  is  centered 
in  a  single  individual  selected  by  city  officials,  who  represents  them 
in  the  regulation  of  service,  the  examination  of  the  accounts,  studies 
all  the  needs  of  extensions  of  the  facilities  and  other  features  which 
are  involved  in  the  franchise.  In  other  cases,  and  usually  in  the 
larger  cities,  a  board  of  city  members  has  been  substituted  for  the 
single  supervisor.  In  Massachusetts,  the  Boston  Elevated  board  of 
trustees,  appointed  by  the  governor,  has  five  members.  That  is  the 
largest  number  on  a  supervision  board  so  far  in  effect. 

Mr.  WARREN.  And  the  Bay  State  has  the  same  number? 

Mr.  NASH.  The  Bay  State  has  the  same  number  as  the  Boston  Ele- 
vated. 

The  CHAIRMAN.  And  is  the  expense  of  that  supervision  generally 
borne  by  the  utility  ? 

Mr.  NASH.  Generally. 

The  CHAIRMAN.  In  all  cases? 

Mr.  NASH.  It  is  my  recollection  that  there  is  one  case — I  have  for- 
gotten what  it  is  for  the  moment — in  which  the  city  pays  the  expense 
of  this  supervisor's  office,  and  I  think  very  properly  it  is  a  part  of  the 
cost  of  car  service. 

The  consolidated  franchise,  socalled,  which  was  drafted  in  Chicago 
to  cover  the  combined  elevated  service  and  the  proposed  rapid-transit 
lines,  but  which  was  rejected  by  referendum  last  fall,  provided  for  a 
board  of  trustees  of  nine  members.  I  think  that  is  an  unnecessarily 
large  number.  It  is  apt  to  be  unwieldy  unless  the  duties  of  the  board 
are,  in  effect,  lodged  in  the  hands  of  a  comparatively  small  executive 
committee. 

I  have  said  in  this  paper  that  I  thought  it  would  be  desirable  that 
the  supervisor  should  be  a  man  preferably  of  technical  education  or 
else  a  man  of  broad  business  experience  who  should  be  appointed  by 
the  State  public-service  commission,  and  perhaps  act  as  the  agent  of 
the  commission,  instead  of  supervision  under  the  service-at-cost  fran- 
chise being  independent  of  the  State  commission.  This  plan  of  State 
commission  appointment  would  have  this  advantage,  if  the  service-at- 
cost  plan  becomes  widely  extended 

Mr.  WARREN.  That  is  the  Massachusetts  general-statute  plan,  is  it 
not,  which  was  adopted  last  year? 

Mr.  NASH.  I  so  understand. 

While  that  plan  has  not  come  into  general  use  at  all  as  yet,  because 
of  the  unfavorable  financial  conditions,  this  general  Massachusetts 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       665 

plan  provides  that  for  each  service-at-cost  company,  or  at  least  a 
group  of  nearby  companies,  the  State  board  shall  appoint  a  super- 
visor who  has  special  charge  as  the  agent  of  the  commission  of  these 
companies. 

Mr.  WARREN.  Those  unfavorable  financial  conditions  are  due  to  the 
fact  that  the  Massachusetts  act  requires  the  barometer  fund  and  also 
a  rehabilitation  fund,  I  think. 

Mr.  NASH.  To  be  set  up  in  cash  in  advance. 

Mr.  WARREN.  And  raised  through  the  issue  of  securities? 

Mr.  NASH.  Yes;  that  is  the  real  trouble. 

Mr.  WARREN.  The  companies  have  not  found  themselves  able  to 
secure  the  credit  necessary  to  issue  securities;  is  not  that  true? 

Mr.  NASH.  That  is  true. 

The  effect  in  any  State  of  a  large  number  of  service-at-cost  fran- 
chises under  such  a  plan  of  supervision  would  be  that  the  State  com- 
mission would  be  able  to  train  a  body  of  supervisors,  more  or  less 
in  the  way  that  our  diplomatic  corps  is,  or  ought  to  be.  trained — 
taking  young  men  and  educating  them  in  the  office  of  the  commission, 
sending  them  out  as  supervisors  of  the  smaller  properties,  and  gradu- 
ally transferring  them  to  larger  and  larger  positions  of  responsi- 
bility, with  their  increase  in  experience;  so  that  in  the  end  there 
would  be  developed  a  body  of  specially  trained  supervisors  to  have 
charge  of  this  class  of  public  service. 

The  commission  has  heard  some  testimony  on  the  question  of  the 
value  or  rate  base  to  be  adopted  for  use  in  cases  of  this  kind.  I 
think  it  is  sufficient  to  say  that  a  franchise  of  this  kind  should  have 
a  fair  value  expressed  in  more  or  less  the  ways  the  public-utilities- 
service  commissions  have  determined  fair  value  in  specific  rate  cases. 

I  think  I  testified  in  my  opening  testimony  that,  in  my  opinion, 
the  actual  investment,  honestly  and  prudently  made,  to  use  the  words 
of  the  Massachusetts  commission,  is  the  most  logical  basis  for  deter- 
mining the  return  to  investors.  That,  in  these  franchises,  is  also  the 
basis  of  the  city  purchase,  which  is  a  feature  of  nearly  all  of  them 
with,  in  most  cases,  the  addition  of  a  small  percentage  to  cover  costs 
of  liquidation  and  the  procuring  of  money,  where  not  otherwise  pro- 
vided for  in  the  plan. 

The  values  actually  fixed  in  these  various  franchises  show  quite  a 
wide  range  with  relation,  as  figured  out  in  the  per  mile  of  traffic,  and 
in  relation  to  capitalization,  perhaps.  In  practically  all  cases,  capi- 
talization has  been  entirely  ignored,  as  it  is  in  the  conventional 
handling  of  rate  cases  by  the  public-service  commissions. 

In  the  majority  of  cases,  I  think  the  valuation  has  approximated 
at  least  the  actual  investment  of  the  properties,  where  it  has  been 
possible  to  determine  that.  In  a  few  cases,  a  depreciated  value  has 
been  accepted,  but  these  have  been  cases  where  the  franchises  have 
expired  or,  for  other  reasons,  the  railways  were  not  in  a  position  to 
strenuously  contest  the  values  which  they  thought  were  too  low. 

Under  the  heading  of  the  cost  of  service,  from  which  the  rates  of 
fare  are  determined,  the  testimony  of  various  witnesses  has  brought 
out  the  elements  of  cost  which  are  universally  recognized,  but  some 
divergen.-e  of  method  of  determining  this  cost  has  been  developed. 

For  example,  in  Cleveland,  the  company  has  been  allowed  for  its 
cost  of  operation  a  certain  number  of  cents  per  car-mile;  an  amount 
fixed  in  the  franchise  but  subject  to  readjustment  by  ordinance  of 
1(50043°— 20 43 


666       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

the  city  council  and,  in  fact,  actually  adjusted  a  considerable  number 
of  times,  because  of  the  increased  cost  of  operation. 

Mr.  Culkins  testified  that  in  Cincinnati  they  thought  it  better  to 
prepare  an  annual  budget,  in  dollars,  of  the  anticipated  cost  of  op- 
eration, the  expected  conditions  of  service  all  being  taken  into  con- 
sideration as  carefully  as  possible.  I  think  that  method  is  better,  and 
it  involves  a  desirable  increased  flexibility.  City  councils  are  some- 
times disposed  to  look  at  revisions  of  franchise  terms  fairly,  and  at 
other  times  ^hey  are  influenced  by  political  considerations;  so  that 
there  is  a  tendency,  and  I  think  a  definite  tendency,  tp  postpone  the 
needed  adjustments  in  the  operating  allowance  where  it  is  fixed. 

In  the  Massachusetts  acts  and  in  a  number  of  other  recent  ones 
there  has  been  no  attempt  at  all  made  to  fix  a  definite  standard  of 
operating  costs  for  efficiency,  as  far  as  expense,  or  even  as  far  as 
maintenance  and  replacements  are  concerned,  the  responsibility  being 
placed  wholly  on  the  shoulders  of  the  supervisor  or  the  board  of  con- 
trol to  keep  in  close  touch  with  operating  costs  that  there  will  be  no 
chance  of  extravagance. 

I  think  the  budget  system  is  a  desirable  one.  It  is  desirable  in  any 
form  of  corporate  business,  and  particularly  so  under  a  service-at- 
cost  franchise,  as  it  gives  the  public,  so  far  as  the  public  is  interested, 
a  forecast  of  what  is  liable  to  happen.  If  this  budget,  for  instance, 
had  been  prepared  in  these  service-at-cost  cities  prior  to  the  begin- 
ning of  1919,  it  would  very  probably  have  shown  an  anticipated 
increase  in  the  cost  of  materials  and  an  increase  in  pay  rolls  and 
would  have  shown  the  inevitable  necessity  of  some  fare  increases, 
and  where  the  public  is  forewarned  of  increases  of  that  kind,  the  dis- 
turbance attending  the  actual  increases  when  they  go  into  effect  is 
minimized. 

With  respect  to  maintenance  and  replacement,  again,  in  several  of 
the  franchises  there  has  been  an  attempt  to  fix  the  amount  within 
which  the  entire  upkeep  of  the  property  should  be  taken  care  of  in 
cents  per  car-mile.  That  is  true  in  Cleveland.  That  is  fixed  by 
ordinance  in  Cleveland,  and  has  been  revised  several  times.  In  sev- 
eral cases,  it  is  fixed  in  the  form  of  an  annual  budget.  This  allow- 
ance is  intended  not  only  for  the  current  routine  maintenance  and  re- 
pairs, but  also  for  the  replacements  or  larger  items  of  the  property. 
In  other  words,  it  is  supposed  to  take  care  of  the  permanent  upkeep, 
and  supplementing  the  annual  allowance  or  expenditures,  it  is  ex- 
pected that  the  company  will  accumulate  a  reserve  for  future  re- 
quirements. 

The  amount  of  this  reserve — and  I  think  this  is  rather  significant- 
is  not  definitely  fixed  in  most  of  these  service-at-cost  franchises.  In 
the  Dallas  franchise,  it  has  been.  That  is  the  only  one,  as  I  recall  at 
the  moment,  in  which  there  has  been  a  definite  attempt  to  define  what 
provision  should  be  made  for  obsolescence,  supersession,  and  a  future 
provision  for  large  replacements  of  the  property  analyzed. 

Commissioner  MEEKER.  Has  that  definite  fund  been  indicated  in 
dollars,  or  is  it  in  a  percentage  of  the  capital  ? 

Mr.  NASH.  A  percentage  of  the  capital  value. 

Commissioner  MEEKER.  Do  you  know  what  percentage  it  is? 

Mr.  NASH.  The  Dallas  percentage,  if  I  recall  rightly 

Mr.  WARREN.  Mr.  Head  says  it  is  8. 

Mr.  NASH.  It  is  8. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       667 

Mr.  WARREN.  Eighteen. 

Mr.  XASH.  Not  18  per  cent  of  the  capital  value.  That  is  the  maxi- 
mum of  18  per  cent  of  the  gross  annual  accrual  for  the  reserve.  The 
per  cent  of  capital  value,  if  I  remember  rightly,  is  8.  It  is  very 
much  less;  and  the  point  I  would  like  to  bring  out  about  that  is 
this — that  the  provision  in  Dallas,  which  they  marked  out  with  a 
great  deal  of  care,  is  very  much  less  than  the  theoretical  requirements 
of,  for  instance,  the  Interstate  Commerce  Commission  and  a  number 
of  State  commissions.  They  are  getting  more  and  more  into  the 
habit  of  requiring  the  utilities  to  set  aside  each  year  an  amount  which 
is  estimated  as  the  current  loss  in  service  value  of  the  property  ele- 
ments. In  other  words,  if  an  element  of  property  has  an  estimated 
useful  life  of  20  years,  each  year  we  should  set  aside  this  for  its  ulti- 
mate replacement  one-twentieth  of  its  original  cost,  less  whatever  sal- 
vage value  there  may  be. 

The  effect  of  the  method  of  accruing  for  replacements,  deprecia- 
tion, socalled,  which  I  have  referred  to  as  being  produced  by  the  In- 
terstate Commerce  Commission  and  some  of  the  State  commissions 
in  their  accounting  requirements,  leads  to  the  accumulation  of  a  large 
reserve — in  some  cases,  a  very  large  reserve — which  is  never  used. 
This  reserve  accumulation  comes  from  the  car  riders  in  the  case  of 
the  railway  company.  It  is  money  taken  from  the  car  rider,  and 
usually  this  reserve  is  invested  in  the  property.  That  is  not  in  these 
days  a  very  profitable  investment  for  the  car  rider,  and  if  he  had  his 
option,  he  would  prefer  to  invest  his  money  somewhere  else.  Of 
course,  normally  and  theoretically,  this  investment  reserve  earns  a 
return.  It  is  unnecessary  to  go  out  and  borrow  as  much  outside 
capital;  so  that  the  fixed  charges  against  our  operation  are  less  than 
otherwise  would  be  the  case;  but  so  long  as  this  reserve  is  in  excess 
of  any  possible  actual  requirements — and  I  am  familiar  with  calcu- 
lations which  show  that  even  on  a  sinking  fund  basis,  this  reserve 
might  amount  to  as  much  as  40  per  cent  of  the  investment  in  the 
property — to  the  extent  that  that  is  excessive,  the  car  riders  pay  a 
higher  rate  of  fare  than  otherwise  would  be  necessary,  and  I  think  in 
any  service-at-cost  program  any  excess  accumulation  of  that  kind 
should  be  avoided. 

I  am  heartily  in  favor  of  full  provision  for  any  actual  require- 
ments, but  I  doubt  very  much  whether  provision  should  be  made  for 
so-called  obsolescence  and  supersession;  in  other  words,  whether  the 
car  riders  of  to-day,  using  a  certain  type  of  equipment,  should  fur- 
nish the  means  of  retiring  that  equipment,  so  that  subsequent  car 
riders  may  have  the  advantages  of  more  efficient,  safer,  and  otherwise 
more  attractive  service.  For  example,  we  are  now  introducing  in 
very  large  numbers  about  the  country — quite  large  numbers — the  one- 
man  car.  It  is  a  more  efficient  piece  of  equipment  than  the  older 
style  of  car.  The  cost  of  operation  is  less.  The  older  and  heavier 
equipment  is,  in  effect,  abandoned.  It  probably  will  be  for  some  time 
used  for  extra  heavy  service,  but,  in  the  end,  it  is  a  supersession,  and 
there  is  a  reduction  in  future  costs.  There  is  a  more  frequent  service 
for  the  car  rider,  and  I  think  the  user  of  the  one-man  car  is  the  man 
who  ought  to,  in  part,  at  least,  pay  for  the  amortization  of  the  re- 
maining life  of  the  equipment  which  is  superseded. 

In  short,  in  the  service-at-cost  franchise,  the  car  rider  should  pay 
as  a  part  of  the  cost  enough  to  accumulate  reserves  for  existing  re- 


668       PROCEEDINGS  OF  FEDERAL  ELEgTRIC  RAILWAYS  COMMISSION. 

newals  but  not  for  theoretical  depreciation  or  for  unforeseen  ob- 
solescence of  equipment. 

Mr.  WARREN.  Your  feeling  is  that  the  substitution  of  the  new 
form  of  equipment  and  apparatus  before  the  normal  life  of  the 
superseded  item  has  been  reached  is  a  proper  charge  for  the  future 
car  rider,  rather  than  to  be  taken  out  of  the  present  car  rider  ? 

Mr.  NASH.  Largely  so;  yes. 

Mr.  WARREN.  What  features  would  you  introduce,  Mr.  Nash,  into 
the  Cincinnati  franchise,  or  what  differences  would  you  make  in  it 
from  those  which  were  actually  adopted,  to  make  it,  in  your  opinion, 
an  ideal  franchise? 

Mr.  NASH.  There  is  one  feature  of  the  Cincinnati  franchise  which 
I  approve  of  theoretically.  Practically,  it  does  not  work  out,  and  I 
doubt  if  it  will  ever  work.  That  is  the  incentive  to  the  management 
and  investors  in  that  property  to  operate  it  efficiently. 

This  franchise  provides  that  for  a  5-cent  rate  of  fare  the  investors 
get  this  return  specified  in  the  franchise  for  various  classes  of  se- 
curities, plus  45  per  cent,  I  think  it  is,  of  any  surplus  which  may  be 
earned.  If  the  fare  is  in  excess  of  6  cents,  the  traction  company 
gets  nothing. 

Now,  back  in  normal  times,  that  provision  might  have  yielded  a 
material  amount  of  supplemental  return  to  the  traction  company, 
but  I  think  there  is  a  very  small  chance,  in  the  near  future  at  least, 
for  fares  to  get  down  to  a  point  where  the  company  will  get  any 
share  in  the  surplus  at  all.  So  that  this  incentive  intended  to  be  em- 
bodied in  this  franchise  is  not,  in  fact,  a  real  incentive.  It  is  a 
theoretical  one. 

Commissioner  SWEET.  Your  objection  is  rather  to  the  figures  that 
they  have  agreed  upon  than  the  principles? 

Mr.  NASH.  The  criticism  is  of  the  figures  rather  than  the  princi- 
ples. The  principle,  I  think,  is  thoroughly  right,  except  that  it  is 
not  clear  to  me  how  it  can  be  applied  to  rates  of  fare. 

That  same  provision  exists  in  the  Dallas  franchise,  as  Mr.  Head 
explained  last  night.  If  rates  of  fare  Were  stable — that  is,  if  we 
could  look  forward  to  more  or  less  uniform  costs  of  living  under 
even  the  present  scale,  if  we  may  assume  that  we  have  stepped  from 
one  plane  of  living  to  another,  which  is  50  per  cent  or  more  higher, 
and  are  going  to  stay  there1,  then  that  statute  should  be  revised  by 
raising  the  fare  a  cent,  or  a  cent  and  a  half  or  2  cents.  Two  cents, 
really,  should  be  the  amount  of  increase,  I  think.  Then  there  would 
be  a  real  incentive  to  the  company  for  an  increase  in  efficiency. 
There  would  be  an  incentive  to  the  investors  to  put  additional 
money  in  the  property.  The  average  investor  likes  to  see  something, 
I  think,  outside  of  a  certain  fixed  rate  of  return.  That  is  the  reason 
why  he  likes  to  buy  a  security  at  a  slight  discount,  rather  than  to 
pay  par  for  it,  because  at  maturity  he  gets  something  more  than  he 
originally  contributed. 

Mr.  WARREN.  Is  there  any  method  that  you  can  suggest  for  fur- 
nishing an  incentive  which  you  think  would  be  better  or  more  work- 
able than  either  that  of  the  Cincinnati  franchise  or  that  described  by 
Mr.  Head  last  night,  in  the  Dallas  franchise  ? 

Mr.  NASH.  I  do  not  know  of  any  method  that  could  be  definitely 
adopted  to  the  radically  changing  conditions  with  which  we  are 
confronted. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       669 

Mr.  WARREN.  But  in  normal  conditions,  what  do  you  think  about 
either  of  them  ? 

Mr.  NASH.  I  think  either  of  those  plans,  the  Cincinnati  or  the 
Dallas  plan — they  are  somewhat  similar — is  useful. 

I  should  like  also  a  provision  in  the  Montreal  franchise,  that  if 
the  company  lives  within  a  predetermined  budget — and  its  budget  is 
fixed  on  a  car-mile  basis  similar  to  Cleveland,  and  is  determined 
each  year  in  advance  and  not  definitely  fixed' — that  if  they  live 
within  that,  or  do  not  exceed  it  by  more  than  2.5  per  cent,  I  think  is 
the  margin  allowed,  the  company  is  allowed  a  so-called  operating 
profit  of,  I  think,  one-eighth  of  1  per  cent  on  the  capital  value. 
That  is  a  small  amount,  so  far  as  percentages  go,  but  it  should  serve 
as  an  incentive  to  keep  the  expenses  wTithin  all  reasonable  limits; 
but  the  just  working  of  an  allowance  of  that  kind  requires  absolute 
unvarying  fairness  on  the  part  of  the  commission  that  fixes  the  al- 
lowance in  advance  with  a  very  clear  forecast  of  what  is  going  to 
happen.  Otherwise,  it  is  difficult  to  definitely  and  successfully  apply 
it.  If  the  commissioner  fixes  his  allowance  one  year— if  he  fixes  it 
just  as  close  as  he  can,  and  the  company  comes  a  little  bit  under,  the 
tendency  in  the  succeeding  year,  if  the  commissioner  does  not  want 
the  company  to  earn  its  operating  allowance,  is  to  crowd  the  allow- 
ance down ;  so  that  in  a  series  of  years  there  is  an  attempt  to  crowd 
the  allowance  down  to  the  lowest  possible  limit,  and  the  incentive  is 
lost.  If,  on  the  other  hand,  the  allowance  is  made  liberal,  so  that 
the  company  can  easily  live  within  it,  somebody  gets  up  and  says 
the  commission  and  the  company  are  in  collusion  and  there  is  an 
operating  profit  there  that  really  does  not  belong  to  the  company  and 
was  not  really  earned. 

That  is  the  difficulty  in  applying  that  sort  of  an  incentive,  but 
the  principle  is  theoretically  good. 

Mr.  WARREN.  The  principle  of  an  incentive  is  good  ? 

Mr.  NASH.  The  principle.  I  think  it  is  better  than  the  London 
sliding-scale  principle,  because  of  the  probability  of  continued 
changes  in  the  basic  costs. 

Commissioner  MEEKER.  Have  you  described  the  London  sliding 
scale  in  your  pamphlet? 

Mr.  NASH.  I  have  described  its  application  in  the  cases  of  Dallas 
and  Cincinnati  in  the  pamphlet,  and  I  have  described  the  Montreal 
provision  also  on  the  operating  profit  here. 

Commissioner  MEEKER.  Is  the  Dallas  plan  the  London  sliding 
scale? 

Mr.  NASH.  Practically  so,  but  not  exactly.  It  is  based  on  the  rate 
of  fare.  The  London  sliding  scale,  I  think,  is  correctly  applied  in 
the  case  of  the  Boston  Gas  Co. ;  that  when  the  price  for  gas,  for  in- 
stance, is  a  certain  amount,  a  certain  return  in  per  cent  is  allowed. 
If  your  rate  for  gas  is  reduced  by  the  company  5  per  cent,  it  may 
add  1  per  cent  to  its  allowed  rate  of  return. 

Commissioner  MEEKER.  If  the  price  of  gas  goes  up 

Mr.  NASH.  The  rate  of  return  goes  down. 

Mr.  WARREN.  The  great  difficulty  with  that  is  in  establishing  a 
starting  point:  is  it  not,  Mr.  Nash? 

Mr.  NASH.  That  is  a  very  serious  difficulty. 

Mr.  WARREN.  In  Dallas,  the  starting  point  for  its  application  is 
the  5-cent  fare. 


670       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  NASH.  And  even  if  that  starting  point  is  accurately  de- 
termined, the  changes  in  conditions  that  we  have  gone  through  de- 
stroy the  effectiveness  of  it. 

Mr.  WARREN.  It  would  be  almost  impossible  to-day  to  adopt  the 
starting  point  which  you  could  consider  normal  in  the  street-rail- 
way business;  would  it  not? 

Mr.  NASH.  I  think  it  is  quite  impossible. 

Mr.  WARREN.  What  rate  of  fare  could  be  said  to  be  a  proper  rate 
of  fare  by  which  to  measure  your  London  sliding  scale? 

Mr.  NASH.  I  do  not  think  we  could  forecast  at  all  what  the  normal 
rate  should  be,  established  for  the  future,  for  any  term  of  years. 

Mr.  WARREN.  Do  you  think,  under  the  existing  uncertainties  of 
operating  expenses,  a  semiannual  budget  would  be  preferable  to  an 
annual  budget,  as  provided  for  in  the  Cincinnati  franchise  ? 

Mr.  NASH.  Under  the  authority  provided,  as  is  the  case  in  the 
franchises,  the  company  and  the  commissioner  may  agree  upon  re- 
visions. That  is,  if  there  is  any  definite  change  in  the  operating 
conditions  which  make  expenses  necessarily  higher,  or  possibly 
lower,  a  revision  of  the  budget  is  permissible,  and  I  think  it  should 
be  made,  as  is  done  very  commonly  in  general  corporation  prac- 
tice, six  months,  or  even  quarterly,  where  conditions  change  at  all 
radically. 

Mr.  WARREN.  This  service  at  cost  involves  a  franchise,  as  every 
case  of  a  street  railway  does,  of  course. 

Mr.  NASH.  There  is  just  feature  of  a  grant  conventionally 

Mr.  WARREN.  AVhat  would  you  say  were  the  salient  features  of  a 
service-at-cost  franchise  the  essential  features,  distinguishing  it 
from  an  ordinary  franchise? 

Mr.  NASH.  The  essential  difference  is  the  assurance  to  the  in- 
vestor that,  as  far  as  any  rate  of  fare  can  be  put  into  effect  which 
the  patrons,  the  car  riders,  can  afford  to  and  are  willing  to  pay,  the 
investor  will  get  a  normal  return  upon  his  investment.  In  other 
words,  the  kind  of  a  return  that  he  would  get  if  he  put  his  money 
in  an  alternative  commercial  or  industrial  proposition. 

That  is  not  a  guaranty.  I  think  that  distinction  ought  to  be  very 
clearly  brought  out,  that  it  is  not  a  guaranty  in  the  ordinary  fran- 
chise. In  our  Massachusetts  cases — the  Boston  Elevated  act.  at 
least — there  is  a  guaranty  that  the  State  treasury  will  make  up  the 
deficit,  and  the  return  to  the  investor  is  absolutely  guaranteed;  but 
it  is  expected  that  the  deficit  which  the  State  makes  up  at  one  time 
will  be  paid  at  another  time  under  more  favorable  conditions  by  the 
car  riders;  so  that  in  the  end  the  State  will  not  lose  anything,  but 
there  is  no  definite  provision  for  that  in  the  act. 

Mr.  WARREN.  So  that  one  essential  feature  and  difference  is 
the  assurance  to  the  investors,  that  so  long  as  the  business  is  ca- 
pable of  producing  it,  they  will  get  a  fixed  normal  return  on  their 
investment  ? 

Mr.  NASH.  That  is  the  real  vital  advantage  of  it. 

Mr.  WARREN.  Is  there  any  assurance  to  the  car  rider  that  he 
does  not  always  enjoy  under  present  franchises? 

Mr.  NASH.  There  is  an  assurance  to  the  car  rider  that  he  can  have 
any  kind  of  service  that  he  is  willing  to  pay  for. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       671 

Mr.  WARREN.  And  is  there  not  also  an  assurance  to  the  car  rider 
that  he  will  not  be  called  upon  to  pay  this  return  on  any  more 
than  a  determined  value  of  the  property  used  in  furnishing  service? 

Mr.  NASH.  Not  when  he  does  not  pay  any  higher  value,  but  he 
never  pays  more  than  the  established  normal  rate  of  return  on  that 
established  value. 

Mr.  WABKEN.  Oh,  yes. 

Mr.  NASH.  There  is  an  assurance  that  the  investor  never  gets  any 
more  out  of  the  business  than  he  could  get  if  he  put  his  money 
somewhere  else,  in  competitive  business,  where  their  return  is  re- 
stricted by  competition,  as  it  is  not,  ordinarily,  in  the  railway 
business. 

Mr.  WARREN.  So  that  really  those  two  features  are  very  im- 
portant: The  determination  of  the  value  of  the  property  used,  and 
then  permission  to  the  company  automatically  to  have  its  rates  go 
up  and  down,  to  furnish  a  return  upon  that  value  ? 

Mr.  NASH.  Those  are  the  fundamentally  necessary  features. 

Mr.  WARREN.  Those  are  the  two  reciprocal  benefits? 

Mr.  NASH.  Yes. 

Mr.  WARREN.  The  investor  says,  "I  won't  require  you  to  pa}7  on 
money  that  is  never  invested  " ;  and  the  car  rider  says,  "  You  may 
get  a  proper  return  on  whatever  is  invested." 

Mr.  NASH.  Exactly. 

Mr.  WARREN.  You  said  the  other  day,  I  think,  in  your  opinion, 
that  the  term  of  the  franchise  should  be  indeterminate — a  goocl- 
behavior  franchise?. 

Mr.  NASH.  There  are  undoubted  advantages  in  the  indeterminate 
franchise.  Unfortunatelj',  there  are  laws  in  a  good  many  States 
that  make  the  granting  of  such  franchises  impossible.  When  that  is 
the  case  the  results  can  be,  in  a  way,  accomplished  by  franchises  of 
this  Cleveland  form,  which  Mr.  Stanley  described,  or,  assuming  that 
a  25-year  term  is  the  maximum  that  the  authorities  can  grant, 
at  the  end  of  a  10-year  period  the  municipality  must  either  extend 
that  franchise  for  10  years  more,  starting  anew  again,  in  effect,  with 
a  full  25-year  term,  or  relinquish  its  rights  of  control,  and  permit 
the  railway  to  charge  the  maximum  possible  rate  of  fare  authorized 
under  the  franchise,  and  to  amortize  its  investment.  That  means, 
of  course,  a  much  higher  cost  of  service  to  the  car  rider.  The  city 
is  really  forced  to  make  the  extension  in  order  to  keep  the  rates  down 
to  a  consistency  with  current,  normal  costs;  and  if,  at  the  end  of 
every  10  years,  in  that  way  the  franchise  is  renewed  and  it  never 
comes  nearer  than  15  years  of  its  expiration,  the  question  of  financing 
is  veiy  much  simplified;  but  undoubtedly  the  indeterminate  form  is 
much  better,  because  this  10-year  agitation  over  terms  and  condi- 
tions of  the  franchise  is  entirely  avoided,  and  also  when  the  ques- 
tion of  renewal  comes  up  there  is  more  or  less  popular  discussion 
and  agitation. 

Commissioner  MEEKER.  Should  not  the  indeterminate  franchise 
be  subjected  to  a  review  about  every  10  years? 

Mr.  NASH.  Certain  features  of  it  logically  should  be  subject  to 
review. 

Mr.  WARREN.  But  these  essential  features  ought  not  to  need  re- 
view— the  determination  of  the  value  and  the  assurance  of  a  return? 


072       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS -COMMISSION. 

Mr.  NASH.  Those  should  be  fundamentally  unchanged.  They 
should  be  fixed. 

Now,  take  the  question  of  the  rate  of  return,  for  instance.  I  do 
not  think  we  can  foresee  indefinitely  what  rate  of  return  the  investor 
is  able  to  earn  in  other  business  and  what  he  is  entitled  to  under 
a  service-at-cost  franchise;  so  that  there  might  well  be  a  provision 
for  arbitration  or  readjustment  of  things  of  that  kind  that  are  sub- 
ject to  change  with  changing  general  conditions. 

Commissioner  MEEKER.  Would  you  make  these  changing  features 
subject  to  review  at  periodical  intervals,  say  every  10  years,  or  when- 
ever the  emergency  arises? 

Mr.  NASH.  Preferably  when  a  real  emergency  arises,  if  it  is  pos- 
sible to  definie  what  one  means  by  a  "  real  emergency."  That  is 
always  difficult. 

Commissioner  MEEKER.  Could  you  describe  such  an  emergency  as 
you  have  just  outlined? 

Mr.  NASH.  I  think  it  would  be  unquestionable  that  conditions 
which  have  arisen  during  the  war  should  be  an  occasion  for  the  re- 
vision of  any  established  features  of  this  kind. 

For  instance.  Mr.  Stanley  has  explained  that  while  the  Cleveland 
franchise  provides  for  a  6  per  cent  return  on  the  company's  stock — 
and  that  that  franchise  was  extended  for  10  years,  only  a  few  months 
ago — the  company  found  it  necessary  to  come  to  the  commission, 
saying  that  their  investors  are  entitled  to  a  7  per  cent  return.  They 
are  doubtless  claiming  that  7  per  cent  to  investors  to-day  commands 
less  in  purchasing  power  than  6  per  cent  did  three  or  four  years 
ago.  That  is  undoubtedly  true;  but  I  think  a  revision  applied  to 
the  question  of  the  rate  of  return  should  or  might  properly  be 
limited  to  the  question  of  what  differences  have  arisen  between  the 
time  when  the  rate  of  return  was  originally  established  and  the  time 
of  the  arbitration,  so  that  the  question  may  not  be  too  broad.  If  it 
is  left  too  broad,  the  investor  is  likely  to  be  frightened.  If  he  knows 
that  unless  conditions  change,  he  is  going  to  be  assured  of  a  continued 
return  on  the  basis  on  which  he  has  made  his  investment,  and  that  if 
conditions  do  change  the  rate  of  return  will  be  affected 

Commissioner  GADSDEN.  Mr.  Nash,  don't  you  think  that  that  will, 
in  some  measure,  affect  the  securities  of  the  investor  ?  If  an  investor 
buys  a  security  under  any  consideration  of  that  kind,  with  the  pro- 
vision that  the  rate  on  these  securities  is  subject  to  revision,  don't 
you  think  that  that  is  going  to  make  money  more  expensive  to  get, 
under  this  plan? 

Mr.  NASH.  There  would  be  a  tendency  both  ways. 

Commissioner  BEALL.  You  think  normally  it  would  go  up,  and 
not  down? 

Mr.  NASH.  If  the  investor  foresaw  that  prices  were  going  to  con- 
tinually rise,  and  that  the  rate  of  return  that  he  could  command  in 
the  future  ought  to  be  revised,  he  would  look  for  a  revision  to  give 
him  an  opportunity  to  get  more  than  he  started  with. 

Commissioner  BEALL.  Well,  are  not  the  chances  all  the  other  way  ? 

Mr.  NASH.  It  is  pretty  hard  to  tell  how  the  average  investor  would 
look  at  the  future,  whether  he  thinks  prices  are  going  up  or  going 
down. 

Commissioner  BEALL.  A  banker  would  not  undertake  to  raise 
money  under  those  conditions.  He  could  not  do  it,  absolutely. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       673 

Commissioner  GADSDEX.  That  is  a  gamble;  that  is  not  an  invest- 
ment. 

Commission  BEALL.  Is  not  the  protection  to  the  public  this:  If 
the  situation  is  such  that  the  return  ought  to  be  fixed  on  the  pur- 
chase provision,  which,  I  suppose,  you  would  recommend  as  a  feature 
of  eveiy  one  of  these  service-at-cost  franchises,  it  would  put  it  in 
the  power  of  the  municipality  or  the  State  or  other  public  agency 
to  take  the  property  over  ? 

Mr.  NASH.  There  is  a  still  more  definite  provision  than  that  in 
the  Cleveland  franchise,  for  instance,  that  the  city,  instead  of  exer- 
cising the  right  of  purchase  itself,  could  designate  a  new  licensee,  a 
new  purchaser,  although  the  company  has  a  right  to  retain,  the 
existing  company  has  a  right  to  retain  the  property,  if  it  will  accept 
a  rate  of  return  somewhat  lower  than  that  originally  prescribed. 

Commissioner  BEALL.  That  would  protect  the  public. 

Mr.  NASH.  That  would  prevent  the  prescribed  rate  of  return  from 
being  excessive. 

Commissioner  BEALL.  Yes. 

Mr.  NASH.  And  that  may  be  an  adequate  provision,  so  far  as  tho 
city  is  concerned. 

Commissioner  BEALL.  Now,  the  amount  upon  which  the  return 
should  be  allowed  should  not  vary,  except  as  additional  amounts  aro 
added  to  the  imrestment  in  the  property  ? 

Mr.  NASH.  I  think  not. 

Commissioner  BEALL.  Having  once  been  determined  ? 

Mr.  NASH.  Of  course,  there  is  this  to  be  said,  that  an  investor  to- 
day, if  he  gets  a  living  out  of  his  investment,  must  get  more  money  in 
dollars  than  he  got  a  number  of  years  ago,  and  that  must  como 
cither  through  a  higher  rate  of  return  or  from  a  higher  valuation 
of  the  property  which  he  has  invested.  I  think  the  simpler  way  of 
giving  him  that  higher  income  is  through  a  change  in  the  rate  of 
return  and  not  in  his  investment. 

Commissioner  BEALL.  Yes. 

Mr.  NASH.  The  more  stable  an  investment  value  is  fixed  the  better. 

Commissioner  BEALL.  If  that  amount  is  going  to  be  varied  up 
and  down,  there  will  be  the  same  feeling  of  insecurity  on  the  part 
of  the  investor;  will  there  not? 

Mr.  NASH.  I  think  there  will  be. 

Commissioner  BEALL.  And  if  it  was  not  determined,  would  you 
say  that  the  investor  would  not  prefer  to  invest? 

Mr.  NASH.  Here  is  an  illustration  that  came  up  in  a  hearing  on 
this  question  before  the  chamber  of  commerce  that  may  be  of  in- 
terest on  this  point: 

It  was  testified  to  in  Cleveland  when  the  franchise  came  up  for 
an  extension  last  spring,  that  an  incentive  ought  to  be  added  to  the 
fixed  rate  of  return,  so  that  the  investor  might  under  certain  condi- 
tions' get  more.  I  think  there  was  no  suggestion  that  the  return 
might  be  less  than  that  fixed,  but  the  investors — and  a  very  largo 
portion  of  them,  Mr.  Stanley  has  told  you,  are  residents  of  Cleve- 
land— seem  to  be  opposed  to  any  change  from  the  fixed — the  abso- 
lutely fixed — rate  that  they  were  entitled  to.  They  were  afraid 
that  any  added  flexibility  might  result  sometime  in  their  getting  a 
less  return  than  the  franchise  allowed  them;  so  that  that  provision 


674       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

of  flexibility  was  not  embodied  in  the  franchise  when  it  was  re- 
newed. 

Mr.  WAHHEN.  Of  course,  you  would  say,  I  presume,  that  the  fran- 
chises ought  not  to  contain  a  maximum  rate  of  fare  ? 

Mr.  NASH.  Neither  a  maximum  nor  a  minimum. 

Mr.  WARREN.  Yes. 

Mr.  NASH.  Neither. 

Mr.  WARREN.  In  view  of  the  experiences  of  the  last  year  and 
a  half? 

Mr.  NASH.  I  think  the  less  definition  regarding  fare  schedules  that 
is  actually  set  forth  in  the  franchise  the  better;  and  the  more  that 
can  be  left  to  the  judgment  of  the  supervising  authorities  the  better. 
It  may  be  advisable  in  cities  to  change  from  a  fixed  fare  basis  to  a 
zone  basis,  or  change  the  character  of  the  schedules  in  some  other 
way;  so  that  if  a  franchise  does  not  require  a  certain  kind  of  fare 
to  be  charged  at  varying  rates  the  opportunity  to  make  a  change 
in  the  type  of  the  schedule  is  obtained. 

Mr.  WARREN.  That  exists  in  the  Massachusetts  statute,  as  I  recall 
it.  The  company  can  submit  to  the  public -service  commission  a 
scheme  of  fares,  with  a  sliding  scale,  and  when  the  commission  ap- 
proves it.  the  scale  can  be  made  effective;  and  it  may  subsequently, 
if  the  commission  permits,  substitute  another  scale,  a  different  kind 
of  scale;  is  not  that  so? 

Mr.  NASH.  An  entirely  different  kind. 

Mr.  WARREN.  Yes. 

Mr.  NASH.  There  is  no  definition  of  rates  or  scales  in  the  Massa- 
chusetts acts  at  all.  The  only  thing  is  that  whenever  a  particular 
schedule  of  fares  is  in  effect,  there  must  always  be  ready  to  go  into 
effect  steps  above  and  below,  so  that  there  will  be  no  delay  in  making 
a  change,  whenever  it  is  necessary,  promptly. 

Mr.  WARREN.  Have  you  stated  what  rate  of  return  is  allowed  on 
capital  in  these  different  franchises.  Does  it  vary? 

Mr.  NASH.  It  does  vary  to  a  material  extent.  I  think  it  is  5 
per  cent  plus  a  proportion  of  the  divisible  surplus— one-third,  I 
think  in  this  case.  In  Chicago,  it  is  5  per  cent  plus  45  per  cent  of 
the  surplus.  Kansas  City  has  6  per  cent.  We  have  not  any  real 
service-at-cost  franchises. 

Mr.  WARREN.  Would  you  call  Chicago  a  real  service-at-cost  fran- 
chise? 

Mr.  NASH.  It  is  not. 

Mr.  WARREN.  It  is  a  partnership  arrangement? 

Mr.  NASH.  It  is  a  partnership  arrangement,  with  a  division  of 
the  surplus,  really. 

Commissioner  BEALL.  Chicago  has  two  plans.  There  is  one  that 
you  have  not  mentioned.  That  really  increases  your  return.  They 
are  allowed  to  charge  a  certain  amount  wThen  they  negotiate  securi- 
ties, which  goes  into  their  treasury.  As  a  matter  of  fact,  one  of 
the  companies  out  there  has  something  like  four  or  five  million 
dollars  accumulated  through  that  process,  which  is  entirely  outside 
of  the  rate  of  return  that  they  are  allowed  on  their  capital  stock  or 
the  value  of  their  property. 

Mr.  NASH.  That  is  a  very  liberally  promulgated  supervision 
allowance. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       675 

Commissioner  BEALL.  Not  when  you  figure  it  down,  but  it  is  an 
addition  to  what  you  have  mentioned. 

Mr.  Nash.  All  of  that  adds  to  the  average  rate  of  return.  The 
Dallas  franchise  embodies  the  highest  theoretical  permissible  rate 
that  I  recall;  and  that  is  9  per  cent,  and  that  is  only  obtainable 
when  the  fare  is  appreciably  below  5  cents. 

Mr.  WARREN.  But  what  they  assume  to  be  a  normal  fare  in  Dallas 
is  7  per  cent. 

Mr.  NASH.  That  is  7  per  cent. 

Mr.  WARREX.  That  is  7  per  cent  on  the  value  of  the  property? 

Mr.  NASH.  Seven  per  cent  on  the  value  of  the  property,  as  fixed  hi 
the  franchise. 

Mr.  WARREN.  And  I  do  not  suppose  anybody  can  tell  to-day  what 
should  be  allowed,  if  you  considered  that. 

Mr.  NASH.  Only  in  a  general  way.  If  the  costs  of  living  generally 
have  gone  up  not  less  than  50  per  cent,  the  investor,  who  theoretically 
may  live  on  his  income,  ought  to  have  his  income  increased  50  per 
cent.  The  investor  makes  his  money  work  for  his  living,  and  lie  is 
just  as  much  entitled  to  a  higher  wage  on  his  money  as  the  working- 
man  is  entitled  to  a  higher  wage  for  his  physical  labor. 

Mr.  WARREN.  Do  many  franchises  provide  for  the  actual  rate 
which  has  to  be  paid  for  obtaining  new  capital? 

Mr.  NASH.  There  are  several  of  them  that  provide  that  the  actual 
cost  of  obtaining  new  money,  whatever  it  may  be,  shall  be  allowed  as 
a  part  of  the  cost  of  the  service.  That  is  true  in  Cincinnati,  as  Mr. 
Culkins  testified.  It  is  also  true  of  the  Youngstown  franchise,  the 
most  recently  granted,  and  not  included  in  my  summary.  That  is 
true  of  the  Massachusetts  provisions,  too,  but  not  entirely  so  either, 
because  the  Boston  Elevated  was  allowed,  of  course,  a  certain  fixed 
return  upon  the  capital  stock  to  cover  interest  requirements  upon 
borrowed  money. 

Mr.  WARREN.  I  think  that  is  all,  Mr.  Nash. 

The  CHAIRMAN.  I  have  not  had  time  to  review  your  pamphlet,  Mr. 
Nash.  Have  you  discussed  the  theory  of  the  cost  of  service  in  the 
different  franchises  that  exist  in  Cincinnati,  Cleveland,  Dallas,  and 
some  other  places,  and  also  the  experiences  which  have  been  derived 
from  the  exercise  of  those  franchises  ? 

Mr.  NASH.  I  have  discussed  the  theory  and  the  experiences  in 
cases  like  Cleveland,  where  the  franchise  has  been  in  operation  a 
considerable  number  of  years.  I  have  in  the  case  of  Dallas,  I 
think,  although  at  the  time  that  was  prepared,  only  about  one  year 
of  experience  was  available.  A  great  many  of  those  franchises  were 
so  new  that  there  is  comparatively  little  about  the  actual  experience 
in  that. 

The  CHAIRMAN.  If  the  commission  should  desire  to  cross-examine 
you  at  some  future  time,  could  you  come  back  here? 

Mr.  NASH.  I  will  be  glad  to. 

The  CHAIRMAN.  There  are  one  or  two  points  that  I  would  like  to 
develop.  It  appears  that  the  cost  of  public  supervision  must  be 
borne  by  the  utility. 

Mr.  NASH.  I  think  so. 

The  CHAIRMAN.  Might  not  that  prove  very  burdensome  to  the 
utility  in  the  case  of  small  plants? 


676       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  NASH.  It  might,  of  course;  but  I  think  that  the  supervision 
might  be  so  adjusted  by  having  a  joint  supervisor  for  a  number  of 
such  small  plants  who  would  not  spend  all  of  his  time  on  any  one  of 
them;  a  supervisor,  as  I  have  suggested  before,  appointed  by  the 
State  commission  and  responsible  to  them,  dividing  his  time  over 
an  appreciable  number  of  small  plants.  I  think  that  is  quite  true; 
that  a  very  small  railway  would  not  need  the  attention  or  the  entire 
attention  of  even  one  supervisor,  and  other  large  systems  will  re- 
quire not  only  the  entire  attention  of  one  man  but  of  a  subordinate 
staff  of  engineers  and  accountants. 

The  CHAIRMAN.  If  one  company  operates  in  several  villages,  and 
also  in  the  suburban  territory,  it  might  follow  that  you  would  hav6 
as  many  contracts,  different  in  form,  as  you  have  villages  through 
which  the  company  operates? 

Mr.  NASH.  That  probably  would  be  the  case,  because  the}7  are  apt 
to  disagree  rather  than  agree  on  some  things. 

The  CHAIRMAN.  It  would  also  follow  that  municipalities  would  be 
attempting  to  establish  rates  for  service  for  communities  over  which 
they  have  no  control. 

Mr.  NASH.  They  might  attempt  it,  but  they  could  not  enforce  it. 

The  CHAIRMAN.  How  are  you  going  to  work  out  that  situation  ? 

Mr.  NASH.  I  think,  especially  where  a  railway  system  covers  a 
number  of  cities  and  villages,  that  there  must  be  State  supervision; 
that  the  municipality  could  grant  a  franchise  only  for  the  part  of  the 
system  within  its  limits,  and  it  would  only  control  the  part  of  the 
system  within  its  limits.  There  is  an  attempt  in  several  of  these 
service-at-cost  franchises,  notably  Montreal,  I  think,  to  extend  the 
influence  of  the  agreement  beyond  the  confines  of  the  city,  and,  as 
far  as  I  know,  it  is  working  through  the  sufferance  of  the  adjoining 
communities.  It  is,  I  think,  a  good  deal  to  the  advantage  of  these 
communities  that  the  general  plan  which  is  in  effect  in  Montreal 
should  be  working  in  these  other  communities  as  well,  because  it 
gives  to  them  probably  lower  rates  of  fare  than  they  would  otherwise 
be  paying. 

The  CHAIRMAN.  Now,  back  in  Minnesota,  for  instance,  a  rapid- 
transit  company  operates  on  the  streets  of  St.  Paul  and  Minneapolis, 
and  the  same  cars  go  out  into  the  suburban  territory,  18  to  20  miles. 
When  it  gets  beyond  the  territory  of  the  city  of  Minneapolis,  it  oper- 
ates as  a  railroad  company,  yet  you  have  the  same  equipment,  the 
same  men,  the  same  company,  and  the  same  capital  investment. 
Manifestly,  it  would  be  very  difficult  for  the  city  of  Minneapolis  to 
attempt  to  establish  the  service  on  the  rails  in  the  outlying  territory. 
Therefore,  it  seems  that  you  must,  in  some  way,  link  the  State  and 
the  city  together. 

Mr.  NASH.  I  think,  that  is  quite  necessary.  It  must  be,  of  course, 
an  apportionment  of  the  value  of  the  property  over  the  city  and  of 
all  movable  property  between  the  city  and  suburban  communities. 

The  CHAIRMAN.  I  have  no  further  questions  to  ask  at  this  time. 

Commissioner  BEALL.  I  just  want  to  ask  Mr.  Nash  a  question  or 
two. 

You  were  saying  that  you  did  not  believe  that  the  service-at-cost 
franchise  should  provide  too  large  a  depreciation  and  obsolescence 
fund ;  and  it  was  not  clear  to  my  mind  wrhat  was  in  your  mind.  How 
do  you  propose  that  that  should  be  taken  out?  As  I  understand  it, 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       677 

there  are  only  two  ways  of  dividing  it.  You  must  do  it  year  by  year 
by  accruals  or  else  pay  it  in  one  year,  getting  the  whole  lot  of  it 
at  once. 

Mr.  NASH.  I  would  not  take  care  of  it  out  of  capital  at  all. 

Commissioner  BEALL.  When  you  said  you  would  not  charge  the 
present  car  rider  for  any  of  that  beyond  a  certain  point,  I  did  not 
know  what  your  theory  was,  or  how  it  would  be  taken  care  of.  That 
is  what  I  am  trying  to  get  at.  I  did  not  know  what  you  had  in  mind. 

Mr.  NASH.  The  thought  I  have  in  mind  is  that  every  railway 
should  set  up  a  reserve.  I  do  not  know  that  I  would  attempt  to  define 
what  that  would  be,  because  it  involves  so  many  different  questions 
as  to  probable  useful  life  and  the  extent  of  the  effect  of  changes  in 
the  art  and  all  that;  but  if  I  were  guessing  at  a  suitable  reserve, 
which  would  take  care  of  any  actual  retirements  and  replacements 
on  a  normal  charge,  I  would  say  something  like  10  per  cent  of  the 
investment.  I  think  that  would  be  enough  to  wholly  take  care  of 
any  normal  amount  of  retirements.  There  might  conceivably  be  a 
time  when  some  very  large  element  in  the  property — for  instance, 
if  they  had  a  very  large  power  station,  writh  reciprocating  engines, 
and  it  would  be  necessary,  for  reasons  of  economy,  to  replace  that 
plant  with  turbine  units  and  converting  system,  the  writing  off  of 
that  entire  plant,  together  with  other  current  retirements,  might 
conceivably  overdraw  the  accumulated  reserve.  But  what  would 
happen,  I  think,  as  a  matter  of  fact,  would  be  this,  that  in  a  case 
such  as  1  have  cited,  when  this  new  power  plant  was  built — and  I 
have  known  of  a  case  of  exactly  this  sort  to  actually  happen — in- 
stead of  tearing  down  the  old  plant  and  writing  it  off  and  selling 
for  junk,  it  would  be  retained;  some  parts  of  it  very  probably 
removed  to  the  new  station  as  being  useful  for  future  service,  and 
the  balance  retained  for  emergencies.  Such  emergencies  happen.  I 
have  known  things  that  have  been  shut  down  for  a  year  or  two — 
and  when  I  say' "  emergencies,"  I  include  the  abnormal  demands  of 
the  war  period,  and  the  inability  during  that  period  to  secure  new 
equipment — I  have  known  these  old  plants  that  have  been  shut  down 
for  several  years  to  be  replaced  in  service  and  operated  more  or  less 
continuously.  So  that  the  retirements,  the  writing  off,  and  the  dis- 
posing of  large  items  of  property  of  that  kind  may  very  properly 
be  spread  over  a  term  of  years,  instead  of  being  taken  out  all  at  once. 

Commissioner  BEALL.  1  do  not  know  whether  I  understand  what 
you  mean  or  not — whether  you  will  want  to  put  that  burden  on  the 
future  car  rider  and  extend  it  into  the  future,  rather  than  have  it 
accumulated  in  a  fund  from  year  to  year,  which  would  ordinarily 
take  care  of  those  kinds  of  items. 

"Mr.  NASH.  I  would  accumulate  a  fund  for  a  reserve,  which  could 
be  invested  in  the  extensions  of  property,  and  not  held  in  cash. 

Commissioner  BEALL.  You  see  what  I  mean? 

Mr.  NASH.  Yes. 

Commissioner  BEALL.  If  a  big  plant  comes  to  you  to  spend  a 
million  dollars  for  possibly  this  new  power  house  or  equipment  or 
whatever  it  may  be,  you  either  have  tnat  money  accumulated — and 
the  difference  between  what  you  have  accumulated  and  what  is 
needed  you  have  to  raise  in  some  way  and  spend  it.  There  are  only 
two  ways  of  taking  care  of  that:  You  either  have  to  charge  it  to 
capital  account,  which  is  probably  wrong,  or  else  you  have  to  amortize* 


678        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

that  for  quite  a  series  of  years  in  the  future,  and  charge  it  for,  per- 
haps, so  much  per  year. 

Mr.  NASH.  My  thought  about  the  methods  of  accounting — and 
I  think  they  are  consistent  with  the  Interstate  Commerce  Commission 
requirements  and  those  of  some  of  the  other  commissions — is  that 
when  new  property  is  added  to  railway  facilities,  it  should  be  charged 
to  the  property  account.  Now,  if  a  railway  builds  a  new  power  sta- 
tion, that  new  power  station  is  its  property,  and  it  should  be  added  to 
its  capital  value.  The  precribed  methods  are  that  when  property  is 
retired  or  abandoned  or  replaced,  it  must  be  written  off,  and  the 
amount  which  was  actually  spent  on  the  property  account  must  be 
removed. 

Now,  it  is  not  necessary,  for  accounting  purposes,  that  the  removal 
of  an  old  plant,  which  may  be  temporarily,  and  possibly  permanently, 
put  out  of  actual  use,  should  be  written  off  at  exactly  the  time  that 
the  new  plant  is  added  to  the  property.  It  may  be  disposed  of  in 
the  way  that  the  Interstate  Commission  prescribes.  If  it  is  an  actual 
retirement  and  the  reserve  is  not  available  in  full,  it  may  be  put  into 
a  suspense  account  provided  for  that  purpose  and  taken  out  of  prop- 
erty and  gradually  written  off. 

Commissioner  BEALL.  But  the  public  service  commissions  having 
jurisdiction  over  electric  railways  will  not  let  you  write  anything  of 
that  kind  off  except  the  excess  for  your  old  property.  They  will  not 
let  you  take  a  new  station  that  cost  $1,000,000,  and  charge  that  in  as 
new  construction.  If  you  are  going  to  abandon  then  or  later  an  old 
power  house  it  has  some  value.  You  will  duplicate  your  capital  if 
you  do  that. . 

Mr.  NASH.  What  they  expect  to  be  clone  is  that  when  a  piece  of 
property  is  abandoned  it  should  be  written  off,  regardless  of  whether 
something  else  takes  its  place  or  not.  When  anything  new  is  added 
to  the  property,  whether  it  takes  the  place  of  old  property  or  not,  it 
should  be  added  to  capital,  and  properly,  of  course.  '  Where  there  is 
a  substitution,  the  old  elements  should  be  taken  out.  If  it  is  really 
abandoned,  it  should  be  taken  out  at  the  time  the  new  one  is  added ; 
but  the  accounting  system  does  provide  for  a  suspense  account  in 
which  that  can  be  carried  if  the  accumulated  reserve  is  not  adequate 
to  take  care  of  it  until  the  additional  accruals  can  be  made  to  make 
the  amount  available  adequate.  I  think  we  are  quite  agreed  on  the 
principle.  It  is  just  a  matter  of  accounting  practice,  in  which  com- 
missions have  endeavored  to  allow  some  latitude  in  the  way  in  which 
the  retired  property  shall  actually  be  charged  off  through  the  operat- 
ing and  expense  accounts. 

Commissioner  BEALL.  I  was  trying  to  get  at  what  portion  you 
thought  should  be  charged  to  the  present  car  rider  and  what  portion 
you  ought  to  charge  to  the  future  riders. 

Mr.  NASH.  It  is  not  a  thing  that  can  be  definitely  fixed,  because  you 
can  not  state  definitely  whether  a  particular  retirement  is  due,  to 
obsolescence.  It  is  not  wholly  in  those  cases.  A  piece  of  track  is  torn 
up  because  the  city  wants  to  pave  the  street.  It  is  hardly  worn  out, 
but  the  cause  of  removal  is  partly  wear  and  tear  and  partly  super- 
session, or  whatever  you  want  to  call  it. 

Commissioner  BEALL.  You  see,  we  are  anxious  to  get  from  every- 
body who  has  stated  these  different  plans  their  ideas  and  the  best  way 
of  working  them  out. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       679 

Mr.  NASH.  I  have  studied  this  question  of  depreciation  a  good  deal. 

Mr.  WARREN.  Mr.  Nash,  what  would  you  do  with  this  piece  of 
track?  I  think  that  would  answer  Mr.  Beall's  question.  You  say 
you  would  take  up  a  piece  of  track.  Suppose  it  had  20  years'  life, 
and  the  city  repaves  and  wants  to  take  it  out  at  the  end  of  15  years? 

Mr.  NASH.  I  would  take  that  immediately  out  of  the  property  ac- 
count entirely. 

Mr.  WARREN.  At  what  rate? 

Mr.  NASH.  At  what  it  actually  cost  originally. 

Mr.  WARREN.  Let  us  say  $50,000. 

Mr.  NASH.  A  new  piece  of  track  would  conceivably  cost  $100,000. 
The  wfiole  of  that  $100,000  cost  of  new  track  would  be  added  to  the 
property  account.  So  that  the  net  increase  would  be  the  difference 
between  the  two. 

Commissioner  BEALL.  That  is  $50,000.  You  only  have  an  increase 
in  your  property  value  of  $50,000. 

Mr.  NASH.  $50,000. 

Commissioner  BEALL.  Only  $50,000. 

Mr.  NASH.  That  is  all. 

Commissioner  BEALL.  That  would  be  the  real  increase.  Other- 
wise, you  would  duplicate  your  value.  Of  course,  that  means  the 
same  thing,  but  I  was  trying  to  see  how  you  would  take  care  of  that. 

Mr.  NASH.  I  am  not  arguing  for  a  duplication  of  capital. 

Commissioner  BEALL.  No;  I  do  not  think  there  is  any  difference  in 
what  we  mean,  but  we  have  stated  it  in  different  ways,  and  I  wanted 
to  see  what  your  idea  was  as  to  how  to  take  care  of  it.  It  may  be 
useful  to  the  commission  to  know  that. 

Mr.  NASH.  I  think  it  is  a  disputed  question  as  to  t  how  far  obso- 
lescence should  be  borne  before  the  fact  rather  than 'after  the  fact, 
because  it  is  essentially  an  indefinite  question.  You  can  not  tell  how 
far  in  any  specific  replacement  that  one  element  rather  than  another 
requires  the  replacement. 

The  CHAIRMAN.  We  will  suspend  here  to  resume  at  2  o'clock. 

Commissioner  MEEKER.  It  seems  to  me  that  Mr.  Warren's  question 
has  not  yet  been  answered,  and  I  would  like  to  hear  the  answer  to  it. 

Mr.  WARREN.  I  do  not  think  so,  either. 

The  CHAIRMAN.  You  can  get  that  answer  at  2  o'clock. 

(Whereupon,  at  1  o'clock  p.  m.,  a  recess  was  taken  until  2  o'clock 
p.m.) 

AFTER  RECESS. 

STATEMENT  OF  ME.  L.  R.  NASH— Continued. 

Mr.  WARREN.  I  think  I  am  through  with  my  questions  of  Mr.  Nash. 

Commissioner  SWEET.  Mr.  Meeker,  I  think,  has  some  questions  he 
wants  to  ask  Mr.  Nash. 

Commissioner  MEEKER.  I  would  like  to  ask  again  the  question  Mr. 
Warren  asked,  with  a  little  modification.  Let  us  take  the  supposed 
values  that  he  suggested,  a  piece  of  track  that  has  cost  originally 
$50,000,  and  let  us  say  that  $30,000  of  the  $50,000  has  been  written 
off  in  depreciation,  that  there  remained  $20,000  capital  investment 
unaccounted  for,  and  that  for  some  reason  or  other  the  track  is  torn 
up  and  relaid  by  new  track  which  costs  $100,000;  how  would  you 
recommend  handling  that  bit  of  finance? 


680       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  NASH.  Now  your  assumption  is  not  quite  in  accordance  with 
the  established  accounting  practice.  That  is,  this  original  piece  of 
track  would  stay  in  the  property  account  in  full  as  long  as  it  re- 
mained in  service.  There  might  have  been  $30,000  accrued  to  take 
care  of  it 

Commissioner  MEEKER.  I  was  not  making  any  assumptions  there 
as  to  what  was  actually  done  with  the  capital  investment  as  shown  by 
the  books  of  the  company,  but  $30,000  has  actually  been  taken  care 
of  through  a  depreciation  fund  and  $20,000  has  not  been  touched  at 
all. 

Mr.  NASH.  That  piece  of  track  when  it  is  taken  up,  there  would  bo 
some  salvage  to  it;  say  a  possible  $5,000  of  salvage,  although  that 
would  be  large.  That  would  be  realized  in  cash,  leaving  $15,000  of 
value  unprovided  for,  and  that,  if  there  was  no  more  reserve  to  take 
care  of  that,  would  be  put  in  a  suspense  account  in  your  standard  ac- 
counting system,  called  property  abandoned,  and  would  remain  there 
until  a  sufficient  reserve  had  been  accrued  to  take  care  of  that  balance. 

Commissioner  MEEKER.  It  would  be  accounted  as  part  of  the  in- 
vestment until  it  was  written  off? 

Mr.  NASH.  Well,  it  would  be  taken  out  of  the  property  account, 
but  would  still  be  included  in  an  asset  suspense  account. 

Commissioner  MEEKER.  So  that  any  estimate  of  the  value  of  the  in- 
vestment would  take  that  into  account 

Mr.  NASH.  It  would  not.  It  would  be  taken  out  of  the  property 
account. 

Commissioner  MEEKER.  Well,  but  I  am  speaking  now  not  merely 
of  the  property  account,  but  of  an  estimate  of  investment  upon  which 
the  company  is. entitled  to  a  reasonable  return.  There  would  be  the 
$100,000  which  the  new  track  cost,  plus  $15,000,  would  there  not? 

Mr.  NASH.  Yes. 

Commissioner  MEEKER.  Making  a  total  of  $115,000  on  thi«  par- 
ticular piece  of  line  which  the  company  is  entitled  to  earn  a  reason- 
able income  on. 

Mr.  NASH.  I  think  about  $15,000  should  be  included  in  the  rate 
base,  so  to  speak,  until  it  has  been  written  off .  because  otherwise  it 
is  a  part  of  the  investor's  money  that  would  not  be  earning  a  return 
as  it  should. 

Commissioner  MEEKER.  I  want  to  make  sure  of  that.  The  ques- 
tions asked  by  Mr.  Beall  seemed  to  rather  becloud  the  issue  so  that  I 
was  not  certain  of  your  opinion.  Now  you  ha\;e  brought  up  some 
very  fundamental  and  theoretical  questions  in  your  testimony  this 
morning  in  regard  to  changing  the  rate  of  return  with  changing 
levels  of  prices.  The  term  "gamble"  has  been  introduced  in  this 
morning's  session.  I  want  to  ask,  do  you  think  there  is  any  greater 
uncertainty  to  the  investor  to  guarantee  him  a  fixed  return  in  goods 
purchasable  by  money  rather  than  to  guarantee  him  a  fixed  return 
in  money  itself? 

Mr.  NASH.  I  should  think  there  was.  That  is,  money  has  a  con- 
stantly varying  value  and  what  an  investor  wants  is  purchasing 
power. 

Commissioner  MEEKER.  Well,  your  answer  then — let  me  put  the 
question  again.  My  question  was.  Is  there  any  greater  uncertainty  to 
the  investor  under  a  guaranty  of  a  fixed  return  in  goods  purchasable 
by  money  rather  than  a  fixed  return  in  money  itself  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       681 

Mr.  NASH.  The  answer  to  that  is  no.  I  did  not  understand  your 
question. 

Commissioner  MEEKER.  The  greater  risk  would  inhere  in  the  fixed 
money  return ;  would  it  not  ? 

Mr.  NASH.  I  think  so,  but  of  course  that  is  fundamentally  so,  and 
yet  I  think  the  average  investor  is  not  apt  to  quite  appreciate  it.  He 
perhaps,  without  recognizing  the  full  significance  of  what  is  going  on 
in  the  past  few  years,  is  very  likely  more  apt  to  say  he  would  rather 
-take  a  chance,  whatever  the  chance  is  on  his  fixed  return  rather  than 
submit  himself  to  adjustments.  A  good  many  investors  would  very 
much  rather  do  that. 

Commissioner  MEEKER.    Do  you  think  that  is  true  to-day? 

Mr.  NASH.  Well,  whether  this  is  true  of  the  average  investor  I 
would  not  like  to  say. 

Commissioner  MEEKER.  It  seems  to  me  the  financial  literature  is 
littered  with  costs  of  liA'ing  data 

Mr.  NASH.  It  is. 

Commissioner  MEEKER.  And  with  articles  on  the  changing  levels 
of  prices;  and  we  know  in  what  direction  they  have  been  changing 
for  the  last  20  years,  and  it  would  seem  to  me  that  quite  likely  the 
investor  would  much  rather  be  assured  of  a  fixed  return  in  purchas- 
iLg  power  rather  than  a  fixed  return  in  a  depreciating  dollar. 

Mr.  NASH.  I  think  any  investor  who  is  a  student  of  economics  ap- 
preciates that  previous  to  these  war  times  there  was  a  steadily  or 
fairly  steadily  diminishing  purchasing  power  cf  the  dollar.  We  have 
estimated  that  the  cost  of  electric-railway  property  since  about  1894, 
I  think,  when  the  upward  trend  started,  has  been  about  3  per  cent 
a  year  on  an  average.  So  if  that  was  true  of  commodities  generally  it 
would  necossarily  follow  that  the  purchasing  powei  of  a  dollar  has 
decreased  in  that  proportion  and  the  purchasing  power  of  an  in- 
vestor's return  on  a  fixed  investment  has  similarly  decreased. 

Commissioner  MEEKER.  We  are  getting  into  the  theory  which  I  do 
not  care  now  to  enter  into,  because  I  do  not  think  it  is  pressingly  im- 
portant in  this  problem,  although  it  is  quite  important:  the  ques- 
tion as  to  whether  the  rate  of  interest  tends  to  rise  with  rising  prices. 
Do  you  care  to  express  an  opinion  on  that  subject? 

Mr.  NASH.  No;  I  do  not  think  so — not  unless  you  wish  it  par- 
ticularly. 

Commissioner  MEEKER.  I  will  not  press  for  an  answer  on  that,  but 
I  do  want  to  call  your  attention  to  the  fact  that  what  you  have  just 
said  does  depend  upon  the  correctness  or  the  incorrectness  of  the 
theory  that  interest  rates  do  tend  to  increase  with  increasing  prices 
and  they  tend  to  decrease  with  decreasing  prices.  Now,  my  own 
opinion  is  that  there  is  no  necesssary  connection  whatsoever,  and  we 
may  have  increases  in  prices  with  decreasing  interest  rates,  and  vice 
versa.  But  whether  or  not — well,  I  do  not  care  to  press  that:  any 
further  unless  you  care  to  express  an  opinion  upon  it. 

I  would  like  to  have  your  statement  in  regard  to  changing  the 
rate  of  return  with  changing  price  levels.  Tlr.s  morning,  if  I  under- 
stood you  correctly,  you  said  you  believed  that  the  rate  of  return 
should  change  with  changing  price  levels. 

Mr.  NASH.  My  thought  was  that  where  there  are  radical  changes 
in  conditions,  such  as  have  occurred  during  the  war,  that  an  injustice 
might  be  done  either  to  the  investor  or  to  the  party  on  the  other  sida 

1GOG430— 20 44 


682       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

with  fixed  rates  of  return.  But  under  normal  conditions,  where 
radical  changes  of  that  kind  are  absent,  I  think  the  average  investor 
would  much  prefer  what  he  considers  the  security  attaching  to  a 
fixed  rate  of  return. 

Commissioner  MEEKER.  A  fixed  rate  of  money  return? 

Mr.  NASH.  Yes. 

Commissioner  MEEKER.  And  not  purchasing  power? 

Mr.  XASH.  Yes. 

Commissioner  MEEKER.  In  case  there  is  any  provision  for  a  chang- . 
ing  of  rate  of  money  return,  would  you  wish  to  limit  that  provision 
in  any  way?     Would  you  make  it  a  changing  return  as  prices  in- 
creased but  not  make  it  a  changing  return  in  case  prices  decreased  ? 

Mr.  XASH.  I  think  with  full  fairness  the  question  should  be  left 
entirely  open.  Of  course,  the  investor  from  his  point  of  view  would 
prefer  to  see  a  stop  which  would  not  operate  against  him,  but  the 
public  from  their  point  of  view  would  prefer  to  see  the  stop  the  other 
way ;  and  in  f airness  to  both,  if  the  question  is  open  at  all,  it  ought 
to  be  open  both  ways. 

Commissioner  MEEKER.  That  is,  there  should  be  a  rule  to  work 
both  ways? 

Mr.  XASH.  Yes. 

Commissioner  MEEKER.  If  the  rule  is  to  be  introduced  at  all? 

Mi\  XASH.  Yes.  And  as  I  said  this  morning.  I  think  if  a  rate  of 
return  is  fairly  fixed  in  the  beginning — fair  to  the  investor  under  the 
existing  circumstances— that'  the  question  of  readjustment  should  be 
restricted  to  an  extent  measured  by  the  specific  changes  in  the  con- 
ditions existing  at  the  time  of  the  readjustment  from  what  they  were 
at  the  time  of  the  original  fixing  and  not  to  leave  the  question  wide 
open  for  somebody  to  sit  down  and  say,  "  What  is  the  market  value 
of  money  to-day,"  but  rather,  "  What  is  the  difference  in  the  value 
or  rate  of  return  on  money  to-day  from  what  it  was  10  years  ago,  say, 
for  an  investment  of  this  particular  character  and  risk?"  I  would 
narrow  the  arbitrable  issue  just  as  closely  as  possible 

Commissioner  MEEKER.  Would  you  make  these  periods  of  readjust- 
ment fixed  periods,  every  5  or  every  10  years,  or  would  you  pre- 
scribe in  a  general  way  that  the  readjustment  should  be  made  when- 
ever such  and  such  an  exigency  arose — whenever  a  question  of  chang- 
ing price  levels,  for  example,  brought  the  serious  issue  of  the  pur- 
chasing power  of  the  dollar  of  income  before  the  public?  • 

Mr.  XASH.  I  think  the  nearest  approach  to  an  accurate  determina- 
tion of  actual  cost  of  service  as  applying  that  thought  to  a  case  of  a 
railway  company  would  be  to  have  that  question  opened  whenever  the 
occasions  definitely  arose;  but  there  again  would  come  the  thought 
on  the  one  hand  of  the  investor  that  he  would  hesitate  about  haying 
the  question  of  his  rights  raised  at  any  time  that  anybody  might 
want  to  raise  them,  and  the  public  on  the  other  hand  might  feel  that 
there  might  be  an  advantage  to  them  in  holding  the  investor  down, 
for  instance,  during  a  given  term  of  years  rather  than  having  the 
issue  opened  at  any  time. 

Commissioner  MEEKER.  The  reason  I  asked  the  question  was  be- 
cause price  levels  have  changed  more  within  the  past  year  than  they 
had  during  the  past  three  or  four  years,  to  put  it  very  conservatively, 
and  they  have  changed  within  the  war  times  more  than  they  had 
changed  within  the  previous  years. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       683 

Commissioner  GADSDEX.  In  connection  with  what  Mr.  Meeker  is 
asking  you,  I  want  to  ask  you  whether  it  is  not  true  that,  when  we 
come  to  the  question  of  the  return  on  capital — the  rate  that  money 
shall  bear — that  is  a  question  which  is  practically  solely  determined 
by  the  investor.  It  is  not  a  question  that  we  can  legislate  about,  nor 
is  it  a  question  that  we  can  compromise  on.  If  the  terms  are  not  satis- 
factory, the  investor  puts  his  money  in  other  industries  than  the 
street  railroads.  Is  not  that  true  ? 

Mr.  NASH.  That  is  very  true. 

Commissioner  GADSDEX.  So  it  is  not  a  two-sided  question,  where 
the  parties  can  discuss  it  pro  and  con.  You  have  got  to  do  what  the 
•investor  wants  in  that  respect,  have  you  not,  or  you  do  not  get  his 
money  ? 

Mr.  NASH.  This  also  is  true,  that  if  an  issue  of  bonds  is  offered  to 
the  investing  public  and  the  term  of  the  bonds  is,  say,  30  years,  the 
public  will  pay  for  those  bonds  what  they  think  the  average  return 
on  that  money  ought  to  be  for  the  30-year  period  during  which 
those  bonds  run.  That  is,  a  fair  guess  of  the  economic  financial  con- 
ditions of  the  future  to  a  certain  extent. 

Commissioner  GADSDEX.  What  I  had  in  mind — if  the  investor 
was  apprehensive  of  a  provision  in  the  franchise  whereby  the  rate 
this:  Is  it  not  entirely  up  to  him  to  say  what  those  terms  shall  be? 
put  any  more  money  into  street  railway  business;  would  he  not? 

Mr.  NASH.  That  is  perfectly  true. 

Commissioner  GADSDEX.  And  the  point  I  want  to  bring  out  is 
this:  Is  it  not  entirely  up  to  him  to  say  what  those  terms  shall  be? 
The  city  could  not  provide  the  terms,  the  companies  could  not  pro- 
vide the  terms.  We  have  at  last  got  to  one  point  in  the  inquiry 
where  one  class  of  people  dictates  the  terms,  have  we  not? 

Mr.  NASH.  They  dictate  the  terms  on  the  money  that  they  have 
got.  On  the  money  that  they  have  already  loaned  under  certain  pre- 
scribed conditions  they  can  not;  they  have  to  take  the  return  until 
they  get  it  back. 

Commissioner  GADSDEX.  Of  course  the  fellow  that  is  in  has  to 
take  what  he  can  get,  but  the  fellow  who  is  out  and  whom  we  want 
to  bring  in 

Mr.  NASH.  The  fellow  who  is  out  can  dictate  whether  the  electric 
industry  or  any  other  industry  shall  advance  or  remain  fixed  and 
stagnant. 

Commissioner  MEEKER.  Admitting  the  truth  of  that — and  I  do  not 
think  anyone  will  gainsay  it — my  question  was  whether  you  think 
investors  would  refuse  to  invest  under  terms  that  I  indicated,  of  a 
revision  either  upward  or  downward  according  as  prices  change  or 
price  levels  change.  Do  you  think  investors  would  refuse  to  invest 
under  those  circumstances? 

Mr.  NASH.  That  is  a  quesion  that  I  can  not  answer  from  experi- 
ence. I  do  not  recall  that  just  that  kind  of  a  proposition  has  been 
put  up  specifically  to  the  investing  public. 

Commissioner  MEEKER.  I  think  that  is  correct,  so  far  as  my 
knowledge  goes.  „ 

Mr.  NASH.  It  is  a  matter  of  speculation  as  to  what  the  frame  of 
mind  of  the  average  investor  would  be. 

Commissioner  MEEKER.  But  you  did  answer  in  response  to  a. 
previous  question  of  mine  that  you  thought  there  was  less  hazard 


684       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

involved  in  investing  under  a  guaranty  of  a  fixed  return  in  pur- 
chasing power  than  there  is  involved  in  investing  under  a  guaranty 
of  a  fixed  return  in  money. 

Mr.  NASH.  I  think  that  is  undoubtedly  so;  but  the  question  re- 
mains as  to  whether  the  average  investor  appreciates  that  point,  and 
I  am  not  sure  that  he  does. 

Commissioner  MEEKER.  Well,  I  think  we  have  covered  that  suffi- 
ciently. There  are  two  other  questions  I  had  in  mind. 

Commissioner  BEALL.  When  you  are  through  with  that  I  want 
to  ask  some  questions. 

The  CHAIRMAN.  Do  you  want  to  follow  up  this  line  ? 

Commissioner  BEALL.  It  has  a  bearing  on  it;  yes. 

Commissioner  MEEKER.  Go  ahead. 

Commissioner  BEALL.  Is  it  not  true  that,  in  any  proper  plan  for 
operation  at  cost  of  street  railways,  that  it  includes  a  provision  as 
part  of  the  cost  of  operation,  if  you  please,  of  what  it  costs  to  get 
capital,  money  from  time  to  time?  Street  railways  always  have 
to  raise  large  sums  of  money  from  year  to  year  other  than  what 
they  may  get  out  of  earnings,  even  though  they  are  prosperous — a 
great  many  millions  every  year,  the  country  over.  Now  every 
proper  plan  should  provide  for  that  cost,  should  it  not,  as  part  of 
the  cost  of  operating  the  property? 

Mr.  NASH.  Every  plan  should 

Commissioner  BEALL.  Every  plan  provides  for  it  that  I  know  of 
and  every  other  so  far  as  I  have  any  knowledge  of.  Did  you  ever 
know  of  an  investor  who  ever  bought  a  bond  where  the  interest  on 
it  at  any  time  could  be  made  less? 

Mr.  NASH.  No. 

Commissioner  BEALL.  I  do  not  think  anybody  ever  knew  of  such 
a  case. 

Mr.  NASH.  I  do  not  know  of  any. 

Commissioner  BEALL.  The  only  case  where  a  man  is  willing  to 
take  less  than  what  the  property  is  paying  when  he  goes  into  it  is 
when  he  is  dealing  with  what  are  called  equities  in  stock.  There 
he  knows  that  if  the  property  earns  more  his  dividends  may  be 
more  or  they  may  be  less,  but  when  he  is  bidding  on  stock  he  is 
counting  on  a  minimum  dividend  in  his  own  mind;  is  not  that  true? 
It  may  be  a  property  that  never  has  paid  a  dividend,  but  he  is  in 
hopes  that  it  will. 

Mr.  NASH.  He  is  hoping  that  he  will.  Whether  he  can  count  on 
it  or  not  is  another  question. 

Commissioner  BEALL.  But  he  does  not  count  on  its  not  paying  at 
all? 

Mr.  NASH.  No. 

Commissioner  BEALL.  Is  it  not  true  that  the  only  forms  of  capital 
where  that  is  done  is  where  a  man  is,  you  might  say,  speculating,  and 
he  does  not  hope  for  a  reduction  but  an  increase  and  he  would  not 
invest  otherwise  ? 

Mr.  NASH.  The  holder  of  a  final  equity,  of  course,  always  is  sub- 
ject to  fluctuation.  It  may  be  nothing  at  one  time  and  very  good  at 
another.  He  is  speculating  on  an  average — 

Commissioner  BEALL.  But  he  is  not  investing  on  that  theory.  He 
knows  he  runs  that  risk,  but  he  is  not  investing  thinking  that  that 
is  going  to  happen,  if  the  company  earns  nothing.  He  is  expecting 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       685 

it  will  earn  something.  If  it  earns  4  per  cent  he  hopes  it  will  earn 
5  or  6  and  not  3  per  cent. 

Mr.  NASH.  I  think  that  is  so. 

Commissioner  BEALL.  Did  you  ever  know  of  a  man  who  invested 
his  money  on  any  other  theory? 

Mr.  NASH.  No.     There  is  always 

Commissioner  BEALL.  If  I  may  continue  that  a  little  further,  does 
not  that  take  care  of  itself  in  this  wa}T — that  every  proper  franchise 
of  a  company  under  the  cost-of-operation  plan  provides  for  the  cost 
to  the  company  of  getting  money  from  time  to  time?  Now,  a  few 
years  ago  some  big  companies  who  had  large  earnings  would  some- 
times borrow  at  as  low  as  4  per  cent,  some  of  them  at  4£,  and  the 
average  was  5,  5^,  and  6.  To-day  you  could  not  sell  anything  at  all 
to  the  public  probably  at  less  than  a  6  per  cent  basis.  What  you 
could  get  money  from  the  bank  at  I  do  not  know,  but  very  few  com- 
panies could  sell  anything  at  any  price.  Now,  next  year  if  times  and 
conditions  surrounding  these  properties  are  better,  of  course  that 
rate  may  be  5.5  per  cent,  maybe  it  will  be  7  per  cent.  But  when  that 
time  comes  that  the  company  has  to  get  money  the  point  is  they  have 
to  pay  the  market  rate  for  the  period  of  time  they  want  it.  whether 
it  is  1,  5,  10,  20,  or  30  years,  but  that  rate  varies  and  whatever  that 
cost  is,  the  franchise  should  provide  a  means  of  taking  care  of  it. 

Mr.  NASH.  It  certainly  should  provide — 

Commissioner  BEALL.  It  is  a  part  of  the  cost  of  the  property ;  it  is 
what  it  costs  you  to  get  that  money. 

Mr.  NASH.  The  return  on  the  long-term  issues  of  securities  of 
course  would  of  course  be  much  more  stable  than  short  term  notes. 

Commissioner  BEALL.  You  never  knew  of  a  case  of  a  man  who 
bought  a  bond  which  bore  5  or  6  per  cent  with  the  understanding 
that  sometime  that  rate  could  be  reduced  ? 

Mr.  NASH.  I  never  heard  of  such  a  case. 

Commissioner  BEALL.  He  has  a  provision  in  it  that  if  the  interest 
is  not  paid  he  forecloses  and  takes  the  property  ? 

Mr.  NASH.  That  is  the  case;  but  the  man  would  be  affected  by  an 
adjustment  of  the  average  rate  of  return  such  as  we  have  been  dis- 
cussing. 

Commissioner  BEALL.  The  man  who  owns  the  property  is  a  dif- 
ferent matter;  but  the  obligations  you  sell  to  the  public  by  the  way 
of  new  capital  have  to  bear  a  fixed  interest  subject  to  no  change  un- 
less it  is  an  increasing  one  and  not  a  decreasing  one? 

Mr.  NASH.  That  is  undoubtedly  true. 

Commissioner  MEEKER.  Mr.  Nash,  I  \vould  like  to  ask  regarding 
the  sinking  fund  or  barometer  fund,  as  you  refer  to  it:  You  said, 
p.s  I  recall,  that  you  thought  it  should  be  partly  charged  to  capital 
investment  and  partly  built  up  from  net  earnings.  Would  you 
give  your  reasons  for  that  ?  I  was  not  clear  on  that  point. 

Mr.  NASH.  There  is  not  any  very  great  difference  as  to  whether  it 
is  built  up  in  one  way  or  another.  If  the  money  is  raised  in  cash 
outright  at  the  start,  the  whole  fund,  the  riding  public  immediately 
begins  to  pay  interest  on  that  whole  fund.  Now,  if  that  can  be  im- 
mediately invested  in  additions  to  the  property  so  that  it  earns  its 
own  support,  it  does  not  cost  the  car  rider  anything.  If,  on  the 
other  hand,  no  extensions  to  the  property  are  made  for  a  time,  that 
fund  lies  idle  except  as  it  may  draw  a  small  interest  on  bank  deposit 


686       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION, 

and  the  investor  is  getting  a  much  larger  return  on  that.  That  is, 
the  property  is  paying  under  the  franchise  a  G  per  cent  return  and 
this  part  of  the  investment  only  draws  2  or  3  out  of  the  bank  and  the 
car  rider  pays  temporarily  the  difference.  If  only  a  small  part  of 
that  money  is  raised  from  capital,  new  money,  and  charged  to  the 
property  account,  it  is  much  easier  to  immediately  use  the  cash 
available  for  additions  because  of  its  smaller  amount. 

Commissioner  MEEKER.  Would  that  be  safe  financiering,  to  invest 
the  whole  barometer  fund  in  extensions? 

Mr.  NASH.  Not  the  whole  of  it,  but  it  Avould  a  large  part.  I 
would  treat  a  barometer  fund  in  that  respect  very  much  like  a  cash 
balance  that  the  company  might  have,  that  it  would  keep  in  cash 
just  what  was  needed  for  outright  payments  of  any  maturing  obliga- 
tions or  cmergencias. 

Commissioner  MEEKEK.  In  that  way  you  advocate  building  up  the 
fund  partly  out  of  capital  and  partly  out  of  net  earnings? 

Mr.  NASH.  To  avoid  adding  so  much  to  the  capital  account — that 
is  the  only  advantage  in  that. 

Commissioner  MEEKEK.  I  am  not  quite  clear  about  this  sliding- 
scale  business.  You  spoke  of  the  franchise  in  Cincinnati.  When  the 
fare  becomes  6  cents  then  no  extra  earnings  go  to  the  company  at 
all,  in  case  there  should  be  any? 

Mr.  NASH.  If  the  fare  is  in  excess  of  6  cents.  When  it  is  6  cents 
the  company  gets  20  per  cent.  When  it  is  5.5  cents,  the  company 
gets  35  per  cent,  I  think.  And  when  it  is  5  cents,  the  company  gets 
45  per  cent. 

Commissioner  MEEKER.  Of  course  it  is  possible  to  devise  a  sliding 
scale  which  will  have  no  limit  except  infinity,  upward  and  down- 
ward ? 

Mr.  NASH.  Yes. 

Commissioner  MEEKER.  Is  that  the  London  sliding  scale? 

Mr.  NASH.  The  London  sliding  scale  has  no  limit  at  all.  And  as 
applied  in  the  case  of  the  Boston  Gas  Co.,  the  original  company  to 
adopt  that  in  the  United  States,  there  is  no  limit  there.  Regardless 
of  the  existing  rate  of  return  and  the  existing  price  of  gas,  if  there 
is  a  reduction  of  5  cents  the  rate  of  return  goes  up  1  per  cent.  No 
limit  either  way. 

Commissioner  MEEKEK.  Do  you  think  that  is  a  superior  form  of 
sliding  scale  to  the  Cincinnati  or  the  Dallas  plan? 

Mr.  NASH.  I  think  so  in  principle,  because  of  its -lack  of  limits  in 
either  direction. 

Commissioner  MEEKEB.  Does  it  give  sufficient  incentive  to  effi- 
ciency in  management  to  the  company? 

Mr.  NASH.  In  principle  it  does,  and  in  practice  it  does  if  it  starts 
at  the  right  point.  If  the  original 

Commissioner  MEEKER.  The  starting  point  puzzled  me  somewhat. 
Will  you  elucidate  that  somewhat,  just  how  you  fix  upon  a  certain 
starting  point  and  the  approximately  correct  one? 

Mr.  NASH.  If  I  recall  rightly,  when  the  Boston  Gas  Co.  adopted 
this  act,  which  was  a  State  legislative  act  which  gave  them  the 
right  to  employ  this  sliding-scale  principle,  the  price  of  gas  was 
fixed  at  90  cents,  and  that  was  the  so-called  normal  price  of  gas. 
The  corresponding  rate  of  return  was  8  per  cent.  Then  when  the 
price  of  gas,  as  it  did,  went  down  to  85  cents,  the  company  got  9 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       687 

per  cent,  and  when  it  went  down  to  80  cents,  they  were  allowed  10 
per  cent.     Now  if  the  price  of  gas  should  have  been  $1  instead  of 

00  cents,  corresponding  with  8  per  cent,  it  should  have  been  80  cents 
or  85  cents.    The  effect  W7ould  have  been  materially  different. 

Commissioner  MEEKER.  Yes;  I  see. 

Mr.  NASH.  And  it  was  somebody's  business — I  do  not  know  whose 
now — to  see  that  that  adjustment  was  made,  and  it  has  always  been 
charged,  whether  justly  or  not  I  do  not  know,  that  the  price  of  gas 
corresponding  with  an  8  per  cent  return  was  fixed  somewhat  too 
high. 

Commissioner  MEEKER.  That  is  alL 

Commissioner  SWEET.  Are  you  a  member  of  the  firm  of  Stone  & 
Webster  ? 

Mr.  NASH.  I  am  not. 

Commissioner  SWEET.  Have  you  investments  in  street-railway 
properties  of  your  own? 

Mr.  NASH.  I  es ;- 1  have,  unfortunately. 

Commissioner  SWEET.  In  the  statements  that  you  haA7e  made  here 
orally  and  in  this  pamphlet  are  you  taking  an  attitude  in  favor  of 
investors  that  in  a  sense  conflicts  with  the  interest  of  the  general 
public  so  far  as  you  know? 

Mr.  NASH.  I  do  not  think  my  personal  interest  in  the  matter  is 
sufficient  to  bias  my  judgment.  I  try  to  ignore  that  side  of  it. 

Commissioner  SWEET.  In  the  present  situation  is  there  a  conflict  of 
interest  between  the  general  public  and  the  investors  in  utility  prop- 
erties, either  those  who  have  invested  or  those  who  may  become 
investors? 

Mr.  NASH.  There  is  no  real  conflict.  A  good  manv  people  think 
there  is,  but  fundamentally  the  interests  of  the  public  and  the  in- 
vestors I  think  are  substantially  identical,  in  the  final  analysis. 

Commissioner  SWEET.  When  the  railroad  companies  were  making 
large  profits  and  the  public  was  seeking  to  get  all  it  could  out  of  the 
companies  there  was  a  conflicting  attitude  between  the  two  that  does 
not  exist  at  the  present  time,  in  your  judgment? 

Mr.  NASH,  I  think  there  was  more  difference  of  opinion  in  those 
older  days  that  you  speak  of,  but  eten  then  I  think  that  the  differ- 
ences were  imaginary  to  a  considerable  extent  rather  than  real.  I 
firmly  believe  that  the  exorbitant  profits  wliich  the  electric  railways 
are  alleged  to  have  made  in  the  early  days  are  very  largely  fictitious. 

1  say  that  because  I  have  had  occasion  to  make  a  considerable  number 
of  careful  studies  of  the  history  of  these  old  properties,  going  back 
oven  through  the  days  of  horse  cars,  45  and  50-year  periods  of  com- 
plete study. 

Commissioner  MEEKER.  Have  you  published  any  articles  on  that 
subject? 

Mr.  NASH.  I  have  not;  no.  And  I  found  that  in  the  horse-car  days 
in  typical  cases — that  is,  cases  that  I  think  are  entirely  typical — that 
the  companies  were  able  to  earn  approaching  10  per  cent  on  an 
average.  There  were  years  in  which  they  earned  more  and  others  in 
which  they  earned  less,  depending  upon  the  general  business  condi- 
tions. But  in  the  cases  that  I  have  studied  carefully,  the  average 
of  the  whole  horse-car  period  has  bet>n  less  than  10  per  cent  upon  the 
actual  cash  investment,  regardless  of  security  issues;  and  since  the 
days  of  electrification  the  average  return  has  been  materially  less 


688       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

than  that,  less  than  8  per  cent,  and  that  is  not  an  extravagant  rate 
of  return,  by  any  means. 

Commissioner  SWEET.  I  figured  from  what  you  said  that  you  think 
the  solution  of  this  problem  depends  upon  cooperation  upon  the 
part  of  the  company  and  the  public. 

Mr.  NASH.  I  think  that  is  very  essential,  cooperation  based  upon 
a  knowledge  upon  the  part  of  the  public  of  the  condition  of  the 
electric  railways  which  they  have  not  at  present  acquired  in  full  by 
any  means.  ' 

Commissioner  SWEET.  Who  do  you  think  has  the  greatest  interest 
in  arriving  at  a  correct  solution  of  this  problem,  the  companies  or 
the  public,  if  there  is  any  difference  between  the  two? 

Mr.  NASH.  There  may  be  some  difference  as  to  time — that  is,  the 
railroads  are  for  the  moment  much  more  disturbed  over  the  situa- 
tion than  the  communities  are.  In  the  long  run,  the  communities 
have  just  as  vital  an  interest  in  the  prosperity  of  the  railways  as  the 
investors  have,  because  the  communities  can  not  exist  without  trans- 
portation. The  investors  can  take  their  money  out  and  put  it  some- 
where else  or  they  can  lose  it. 

Commissioner  SWEET.  Take  a  city  like  Pittsburgh,  for  instance,  as 
you  have  heard  the  testimony  here.  I  think  you  were  present. 

Mr.  NASH.  Yes. 

Commissioner  SWEET.  With  regard  to  the  rather  critical  and  seri- 
ous situation  in  Pittsburgh.  Suppose  you  were  called  in  as  an  ex- 
pert and  a  student  of  this  question,  and  asked  to  recommend  what 
the  people  of  Pittsburgh  should  do  now  to  bring  about  a  better 
situation  with  regard  to  their  street-railroad  facilities.  What,  briefly, 
if  you  are  willing  to  mention  it,  would  be  your  recommendation  ? 

Mr.  NASH.  Without  being  fully  acquainted  with  the  local  situa- 
tion, particularly  as  to  the  degree  with  which  the  public  are  ac- 
quainted with  the  financial  condition  of  the  railway,  I  would  say 
that  the  public  should  be  acquainted  as  promptly  and  as  thoroughly 
as  possible  with  the  actual  condition  of  the  company,  not  only  the 
actual  present  condition,  but  the  past  prosperity  or  lack  of  it.  The 
public  very  often  says  that  the  railways  are  poor  and  they  are  not 
earning  their  living,  but  they  ought  to  live  on  their  fat — they  have 
earned  so  much  in  the  past  that  they  had  better  get  along  awhile  until 
they  have  consumed  their  fat  and  then  we  will  allow  them  some 
increased  revenue. 

Commissioner  SWEET.  That  is  on  the  assumption  that  there  has 
been- some  fat? 

Mr.  NASH.  Yes.  Now,  if  there  has  not  been  an  accumulation  of 
fat  the  public  ought  to  know  it,  and  there  has  been  altogether  too 
much  exaggeration  as  to  the  accumulation  of  fat  in  the  street-rail- 
road business. 

Commissioner  S\VEET.  Then  the  first  step  that  you  would  recom- 
mend to  the  people  of  Pittsburgh  is  that  they  learn  the  facts  as  they 
are  actually  and  not  as  they  may  have  supposed  them  to  be? 

Mr.  NASH.  Yes. 

Commissioner  SWEET.  What  is  the  next  step? 

Mr.  NASH.  The  next  step  wrhich  would  naturally  follow  would  be 
a  recognition  by  the  public  of  the  justice  of  a  larger  revenue  to 
the  railroad. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       689 

Commissioner  SWEET.  Do  you  mean  justice  from  the  standpoint 
of  the  investors  or  do  you  take  in  the  entire  community  as  being 
benefited  by  what  you  are  going  to  recommend  now  ?  Is  it  good  for 
a  part  of  the  community  or  of  the  foreign  investors,  or  is  it  for  the 
good  of  the  entire  community  ? 

Mr.  NASH.  The  investors  should  be  entitled  to  a  return  on  the 
money  that  they  have  put  into  the  property  and 

Commissioner  SWEET.  Do  you  mean  that  from  the  standpoint  of 
investors  merely  or  do  you  think  in  the  long  run  it  is  for  the  inter- 
est of  the  entire  community  that  justice  shall  be  done  to  investors? 

Mr.  NASH.  It  is  undoubtedly  to  the  interest  of  the  community,  be- 
cause if  justice  is  not  done  to  the  investor,  he  is  going  to  quit  and 
go  somewhere  else  and  the  service  and  the  community  will  suffer. 

Commissioner  SWEET.  Then  self-interest  would  induce  the  public 
to  do  what  is  best,  not  only  for  the  investor  but  for  the  public  itself. 
Is  that  right  ? 

Mr.  NASH.  They  should  and  I  think  they  will. 

Commissioner  SWEET.  Veiy  well.  How  would  you  provide  that? 
The  service-at-cost  plan — would  you  recommend  introducing  that, 
so  that  investors  could  be  assured  of  a  proper  return  on  their 
capital  ? 

Mr.  NASH.  I  think  service-at-cost  plan  would  give  more  assur- 
ance to  the  investors  of  a  proper  return  on  their  money  than  any 
alternative  plan  that  has  been  proposed. 

Commissioner  SWEET.  Right  on  that  point  let  me  ask  you  one 
question. 

You  said  this  morning  that  in  Massachusetts  the  public  in  some 
way — the  State,  I  think  you  said — had  guaranteed  a  certain  per- 
centage on  the  investment;  did  you  not? 

Mr.  NASH.  Yes ;  in  the  case  of  the  Boston  Elevated. 

Commissioner  SWEET.  In  the  case  of  the  Boston  Elevated? 

Mr.  NASH.  Yes.  It  is  not  the  public  at  large;  it  is  the  public  in 
the  communities  served. 

Commissioner  SWEET.  The  public  in  the  communities  served? 

Mr.  NASH.  The  State  treasurer  pays  out  the  voucher  and  then 
assesses  it  back  on  the  community  served  in  proportion  to  their 
riding. 

Commissioner  SWEET.  That  is  done  under  a  Massachusetts  law? 

Mr.  NASH.  Under  a  State  law. 

Commissioner  SWEET.  Do  you  know  whether  other  States  have  a 
law  which  would  permit  that  to  be  done?  • 

Mr.  NASH.  There  are  none  that  I  know  of. 

Commissioner  SWEET.  So  that  that  remedy  would  not  apply  gener- 
sillv  throughout  the  country? 

Mr.  NASH.  But  I  do  not  know  that  there  are  any  limitations  on 
legislative  acts  of  other  States  of  the  same  kind,  I  mean  constitu- 
tional limitations.  There  may  be  or  may  not.  That  is  a  question  of 
State  constitutions. 

Mr.  WARREN.  I  think  Wisconsin  has  such  a  statute,  recently  passed. 

Commissioner  SWEET.  Any  other  States  besides  Wisconsin? 

Mr.  WARREN.  I  do  not  recollect  any,  but  I  happened  to  sec  a  very 
recent  statute  in  Wisconsin. 


690       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Commissioner  SWEET.  Where  that  can  be  done,  Mr.  Nash,  I  take 
it  that  the  investment  would  be  more  certain  than  it  would  under  the 
service-at-cost  plan  ? 

Mr.  NASH.  Undoubtedly. 

Commissioner  SWEET.  If  it  is  backed  up  by  an  organization,  State 
or  otherwise,  that  is  solvent,  so  that  investments  would  be  more 
readily  made  and  perhaps  would  be  made  at  a  lower  rate  somewhat 
by  reason  of  the  extra  certainty. 

Mr.  NASH.  A  materially  lower  rate,  I  think. 

Commissioner  SWEET.  If  so  guaranteed.  So  that  if  States  had  the 
authority — or  communities— to  make  such  a  guaranty  that  would 
secure  the  investment  more  certainly  than  any  other  way  that  has  been 
proposed;  would  it  not? 

Mr.  NASH.  I  think  that  is  undoubtedly  the  case;  the  securitty 
would  be  greater,  and  the  return  demanded  would  be  lower. 

Commissioner  SWEET.  But  service  at  cost,  where  such  a  guaranty 
could  not  be  legally  made,  or  if  it  could  be  legally  made  if  it  is  not 
made,  if  the  community  does  not  wish  to  make  it,  if  I  understand 
you  aright,  comes  as  near  as  may  be  or  as  is  practicable  under  pres- 
ent conditions  to  giving  that  assurance  to  the  inventor? 

Mr.  NASH.  It  does.  It  is  an  assurance  that  the  investor  places  a 
good  deal  of  reliance  upon,  as  shown  in  the  case  of  Cleveland.  The 
company  has  always  paid  for  the  full  10  years,  including  the  war 
time,  the  return  which  the  franchise  authorizes  upon  the  company's 
capital.  It  has  never  failed. 

Commissioner  SWEET.  It  is  an  absolute  assurance  with  just  one 
limitation,  and  that  is  that  enough  money  shall  be  made? 

Mr.  NASH.  That  is  the  only  limitation. 

Commissioner  SAVEET.  Enough  net  income 

Mr.  NASH.  Can  be  obtained  from  the  public. 

Commissioner  SWEET.  That  is  it  exactly. 

Mr.  NASH.  And  the  public  in  the  final  analysis  is  the  one  to  de- 
cide whether  it  is  going  to  patroniz^  it  at  any  rate  of  fare. 

Commissioner  SWEET.  And  if  there  is  not  a  limit  as  to  the  fares 
to  be  charged  then  the  question  would  simply  turn  upon  the  point 
of  greatest  revenue — that  is,  fares  could  be  raised  to  the  point  where 
patronage  would  fall  off  to  such  an  extent  as  not  to  increase  the 
revenue  ? 

Mr.  NASH.  Yes,  that  is  the  truth;  the  point  of  maximum  net 
revenue  that  will  be  earned. 

Commissioner  SWEEDT.  If  that  point  is  enough  to  protect  the  in- 
vestor he  is  just  as  well  protected  as  he  would  be  with  a  guaranty 
or  in  any  other  way  ? 

Mr.  NASH.  Yes. 

Commissioner  SWEET.  But  he  would  not  know  that.  That  is  the 
disadvantage  of  it ;  is  not  that  true  ? 

Mr.  NASH.  That  is  true. 

Commissioner  SWEET.  Then  would  your  next  step  be  in  your 
recommendation  to  Pittsburgh  to  adopt  the  same  general  plan  they 
have  in  Cleveland  or  Cincinnati? 

Mr.  NASH.  The  same  general  plan,  yes. 

Commissioner  SWEET.  With  certain  modifications  which  you  men- 
tioned ? 


PROCEEDINGS  OF  FEDERAL  ELECTEIC  RAILWAYS  COMMISSION".       691 

Mr.  NASH.  Just  incidental  modifications.  I  think  the  question  of  a 
point  of  flexibility  that  I  mentioned — not  having  the  thing  so  tightly 
sewed  up  that  it  can  not  be  adapted  to  varying  conditions  from  time 
to  time — and  the  point  of  incentive  to  both  the  investors  and  the  man- 
agement to  get  the  most  that  is  possible  out  of  the  property — the 
investor  to  more  readily  furnish  the  money,  the  management  to  keep 
itself  up  to  the  highest  pitch  and  to  keep  in  the  service  of  the  railway 
the  class  of  men  that  is  necessary  to  secure  the  best  results.  If  the 
extent  of  supervision,  for  instance,  is  so  great  that  tlie  officials  of  the 
company  are  merely  clerks  to  carry  out  the  instructions  and  the 
plans  and  designs  of  the  supervisory  body,  that  is  not  attractive  work 
for  a  real  man.  Just  so  far  as  is  consistent  with  the  interest  of  the 
public  I  think  the  management  sliould  be  left  free  to  initiate  the  im- 
provements and  take  credit  for  improvements. 

Commissioner  SWEET.  But  you  would  have  a  director,  as  they  have 
in  Cincinnati,  or  a  commissioner,  or  three  commissioners — -some  body 
representing  the  public  ? 

Mr.  NASH.  Yes. 

Commissioner  SWEET.  To  see  all  the  time  that  this  is  carried  on? 

Mr.  NASH.  Yes ;  I  would. 

Commissioner  SWEET.  What  other  steps  would  you  recommend? 
Any  others? 

Mr.  NASH.  You  mean  what  other  changes  from  the  fundamental 
plan? 

Commissioner  SWEET.  Yes.  Suppose  we  now  want  to  put  Pitts- 
burgh on  a  proper  basis  as  regards  its  street-railroad  facilities  and 
get  rid  of  their  receivership ;  I  assume  you  would  prefer,  if  you  could, 
to  get  rid  of  the  receiverships  or  the  need  of  them  and  put  the  com- 
panies on  a  paying  basis  under  regular  ordinary  private  manage- 
ment; would  you  not?  * 

Mr.  NASH.  I  think  that  would  be  possible  as  soon  as  the  plan  was 
adopted,  that  the  company  could  be  so  refinanced  or  reorganized  that 
it  would  take  care  of  itself.  Its  credit  would  be  so  improved  by  the 
adoption  of  a  plan  by  which  there  was  assurance  of  return  to  the  in- 
vestor that  reorganization  or  refinancing  could  be  effected  without 
groat  difficulty. 

Commissioner  SWEET.  Then  the  initiative  should  be  made  by  the 
city  of  Pittsburgh;  is  that  your  idea  in  the  adoption  of  a  different 
kind  of  franchise? 

Mr.  NASH.  It  is  not  necessary  that  the  initiative  come  from  either 
side,  but  very  properly  the  city  of  Pittsburgh  might  say  that  they 
were  willing  to  grant  a  franchise  of  this  kind  to  the  railways  if  they 
would  accept  it,  and  define  the  term ;  and,  of  course,  various  more  or 
less  extended  negotiations  would  follow  before  the  city  and  the  com- 
pany would  get  together.  That  would  be  inevitable,  I  think. 

Commissioner  SWEET.  It  would  not  make  any  difference  which  ono 
started  it? 

Mr.  NASH.  Not  at  all. 

Commissioner  SWEET.  Providing  they  had  their  conferences  and 
they  finally  resulted  in  such  an  arrangement  ? 

Mr.  NASH.  No;  I  think  the  ]x>int  of  initiation  is  immaterial. 

Commissioner  SWEET.  The  public  officials  representing  the  general 
public  having  ut  least  as  much  interest  in  the  matter  as  the  com- 


692       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

panics  have,  although  perhaps  not  quite  so  immediate.  That  is  your 
idea,  is  it  not  ? 

Mr.  NASH.  Yes. 

Commissioner  SWEET.  And  with  the  adoption  of  a  change  of  that 
kind,  with  an  indeterminate  franchise  providing,  as  I  understand  they 
usually  do,  and  as  you  think  they  ought  to,  for  the  possibility  of  the 
city  taking  over  the  entire  property,  if  it  sees  fit,  upon  equitable  terms 
that  could  be  prescribed  in  the  franchise,  you  think  that  the  arrange- 
ment might  be  made  without  unreasonable  delay  and  give  the  relief 
that  is  necessary  and  bring  about,  we  will  say,  as  good  results  in  Pitts- 
burgh as  they  are  getting  in  Cleveland  ? 

Mr.  NASH.  I  see  no  reason  why  that  should  not  be  the  case,  except 
that  in  all  probability  Pittsburgh  would  not  be  able  to  operate  on  as 
low  a  cost  and,  therefore,  as  low  a  rate  of  fare  as  Cleveland.  There 
are  essential  differences  in  type  between  the  communities,  but  the  prin- 
ciple would  be  the  same. 

Commissioner  SWEET.  That  is  a  feature  of  it  that  I  did  not  mean 
to  bring  into  it,  because  I  assume  that  there  are  local  differences.  No 
two  cities  are  just  alike. 

Mr.  NASH.  No. 

Commissioner  SWEET.  They  all  have  their  local  problems,  and  one 
city  might  be  so  situated  that  a  5-cent  fare  would  be  really  higher  in 
the  way  of  producing  revenue  than  a  6-cent  fare  would  be  in  some 
other  city.  Is  not  that  true  ? 

Mr.  NASH.  That  is  very  true. 

Commissioner  SWEET.  So  that  each  city,  so  far  as  the  actual  fare 
is  concerned,  must  be  controlled  largely,  if  not  entirely,  by  the  exist- 
ing conditions  in  that  locality.  Is  not  that  so  ? 

Mr.  NASH.  That  is  entirely  so. 

Commissioner  SWEET.  But  under  this  flexible  system  that  would 
adjust  itself,  would  it  not? 

Mr.  NASH.  It  could  not  help  it.  The  fare  would  automatically  ad- 
just itself  to  the  cost  of  service,  whatever  that  was. 

Commissioner  SWEET.  That  is  it  exactly.  Where  the  cost  would 
be  greatest  the  fares  would  have  to  be  the  greatest  to  meet  that  cost. 

"Mr.  NASH.  If  the  city  was  dissatisfied  with  the  cost  they  might 
conceivably  be  satisfied  with  a  lower  standard  of  service.  That  is 
not  usually  the  case,  though.  I  think  that  the  public  in  most  of  the 
cities  of  the  United  States  want  good  service,  and  if  they  are  satis- 
fied that  what  is  called  cost  is  real  cost,  they  are  willing  to  pay  it. 

Commissioner  SWEET.  What  you  have  said  about  a  remedy  for 
Pittsburgh  would  also  apply,  if  I  understand  you  correctly,  in  your 
judgment,  equally  well  to  practically  every  other  suffering  com- 
munity of  the  United  States? 

Mr.  NASH.  I  think  it  would. 

Commissioner  SWEET.  That  is  all. 

Commissioner  BEALL.  I  would  like  to  come  back  for  a  moment  to 
that  question  of  depreciation.  I  think  perhaps  we  did  not  quite 
understand  each  other.  Do  you  not  think  that  it  is  for  the  best  in- 
terests of  the  public,  as  well  as  the  companies  and  investors,  that  a 
property  should  be  allowed  to  earn  its  full  depreciation  as  it  goes 
along  in  fares?  Otherwise  they  would  be  unable  to  maintain  for 
themselves  and  for  the  public  the  real  value  of  their  property.  If 
you  start  with  a  street-railway  company  that,  for  the  sake  of  argu- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       693 

ment,  has  an  investment  of  $1,000,000,  everybody  knows  that  every 
year  a  certain  part  of  that  wears  out  and  has  to  be  renewed — certain 
parts  of  the  plant  and  apparatus,  etc.  Now,  if  you  do  not  renew  or 
make  an  accrual  fund  to  provide  for  that  from  year  to  year,  the  day 
would  come  when  your  property  that  cost  $1,000,000  might  be  worth 
only  six  or  seven  hundred  thousand  dollars  and  yet  you  might  have 
$1,000,000  in  securities  put  against  it.  and  instead  of  giving  $1,000,000 
service  you  would  be  giving  a  $700,000  service.  Now,  I  do  not  know 
what  their  rule  is  to-day,  but  your  firm  of  Stone  &  Webster  some 
years  ago  had  either  a  written  law  or  an  unwritten  law  that  not  less 
than  either  18  or  20  per  cent,  I  do  not  remember  which 

Mr.  NASH.  Twenty. 

Commissioner  BEALL.  That  not  less  than  20  per  cent  of  the  gross 
earnings  of  any  street  railway  that  they  operated  should  either  be 
expended  or  reserved  each  year  from  gross  earnings  for  maintenance, 
renewals,  and  depreciation.  Now,  if  you  were  accepting  for  any  of 
those  properties  to-day  a  service-at-cost  plan,  would  you  not 
feel  that  it  was  absolutely  necessary  to  include  in  such  plan  that  20 
per  cent,  or  whatever  sum  you  deemed  was  necessary  to  take  care 
of  that  property  over  a  long  period  of  years?  Because  if  you  did 
not  do  it,  the  day  would  surely  come  when  your  property  would 
actually  be  worth  less  money  than  it  was  when  }Tou  started  out  some 
years  before.  You  might  have  a  less  value  than  the  city  had  allowed 
you  and  than  they  were  permitting  you  to  earn  on,  and  you  would 
have  a  less  value  on  which  your  securities  were  based.  Now, 
although  that  may  result  in  the  accumulation  of  a  cash  fund  from 
time  to  time,  it  is  customary,  is  it  not,  to  invest  quite  a  part  of  that 
fund  in  other  extensions  than  additions  than  the  exact  renewal  of  a 
certain  piece  of  property  which  may  be  in  process  of  wearing  out, 
the  idea  being  that  in  one  form  or  another,  by  property  of  some  kind, 
or  in  cash  you  are  always  maintaining  that  value.  If  you  do  not  do 
that  you  are  not  treating  the  city  right  or  the  public  or  the  investor 
in  your  company.  Is  it  not  necessary  to  take  care  of  that? 

Mr.  NASH.  I  am  in  thorough  accord  with  the  policy  or  rule,  written 
or  unwritten,  of  reserving  not  less  thaA  20  per  cent  of  the  annual 
gross  earnings  of  a  railway  for  combined  maintenance  and  deprecia- 
tion. Now,  that  rule,  as  you  naturally  assume,  is  not  an  arbitrary 
one.  It  is  based  on 

Commissioner  BEALL.  I  am  not  trying  to  say  'what  is  correct — it 
may  be  18  or  25  per  cent,  but  there  is  some  such  amount? 

Mr.  NASH.  Based  on  a  long  experience  with  properties  I  have  had 
occasion  to  test  that  rule  out  with  properties  we  have  operated  for  a 
good  many  years,  and  as  a  matter  of  fact,  it  results  in  the  keeping  on 
hand  of  a  sufficient  reserve  to  take  care  of  replacements,  current,  and 
large  units,  as  they  are  required.  I  do  not  think  it  is  large  enough 
to  accumulate  what  would  be  called  a  theoretical  reserve  for  accrued 
depreciation  of  the  property.  Now,  it  is  not— 

Commissioner  BEALL.  I  know;  but  you  can  put  it  into  other  things. 
The  idea  is  to  at  all  times  maintain  the  value  that  you  started  out 
with. 

Mr.  NASH.  That  reserve  is  accumulated  and  invested  in  extensions 
to  the  property- 
Commissioner  BEALL.  Sonic  of  it. 


694       PROCEEDINGS  OF  FEDERAL  ELECTKIC  RAILWAYS  COMMISSION. 

Mr.  NASH.  Now,  when  you  come  to  ask  me  to  set  aside  a  reserve, 
fully  enough  for  theoretical  depreciation,  I  have  got  to  tell  you  I 
do  not  know  how,  because  I  do  not  know  in  the  first  place  what  the 
life  of  a  railway  property  is,  and  that  is  really  fundamental  in  order 
to  set  up  any  reserve. 

Commissioner  BEALL.  But  you  have  a  pretty  good  idea  of  it? 

Mr.  N,ASH.  Well,  I  have  not,  unfortunately. 

Commissioner  BEALL.  Well,  your  operating  men,  then. 

Mr.  NASH.  Unfortunately  there  are  a  good  many  of  the  operating 
men  who  have  not;  for  ever  since  I  have  known  anything  about  the 
electric-railway  business  we  have  gone  through  one  state  of  changes 
after  another.  I  have  never  yet  seen  an  important  piece  of  electric 
railway  property  worn  out.  I  have  seen  it  put  aside  because  some 
more  reliable  or  efficient  piece  came  along,  and  that  is  almost  the  in- 
evitable rule — that  the  railroad  property  is  abandoned  because  it  does 
not  fit  in  with  something  else,  it  is  not  suitable  for  the  extended  serv- 
ice or  it  is  not  up  in  efficiency  with  modern  standards.  And  the  ques- 
tion that  I  am  confronted  with  if  I  attempt  to  forecast  accrued  de- 
preciation is  how  is  the  future  development  in  the  art  and  in  public 
demands  and  other  things  that  enter  into  this  question  going  to  com- 
pare with  the  past,  I  am  forced  to  say  I  do  not  know.  I  have  hopes 
that  the  near  future,  at  any  rate,  will  not  show  as  radical  changes  in 
the  art  as  the  past  has.  We  have  gone  through  the  age  of  horse 
cars  and  cable  cars  and  the  very  experimental  electric  cars,  and  just 
now  we  are  going  through  a  radical  change  in  type  of  car,  from  the 
big  two-man  double-truck  car  to  a  light  one-man  car,  and  something 
else  may  come  up  and  it  may  not ;  but  if  there  was  not  this  question 
of  obsolescence  and  supersession  and  other  things,  aside  from  wear 
and  tear,  to  come  up,  the  life  of  the  average  electric-railw^ay  property 
with  recurrent  renewals  of  parts  could  be  maintained  indefinitely; 
so  you  could  not  say  a  car  would  wear  cut  in  30  years  or  in  100  years. 
At  the  end  of  100  years  there  would  be  no  part  of  it  left,  but  in  no 
year  would  you  change  from  an  old  car  to  a  new  car.  That  is 
the  difficulty  is  estimating  depreciation. 

Commissioner  BEALL.  Weil,  you  might  differ  frcm  somebody 
else  as  to  the  amount,  but  you  know  what  it  has  been,  and  is  not  this 
correct?  You  know  in  your  own  mind  there  would  be  some  mini- 
mum sum  and  you  would  feel  that  if  at  least  that  amount  was  not 
preserved,  your  line  would  soon  come  to  a  point  where  your  property 
was  worth  less  now  than  5  or  10  years  ago?  And  I  think  you  will 
agree  that  should  not  be  permitted,  in  justice  to  the  city  or  the 
riding  public,  or  the  investor.  If  it  takes  a  million-dollar  property 
to  serve  a  certain-sized  community,  it  should  be  kept  at  $1,000,000; 
it  should  not  fall  below. 

Mr.  NASH.  Its  investment  should  be  kept  there,  and  assurance 
should  be  given  that  no  part  of  that  property  should  ever  be  aban- 
doned without  having  a  sufficient  reserve  to  replace  it. 

Commissioner  BEALL.  That  is  the  point  exactly.  Now,  men  may 
differ  very  materially  as  to  what  that  amount  should  be,  but  each 
one  would  have  a  minimum  below  which  it  should  not  fall  each  ^year. 

Mr.  WARREN.  The  principle  is  perfectly  clear. 

Mr.  NASH.  I  think  there  is  no  question  about  the  principle  at  alL 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       695 

Commissioner  BEALL.  And  you  should  be  allowed  to  earn  it  out  of 
your  fares;  the  earning  power  of  the  company  should  be  made  to 
include  that? 

Mr.  NASH.  It  should,  unquestionably. 

Mr.  WARREN.  It  should  not  be  paid  out  of  capital. 

Mr.  NASH.  No. 

Commissioner  BEALL.  You  are  unfair  to  the  public  if  that  is  not 
done. 

Mr.  NASH.  Yes. 

Mr.  WARREN.  We  may  differ  as  to  the  amount 

Commissioner  BEALL.  Yes,  but  there  has  to  be  an  amount  to  take 
care  of  it? 

Mr.  WARREN.  Yes. 

Commissioner  MEEKER.  You  have  spoken  of  the  one-man  car  as  if 
it  were  a  foregone  conclusion,  that  it  either  had  superseded  the  old 
heavier  car  or  that  it  would  supersede  it.  What  experience  have  you 
to  base  that  judgment  on? 

Mr.  XASH.  We  have  in  various  properties  several  hundred  of  that 
type  of  car  in  operation.  They  have  been  in  operation  in  some  cases 
two  and  a  half  }rears — more  than  two  and  a  half  years — and  they 
have  been  successful  to  such  a  degree  that  in  my  own  mind  I  have 
accepted  it  as  the  foregone  conclusion  that  this  was  the  coming  type 
of  car  for  a  very  considerable  portion  of  electric-railway  service. 

Commissioner  MEEKER.  Do  you  think  it  would  be  an  economical  car 
to  put  on  in  Xew  York  City  railway  lines? 

Mr.  NASH.  I  have  not  made  any  study  of  New  York  conditions. 
I  think  there  will  be  a  witness  on  this  subject  who  will  speak  with 
reference  to  New  York  conditions  later.  But  I  will  say  this,  that  I 
ao  not  know  of  any  places  where  the  one-man  car  has  been  tried 
that  it  has  failed  on  account  of  density  of  traffic.  There  has  been  a 
rather  cautious  introduction  of  it,  I  think,  so  that  it  would  not  be 
pushed  too  fast  in  the  wav  of  application  to  very  dense-traffic  con- 
ditions: and  very  probably  it  will  be  found  that  the  operator  on 
that  type  of  car  would  have  trouble  in  making  fare  collection  in 
cases  of  congested  loading  with  sufficient  promptness  to  maintain  a 
satisfactory  schedule. 

Commissioner  MEEKEK.  You  heard  the  testimony  that  one  of  the 
witnesses  gave  yesterday,  I  think  it  was,  in  regard  to  the  one-man 
cur  operating  under  a  zone  system? 

Mr.  NASH.  Yes;  I  heard  that. 

Commissioner  MEEKER.  Do  you  think  that  it  is  feasible  to  have 
switches  in  our  streets  so  that  the  one-man  car  will  operate  only  in 
a  single  zone  and  be  turned  back  at  the  end  of  that  zone  ? 

Mr.  NAKH.  No;  I  do  not  think  that  would  be  practicable.  Street- 
car service  has  got  to  be.  for  convenience,  continuous. 

Commissioner  MEEKER.  It  would  seem  so  to  me.  How  is  the  one 
man  going  to  collect  fares  in  the  second,  third,  or  seventeenth  zone? 

Mr.  NASH.  He  can  collect  in  the  second  /one  perfectly  well.  That 
is,  he  can  collect  from  a  passenger  entering  in  the  first  zone  and 
leaving  in  the  second  /one.  Beyond  that,  where  there  are  more  than 
two  zones,  it  would  be  necessary  for  the  operator  when  a  passenger 
gets  on  not  to  collect  (he  fare  but  issue  an  identification  check  which 
will  tell  him  what  zone  that  passenger  got  on  in.  Then  when  the 


696       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

passenger  gets  off,  regardless  of  how  many  zones  he  has  gone  through, 
the  operator  will  see  at  a  glance  or  have  a  mechanical  computer  in 
front  of  him  which  will  tell  him  the  amount  of  fare  the  passenger 
should  pay  to  correspond  with  the  identification  check,  and  the  pay- 
ment would  always  be  left  until  the  passenger  left  the  car.  There 
are  no  insurmountable  difficulties  about  that  arrangement  that  I 
know  of  at  all. 

Mr.  WARREN.  We  have  another  witness  especially  on  the  one-man 
car  whom  we  hope  to  put  on  to-day.  I  do  not  want  to  cut  your 
questions  short,  but  we  will  cover  that  subject. 

(Witness  excused.) 

The  CHAIRMAN.  Let  the  record  show  that  ex-Governor  Foss  of 
Massachusetts  sent  a  telegram  to  the  commission  requesting  the 
privilege  of  appearing  before  us  to-morrow  or  on  Friday.  We  have 
set  to-morrow  at  12  o'clock  for  his  appearance;  and  I  hope,  Mr. 
Warren,  you  will  make  your  arrangements  accordingly. 

STATEMENT  OF  MR.  CHARLES  L.  HENRY. 

Mr.  WARREX.  Will  you  give  your  full  name? 

Mr.  HENRY.  Charles  L.  Henry. 

Mr.  WARREN.  Your  residence? 

Mr.  HENRY.  Indianapolis,  Ind. 

Mr.  WARREN.  And  you  have  sometime,  I  think,  been  referred  to  as 
"  the  father  of  the  interurban  railway." 

Mr.  HENRY.  Well,  that  is  when  they  do  not  have  respect  for  my 
old  age. 

Mr.  WARREN.  But  you  have  had  a  very  wide  experience  in  inter- 
urban  railways? 

Mr.  HENRY.  Yes;  I  have. 

Mr.  WARREN.  And  are  connected  with  a  great  many  to-day? 

Mr.  HENRY.  No;  not  with  many,  but  with  only  one  company 
to-day. 

Mr.  WARREN.  What  is  that? 

Mr.  HENRY.  The  Indianapolis  &  Cincinnati  Traction  Co.  I  was 
connected  formerly  with  the  Union  Traction  Co.  of  Indiana,  and  as 
manager  of  that  company  built  some  of  the  principal  parts  of  the 
road. 

Mr.  WARREN.  And  you  are  acquainted  with  the  interurban  rail- 
ways in  other  parts  of  the  country  ? 

Mr.  HENRY.  Yes. 

Mr.  WARREN.  Missouri  and  Illinois? 

Mr.  HENRY.  Yes;  quite  fully; 

Mr.  WARREN.  We  have  thus  far  had  practically  no  testimony 
specifically  directed  to  the  interurban  railways;  and  I  believe  you 
are  prepared  to  tell  the  commission  something  about  them,  and 
something  about  their  conditions  and  difficulties  and  usefulness. 
Before  you  begin,  Mr.  Henry,  these  are 

Mr.  HENRY.  That  is  a  map  of  what  we  term  the  central-electric  ter- 
ritory, the  central-electric  territory  being  that  which  is  covered  by  the 
Central  Electric  Railway  Association,  prepared  by  their  traffic  de- 
partment and  corrected  up  to  date;  and  it  is  typical  of  the  general 
development  of  the  interurbans. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       697 

(At  this  point  the  map  referred  to  was  presented  to  the  Commis- 
sion.) 

Commissioner  BEALL.  Did  you  build  that  terminal  in  Indianapolis, 
the  first  interurban  terminal  ? 

Mr.  HENRY.  No ;  I  did  not. 

Commissioner  BEALL.  Was  that  before 

Mr.  HENRY.  That  was  built  by  the  Indianapolis  Traction  Terminal 
Co.  I  was  not  connected  with  that  company,  but  I  have  been  using 
it  with  our  cars  ever  since  it  was  built. 

The  CHAIRMAN.  Will  your  testimony  relate  exclusively  to  the  inter- 
urban  as  distinguished  from  the  street-cars? 

Mr.  HENRY.  It  will  so  far  as  I  know,  unless  you  want  to  ask  me 
about  something  else.  They  will  lap  over,  of  course. 

The  interurban  railway  is  a  matter  of  20  years'  growth.  Perhaps 
it  is  well  that  we  get  clearly  in  our  minds  what  is  the  interurban 
as  we  talk  about  it.  We  have  a  good  many  electric  railways:  We 
have  the  electrified  steam  road.  We  have  some  special  electric 
lines  built  for  a  specific  purpose  like,  for  instance,  the  line  from 
Philadelphia  to  Atlantic  City,  which  amounts  to  nothing  but 
a  shuttle  train  really  between  points;  it  does  not  do  any  gen- 
eral interurban  business,  it  pays  no  attention  to  the  intervening 
territory.  Then  we  have  what  are  known  as  suburban  electric 
roads  which  you  are  all  familiar  with.  They  run  out  to  the  various 
suburbs  of  the  city  or  town  which  they  serve.  Then  we  have,  as  in 
New  England,  the  roads  which  connect  up  the  various  communities, 
sometimes  called  interurban,  but  entirely  distinct  from  what  I  am 
going  to  talk  about,  because,  except  for  the  fact  that  they  run  upon 
the  country  highways,  they  are  as  much  street  railroads  in  fact  and 
in  operation  as  the  roads  themselves  within  the  cities  and  towns. 

The  interurban,  as  ordinarily  understood  and  which  I  will  direct 
my  remarks  to,  is  of  a  different  character  from  that.  They  are  built 
to  take  care  of  the  traffic  between  cities  and  towns  and  from  the  coun- 
try to  the  town  and  the  town  to  the  country.  It  is  to  serve  not  only 
the  travel  between  cities  and  towns  but  it  is  to  serve  the  country  com- 
munity between  those  cities  and  towns.  It  is  not  confined  to  pas- 
senger business  but  it  includes  express  business  and  it  includes  freight 
business.  In  other  words,  it  is  intended  to  serve  the  communities  for 
the  transportation  which  properly  belongs  to  that  class  of  road.  It 
is  in  one  sense  a  competitor  of  the  steam  roads.  In  another  sense 
it  is  not,  because  it  has  and  develops  and  makes  a  traffic  of  its  own 
because  of  its  peculiarity. 

The  first  electric  road  in  Indiana  was  built  and  the  first  car  run 
the  1st  day  of  January,  1898.  There  had  been  some  little  interurban 
development  in  Ohio  before  that  time.  It  was  restricted,  however, 
because  of -the  restriction  on  power.  The  three-phase  distribution 
system  of  power  was  not  known  in  electric  railways  at  that  time.  It 
had  been  out  in  the  West  in  connection  with  power  in  the  mountains, 
carrying  the  current  to  the  cities  for  lighting  purposes,  but  up  to  the 
time  of  the  building  of  the  Indiana  Traction  Co.?s  line  at  Anderson 
for  three-phase  distribution,  it  never  had  been  applied  to  street-railway 
purposes.  The  station  there  was  the  first  station  of  the  kind  built. 
That  brought  out  the  opportunities  of  interurban  business,  because 
before  that  time  the  direct  current  died  top  soon,  the  loss  was  too 
great.  The  first  line  we  built  was  only  12  miles  long,  from  Anderson 

1GOG430— 20 45 


698       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

to  Alexandria ;  and  in  order  to  get  enough  current  up  at  Alexandria 
•we  would  put  in  the  Anderson  station  what  we  called  a  booster.  That 
ran  it  up  to  1,200  volts  and  carried  it  up  to  Alexandria  and  by  that 
time  it  had  dropped  to  600,  and  we  put  it  in  there  at  600  volts,  and 
that  is  all  we  could  do.  But  the  three-phase  distribution  permitted  of 
reaching  any  distance  that  was  needed,  being  transmitted  on  the  high 
tension  line  to  substations  10  or  12  miles  apart;  there  the  voltage 
was  reduced  and  transformed  into  direct  current  and  a  large  amount 
of  copper  was  dispensed  with  and  the  current  was  distributed  equally 
all  over  the  system.  From  that  time  that  has  been  the  general  way 
of  operating  interurbans  and  is  now.  Of  course,  like  everything  else 
new,  we  did  not  have  a  broad  idea  of  the  possibilities  of  interurbans 
when  we  commenced.  They  were  built  cheaply,  with  lighter  rails, 
smaller  cars.  We  did  not  think  anything  about  freight,  we  did  not 
think  anything  about  train  dispatchers.  We  would  put  a  signal  with 
a  lever  at  one  switch  and  a  lever  at  another  switch  and  we  stopped 
and  got  the  train  through  as  best  we  could. 

Then  after  a  while  we  saw  that  would  not  do.  So  the  present 
system — and  I  say  the  present  system,  for  it  is  practically  uniform, 
the  system  of  operation  of  interurban  roads  at  this  time — was  gradu- 
ally adopted.  A  train  dispatcher  was  employed  and  we  used  the 
telephones  for  issuing  orders,  and  we  have  the  men  take  the  orders 
by  telephone  and  repeat  them  back  to  the  dispatcher,  and  a  record 
is  made  and  it  tends  to  safety.  We  put  on  larger  cars,  put  a  com- 
partment in  for  the  smokers  and  another  compartment  for  the  gen- 
eral public  and  another  room  for  the  baggage  and  express,  and  then 
in  the  forward  part  a  compartment  for  the  motorman.  The  cars 
average  in  size  from  55  feet  up  to  something  like  65  feet  long,  with 
heavier  trucks,  heavier  motors,  and  heavier  wheels,  either  steel-tired 
or  steel  wheels.  The  purpose  of  that  in  the  first  place  was  to  keep 
from  chipping  the  flange,  which  made  it  dangerour;,  because  the 
flange  had  to  be  smaller  where  we  ran  through  the  city.  Air  com- 
pressors are  put  on  the  cars  so  that  the  air  brakes  are  as  complete  as 
on  the  steam  roads.  Electric  headlights  are  used;  and  they  run 
through  the  country  at  varying  rates  of  speed,  some  of  them  as  high 
as  60  and  70  miles  an  hour.  The  fastest  train  that  ever  ran  on  our 
road  we  ran  from  Indianapolis  regularly  to  Connersville,  58  miles, 
and  we  made  the  run  in  an  hour  and  a  half  by  schedule  time,  22 
minutes  of  that  being  taken  in  getting  out  4  miles  to  the  suburbs  of 
the  city. 

The  CHAIRMAN.  How  many  stops  were  there  on  that  route  ? 

Mr.  HENRY.  We  made  two  intervening  stops — one  to  meet  the  other 
car  running  in  the  opposite  direction,  and  the  other  at  the  county 
seat  of  Rush  County,  Rushville.  That  gives  you  some  idea  of  the 
speed  at  which  they  can  be  run. 

Now,  the  old  way  when  we  commenced  was  that  we  picked  up  the 
passengers  everywhere ;  we  stopped  on  hail  at  a  crossroad  or  an  alley ; 
it  did  not  make  any  difference  which.  But  that  would  not  work; 
that  took  too  much  time,  so  we  had  regular  stations  adopted,  and  we 
got  tickets  and  finally  we  organized  a  traffic  association  that  is  the 
publisher  of  this  map,  which  covers  the  territory  of  Indiana,  Ohio, 
Michigan,  part  of  Pennsylvania,  and  part  of  Kentucky ;  it  does  not 
cover  Illinois  simply  because  there  is  no  physical  connection  between 
the  lines  in  the  two  States.  Under  that  freight  business  was  built  up 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       699 

and  regular  freight  schedules  of  trains  and  also  freight  tariffs  filed 
with  the  commissions,  both  the  State  and  interstate,  covering  the 
freight  rates,  and  the  passenger  business  the  same  way.  So  that  it  is 
a  regular  systematic  business — serving  these  communities;  and  this 
map  which  you  have  is  fairly  indicative  of  the  general  territory  cov- 
ered by  the  interurbans,  although  it  is  true  in  this  territory  there  is 
a  larger  proportion  than  in  other  sections,  according  to  the  size  of  the 
territory. 

Down  in  south  Missouri  the  great  Southwest  Missouri  system  serves 
the  mining  districts  of  Joplin,  Webb  City,  Carthage,  and  over  to 
Pittsburg  in  Kansas.  On  the  western  coast  there  are  some  very  large 
systems,  the  Pacific  Electric  being  the  largest.  Over  in  Illinois,  the 
Illinois  Traction,  one  of  the  biggest  systems  in  the  country,  and  the 
Aurora.  Elgin  &  Illinois  is  another,  and  from  Chicago  to  Milwaukee 
is  another  good  system.  This  gives  you  an  idea  of  the  extent  of  it. 

Now,  they  vary  in  amounts  in  different  parts  of  the  country,  but  I 
am  telling  you  about  the  body  of  them. 

We  are  in  all  the  States  now  nearly,  you  may  say,  generally  speak- 
ing, subject  to  the  public-service  commissions  in  everything.  We  file 
with  the  Interstate  Commerce  Commission  everything  relating  to  in- 
terstate business,  and  to  that  extent  we  are  controlled  by  the  Inter- 
state Commerce  Commission.  This  does  not  do  away  with  the  local 
restrictions  in  towns,  about  which  I  want  to  speak  a  little  later.  Some 
of  those  are  troublesome  and  many  losing  propositions.  But  I  have 
tried  to  give  you  a  general  idea  of  the  business. 

Now,  we  have  at  Indianapolis  the  most  perfectly  developed  system 
for  taking  care  of  the  people  who  come  into  and  go  out  of  Indianapo- 
lis. We  nave  a  terminal  traction  building  there  owned  by  the  In- 
dianapolis Traction  &  Terminal  Co.,  which  is  the  local  city  company, 
which  just  changed  hands  by  reorganization  the  other  day — I  mean 
changed  the  name  by  consolidation,  but  it  remains  the  same  in  every 
other  respect.  That  was  built  with  a  view  of  taking  care  of  the  in- 
terurban  business.  I  have  before  me  some  extracts  from  the  report 
of  the  secretary  and  treasurer  of  that  company,  which  I  think  you 
would  be  glad  to  have,  from  Mr.  McGowan : 

In  accordance  with  your  verbal  request,  we  beg  to  advise  that  during  the 
year  1918,  7,519,634  passengers  arrived  and  departed  from  the  Traction  Terminal 
Passenger  Station.  The  number  of  passenger  trains  in  and  out  of  Indianapolis 
during  the  year  1918  was  128,145. 

That  gives  you  some  idea  of  the  extent  of  the  business;  that  is, 
the  passenger  business. 

Now,  I  will  stick  for  a  little  while  to  the  passenger  part  of  it, 
and  then  I  will  give  you  some  of  the  other.  First,  I  want  to  give 
you  an  idea  of  the  extent  of  the  mileage  in  those  States\  Michigan 
has  805  miles;  Ohio,  2,48f>  miles;  Indiana,  1,732  miles;  Kentucky, 
158  miles;  Illinois,  1,575  miles;  a  total  in  these  5  States  of  6,8i6 
miles  of  intorurban  road. 

The,  Merchants'  Association  of  Indianapolis  is  constituted  of  all  of 
the  principal  retail  merchants.  I  asked  the  manager  of  that  associa- 
tion to  give  me  a  letter  as  to  wh,at  the  interurban  is  to  Indianapolis. 
If  you  will  allow  me,  I  will  read  it: 

Replying  to  your  Inquiry  ns  to  what  extent  the  traction  lines  entering  In- 
dianapolis benefited  the  retail  trade  of  this  city,  be  advised  that  while  we  are 
not  able  to  give  you  exact  figures  as  to  the  increase  iu  retail  trade  that  the 


700       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

interurban  lines  are  directly  responsible  for,  we  are  safe  in  saying  that  no 
factor  has  done  so  much  to  increase  down-town  trade  as  have  the  interurban 
lines. 

Indianapolis  being  the  center  of  the  State  probably  enjoys  a  better  out-of- 
town  trade  than  any  other  large  retail  center  in  the  country.  This  is  in  a 
large  measure  due  to  the  fact  that  the  interurban  lines  make  it  possible  for 
residents  in  a  smaller  city  or  town  adjacent  to  Indianapolis  to  come  to  the 
city  to  do  their  trading  and  return  at  most  any  hour  of  the  day. 

In  former  years  this  association  rebated  railroad  fares,  this  plan  having 
been  abandoned  some  14  years  ago.  The  plan  served,  however,  to  materially 
increase  the  out-of-town  trade,  but  had  it  not  been  for  the  interurban  lines, 
the  increase  would  not  have  been  nearly  so  large  as  it  was. 

Since  the  abandonment  of  the  rebating  of  railroad  fares  the  out-of-town 
trade  has  still  kept  growing  and  to-day  is  even  greater  than  when  the  custom- 
er's fare  was  paid  to  and  from  Indianapolis. 

The  credit  files  maintained  by  this  association  show  thousands  of  persons 
throughout  the  State  having  regularly  estalished  credit  accounts  in  our  stores, 
and  we  are  safe  In  saying  that  the  majority  of  these  customers  travel  to  and 
from  Indianapolis  by  interurban. 

Generally  speaking  the  interurban  lines  are  the  greatest  asset  that  a  retail 
center  can  have. 

Very  truly,  yours, 

MERCHANTS'  ASSOCIATION,  INDIANAPOLIS, 
W.  E.  BALCH,  Manager. 

The  CHAIRMAN.  Right  at  that  point,  can  you  tell  me  about  what 
radius  Indianapolis  draws  its  trade  from  on  the  interurban  lines  ? 

Mr.  HENRY.  Well,  some  all  over  the  State,  but  largely  within  100 
miles;  some  to  all  points  within  the  State.  That  is  largely  because 
of  the  length  of  the  lines,  but  that  is  about  the  way  it  is. 

Commissioner  BEALL.  That  terminal  station  in  Indianapolis  was 
the  first  one  of  its  kind ;  was  it  ? 

Mr.  HENRY.  Yes;  it  is  the  only  one  of  its  kind  to-day  that  is  as 
complete  as  it  is.  The  one  at  Los  Angeles  is  large  and  efficient,  and 
all  that,  but  it  does  a  little  different  kind  of  business.  It  takes  care 
more  of  the  suburban  cars,  as  you  are  aware,  perhaps. 

Now,  this  passenger  business  I  want  to  speak  of  a  little  bit  with  re- 
gard to  the  other  towns.  I  am  seeking  to  show  you  what  the  inter- 
.  urban  means  and  why  it  is  a  necessity  to  these  various  communities. 
Interurban  towns  outside  of  the  large  cities — I  will  give  you  now  a 
picture  of  the  Indianapolis  trade,  the  passenger  trade.  My  idea  and 
that  of  others  was  that  the  little  towns  would  be  injured  by  the 
interurbans.  We  all  expected  it,  but  it  has  proved  not  to  be  true. 
It  is  a  fact  in  practice,  that  every  town  in  Indiana,  and  the  rest  of 
this  territory  all  over  the  country  that  an  interurban  touches,  is 
benefited  by  it.  It  makes  it  a  better  place  for  them  to  live;  they 
are  happier  and  more  contented;  their  homes  are  nicer  and  fixed  up 
better.  They  can  go  to  the  theaters;  they  can  go  to  parties;  they 
can  go  to  association  meetings,  and  go  and  come  as  they  please  and 
when  they  please;  and  they  have  made  it  easier  to  live  there.  They 
live  there  and  do  business  in  town.  We  have  a  number  of  persons 
that  do  business  25,  30,  or  40  miles  away  from  their  homes.  There  is 
one  woman  down  in  Shelby ville,  26  miles  away,  who  occupied  a  State 
position  in  connection  with  the  schools,  who  goes  back  and  forth 
every  morning  and  evening.  That  is  an  illustration  of  what  I  mean. 
The  children  go  to  the  schools,  from  the  country  or  the  villages  to 
the  larger  towns,  either  the  grade  or  the  high  school.  They  go  there 
and  attend  church  if  they  want  to ;  and  it  makes  it  one  community. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       701 

They  all  rely  upon  the  service  of  the  interurban  for  the  purpose  of 
going  and  coming. 

Those  who  travel  most  are  furnished  with  reduced  rates,  so  that 
they  get  now  almost  uniformly  in  our  State  $20  worth  of  riding  for 
$17.50.  That  is  about  the  way  it  is  arranged  now ;  that  is  what  used 
to  be  the  mileage  book.  And  a  40-ride  book  is  sold  at  about  1£  cents 
to  1£  cents.  There  is  a  60-ride  monthly  book  sold  for  about  1£  cents. 
Now  they  fit  into  the  different  classes.  The  school  teachers  and 
children  use  the  40-ride  book  because  it  fits  into  their  opportunities. 
People  who  go  to  work  in  the  larger  towns  and  work  every  day 
only  buy  the  60-ride  book.  The  fares  have  been  changed — I  speak 
of  it  in  order  that  you  may  have  it  in  your  picture.  Whereas  we 
charged  originally  about  l|  cents  for  the  ordinary  fares,  then  we 
adopted  what  was  known  as  the  penny-zone  system,  which  was  a 
cent  for  every  half  mile  or  2  cents  a  mile ;  then  in  Januaiy,  1918,  we 
put  our  rates  up  to  2£  cents  and  in  February,  1919,  we  put  them  up  to 
'2|  cents.  That  is  almost  uniform  over  the  entire  State. 

Mr.  WARREN.  Do  you  have  a  minimum  fare  along  with  that? 

Mr.  HENRY.  Yes;  the  minimum  fare  used  to  be  5  cents  and  has 
been  made  10  cents ;  so  that  there  is  no  fare  now  less  than  10  cents. 

The  CHAIRMAN.  By  order  of  the  commission  or  by  statute ? 

Mr.  HENRY.  By  order  of  the  commission.  The  statute  made  no 
regulation  of  our  fares.  Our  rates  are — It  has  all  been  done  by 
the  commission,  and  in  that  I  may  say  that  the  commission,  since 
they  got  their  faces  turned  toward  the  East  and  saw  what  was 
needed — it  was  a  little  difficult  to  get  them  to  see  what  was  needed, 
but  as  soon  as  we  got  their  faces  turned  in  the  right  direction  and 
they  did  see  what  was  needed — they  have  shown  a  disposition  to  co- 
operate with  the  interurbans. 

The  CHAIRMAN.  I  think  you  have  a  good  commission  in  Indiana. 

Mr.  HENRY.  Well.  I  second  the  motion.  We  have.  But  here  is  one 
of  the  troubles  about  it.  We  were  going  in  the  hole  for  from  six  to 
nine  months  because  of  the  losses  in  operating  expenses  before  we  got 
an  increase,  and  when  we  got  the  additional  increase  it  was  the 
same  way ;  it  took  three  months  to  get  them  to  issue  the  first  permit 
for  2£  cents  per  mile.  I  presented  the  petition  for  our  road  first, 
and  it  took  us  three  months  to  get  action  on  it,  before  we  got  them  in 
the  notion  of  really  doing  it.  They  first  thought  maybe  the  2-cent 
fare  law  affected  it;  and  we  showed  them  it  did  not;  it  only  affected 
steam  roads;  and  after  that  they  treated  us — well,  I  will  not  say  with 
liberality,  but  with  all  the  justice  the  situation  demanded  and  re- 
quired. 

Mr.  WARREN.  That  was  the  second  application? 

Mr.  HENRY.  Yes;  2J  cents.    Two  and  a  half  cents  was  the  first  one. 

Mr.  WARREN.  That  took  how  long? 

Mr.  HENRY.  It  was  three  months  before  we  got  the  first  action 
on  it. 

Mr.  WARREN.  And  by  the  first  action  do  you  mean  the  approval? 

Mr.  HENRY.  Yes;  it  is  a  permission  in  our  case;  it  is  a  permit  to 
file. 

Mr.  WARREN.  That  is  from  the  time  you  filed  your  application 
until  you  got  the  permit? 


702       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  HENRF.  Not  exactly  that.  I  talked  to  them  about  it  and  tried 
to  get  them  to  receive  the  application  and  they  would  not  even 
docket  it  at  first.  It  took  a  good  while  to  get  it  on  the  docket. 

The  CHAIRMAN.  That  was  because  they  thought  they  had  no  juris- 
diction over  the  fare  \ 

Mr.  HENRY.  They  doubted  the  fact  of  their  having  jurisdiction 
because  of  the  2-cent  fare  law  on  the  statute  book. 

Commissioner  MEEKER.  Were  the  steam  roads  limited? 

Mr.  HENRY.  They  were,  yes.  That  has  been  removed  by  the  last 
legislature. 

Mr.  WARREN.  But  from  the  time  they  recognized  their  jurisdiction 
until  you  got  your  permission 

Mr.  HENRY.  It  did  not  take  them  long  to  act  on  it  after  that — a 
month  or  six  weeks — no  longer  than  was  required  to  get  up  the  neces- 
sary  papers  and  everything. 

Now,  I  want  to  give  you  a  little  idea  of  the  freight  business  in 
order  that  you  may  understand  the  extent  to  which  it  has  been  de- 
veloped. First,  I  am  going  to  read  you  a  short  letter  from  a  live- 
stock shipper,  as  to  what  benefit  the  interurban  is  to  the  community : 

CRAWFORDSVILLE,  IND.,  July  16,  1919. 
Mr.  CHARLES  L.  HENRY, 

President  Indianapolis  <§  Cincinnati  Traction  Co., 

310  Traction  Terminal  Building,  Indianapolis,  Ind. 

DEAR  SIR:  I  have  have  been  told  that  you  want  an  expression  from  me  as 
to  the  advantages  of  shipping  stock  over  electric  lines,  as  compared  with 
steam-railway  service  and  wish  to  state  that  my  experience  in  using  both 
services  has  proven  conclusively  that  the  electric-road  service  is  by  far  the 
better,  principally  for  the  reason  of  quicker  service. 

This  quicker  service  makes  it  possible  to  practically  save  the  transportation 
charges  by  the  elimination  of  shrinkage.  For  this  reason  I,  as  a  buyer  and 
shipper  of  stock,  am  able  to  pay  the  stock  raiser  10  cents  more  per  hundred 
pounds  than  I  could  if  my  shipments  were  made  over  the  steam  roads. 

Another  reason  for  the  saving  is  that  while  shipping  over  steam  roads  I 
would  average  a  loss  of  one  hog  to  a  car,  while  between  September  12,  1918, 
and  July  15,  1919,  I  have  shipped  355  cars  of  hogs  from  Crawfordsville  to 
Indianapolis  and  have  lost  just  one  hog. 

Hoping  that  this  information  will  answer  the  purpose  for  which  you  want  it, 
I  am, 

Yours,  truly, 

JESSE  S.  WARD. 

Now,  count  that  the  average  carload,  and  you  will  find  that  the 
electric  line  put  into  the  pockets  of  the  farmers  in  the  vicinitj'  of 
Crawfordsville,  who  sold  their  stock  to  this  one  man*  $7,100  more 
than  would  be  paid  them  if  he  had  to  ship  by  the  steam  road. 

The  CHAIRMAN.  It  ought  to  be  pretty  easy  sailing,  selling  electric 
stock  to  those  hog  raisers. 

Mr.  HENRY.  You  think  it  should  ? 

The  CHAIRMAN.  Sure. 

Mr.  HENRY.  Well,  he  would  rather  make  his  money  the  way  he 
does.  He  makes  it  quicker,  faster,  safer,  and  better. 

Commissioner  GADSDEN.  He  wants  to  make  his  money  and  keep  it, 
you  mean? 

Mr.  HENRY.  Yes.  He  is  satisfied  with  it  as  it  is,  as  you  see  from 
his  letter. 

Now,  it  is  generally  supposed,  gentlemen,  that  the  traffic — freight 
traffic — is  limited  to  short  distance.  I  want  to  read  you  a  letter  here 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.          703 

somewhat  at  length,  although  it  is  not  very  long,  that  shows  you  how 
much  it  has  already  been  developed  as  to  long  distances.  This  is 
from  Mr.  Norviel,  general  passenger  and  freight  agent  of  the  Union 
Traction  Co.,  of  Indiana,  dated  July  17,  1919 : 

Mr.  C.  L.  HENRY, 

Pi-e$ident  Indianapolis  &  Cincinnati  Traction  Co.,  Indianapolis,  Ind. 

DEAB  MR.  HENRY:  Answering  your  esteemed  favor  of  July  16  on  the  re- 
quest of  our  freight  service.  This  is  rather  a  hard  matter  to  give,  offhand, 
without  sufficient  time  to  gather  statistics  to  back  up  the  statements  made 
by  us.  However,  in  a  brief  way  will  state  that  for  some  years  we  have 
operated  a  fast  freight  from  Indianapolis  to  Fort  Wayne,  Ind.,  (125  miles) 
the  present  schedule  being  as  follows :  Leaving  Indianapolis  3.30  p.  m.,  arriving 
at  Fort  Wayne  at  11  p.  m.  Leaving  Fort  Wayne  on  the  Ohio  Electric  4  a.  in. 
and  arriving  at  Toledo  about  noon  the  following  clay  (137  miles).  Total 
Indianapolis  to  Toledo,  262  miles.  Returning,  leaving  Toledo  about  6  p.  m., 
arriving  at  Fort  Wayne  about  midnight  over  the  Ohio  Electric  and  leaving 
Fort  Wayne  about  6  a.  m.  and  reaching  Indianapolis  at  2.45  p.  m.  The  motor 
car  in  this  service  operates  between  Indianapolis  and  Fort  Wayne  trans- 
ferring freight  from  or  to  points  beyond  Fort  Wayne  which  may  be  con- 
tained in  the  motor  car  to  and  from  the  Ohio  Electric,  motor  car  operating  on 
the  above  schedule  to  Toledo,  Ohio,  but  the  trail  cars  make  the  entire  trip 
unopened. 

The  effect  of  this  service  is  freight  leaving  Indianapolis  at  3.30  p.  m.  is 
ready  for  delivery  at  Fort  Wayne  at  6  a.  m.  o'clock  the  following  morning  and 
at  Toledo  at  12  o'clock  noon  of  the  next  day  following  its  departure  from 
Indianapolis,  including  all  intermediate  points  touched  by  this  service.  Re- 
turning from  Toledo,  merchandise  loaded  on  one  day  reaches  Indianapolis  at 
2.45  p.  m.  on  the  day  following.  An  actual  service  not  bettered  by  American 
Railway  Express. 

Regarding  the  South  Bend  service  a  train  leaving  Indianapolis,  known  as 
the  Cannon  Ball,  at  7.00  p.  m.,  makes  deliveries  to  South  Bend  at  8  o'clock 
the  following  morning  (171  miles),  with  corresponding  deliveries  to  all  inter- 
mediate points.  Returning,  a  train  leaves  South  Bend  about  4  p.  m.  and  ar- 
rives in  Indianapolis  at  5.10  a.  m.  the  following  morning  with  corresponding 
service  for  such  intermediate  points  as  Warsaw,  Goshen,  Elkhart,  etc.  A 
service  not  equaled  by  the  American  Railway  Express  Co.  These  trains  operate 
six  days  a  week  and  are  reasonably  uniform  on  their  schedules. 

We  handle,  in  connection  with  the  motor  service  above  referred  to,  from  one 
to  three  trail  cars  on  each  of  the  trains  named  and  hnve  had  as  many  as  three 
trail  cars  loaded  with  freight  from  Toledo  to  Indianapolis  and  vice  versa,  and 
from  Indianapolis  to  South  Bend  and  vice  versa. 

The  South  Band  service  will  shortly  be  extended  to  Michigan  City,  connecting 
with  the. Indiana  Transportation  Co.  between  Michigan  City  and  the  city  ot 
Chicago  and  the  city  of  Milwaukee. 

A  water  line  part  of  the  way. 

The  volume  of  this  traffic  I  believe  I  can  safely  state  is  governed  only  by 
the  amount  of  equipment  that  can  be  set  aside  for  same,  as  the  time  of  these 
schedules  is  far  superior  to  any  other  mode  of  transportation,  that  the  traffic 
simply  waits  on  facilities.     Much  of  this  traffic  would  be  in  carload  lots  of 
1.  c.  1.  shipments  under  seals  and  without  breaking  bulk  between  large  termi- 
nals and  would  undoubtedly  be  a  very  profitable  traffic  to  foster. 
Trusting  this  is  the  information  you  desire,  we  beg  to  remain, 
Yours,  truly, 

(Signed)  F.  D.  NORVIFX, 

G.  P.  rf  F.  A. 

The  CHAIRMAN.  Yon  may  proceed,  Mr.  Warren. 

Mr.  HKNRY.  I  have  a  number  of  letters  here,  gentlemen,  that  1 
will  leave  copies  of.  I  will  leave  them  with  the  reporter,  and  in 
order  to  save  time  will  read  extracts  on  a  few  points,  because  it  would 
tnko  up  too  much  time  to  rend  the  whole  letter.  If  you  will  permit 
me  to  do  that,  T  will  then  hand  the  letter  to  the  reporter. 

The  CHAIRMAN.  Suit  yourself,  sir. 


704        PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  HENRY.  Here  is  a  letter  from  M.  O'Connor  &  Co.,  large  whole- 
sale dealers  in  Indianapolis,  in  which  they  make  this  statement: 

INDIANAPOLIS,  IND.,  July  17,  1919. 
INDIANAPOLIS  &  CINCINNATI  TRACTION  Co.,  City. 

GENTLEMEN  :  Much  has  been  said  about  railroad  transportation  and  what  it 
has  done  for  various  communities,  but  here  in  Indianapolis  the  jobbers  and 
manufacturers  realize  that  the  traction  lines  centering  in  this  city  have 
brought  more  business  to  this  city  on  account  of  the  splendid  service  and 
low  rates  given  the  people  of  rural  towns  and  districts  touched  by  these  lines. 

We  can  not  say  too  much  in  praise  of  the  service  rendered  the  merchants  ot 
this  city  and  State  by  the  traction  lines  by  giving  good  service  at  a  reasonable 
rate. 

It  Is  with  great  pleasure  that  we  write  this,  and  we  know  we  echo  the  senti- 
ments of  practically  all  of  the  people  in  the  community  served  by  your  and 
other  traction  lines. 

Yours,  very  truly, 

M.     O'CONNOR    &    CO., 

(Signed)  O.  C.  HAGUE. 

Here  is  a  little  side  show  that  I  want  to  give  you. 

There  are  a  great  many  communities  that  are  not  served  by  elec- 
tric current,  and  the  business  has  grown  up  over  a  great  many  lines 
of  selling  current  to  those  communities,  sometimes  to  the  individual 
farmer,  sometimes  to  the  grain  elevator,  sometimes  to  the  town  to  be 
distributed,  and  sometimes  to  the  communities.  I  have  one  letter 
here  that  illustrates  that  situation. 

This  is  from  Mr.  G.  K.  Jeffries,  the  general  superintendent  of  the 
Terre  Haute,  Indianapolis  &  Eastern  Traction  Co. : 

INDIANAPOLIS,  IND.,  July  16,  1919. 
Mr.  CHAS.  L.  HENRY, 

President  I.  &  C.  Traction  Co.,  City. 

DEAR  SIR:  This  company,  in  addition  to  the  power  which  it  uses  for  trans- 
portation purposes,  furnishes  power  to  14  towns  who  retail  it  to  the  inhabi- 
tants of  the  towns  for  lighting  and  power  purposes  and  for  street  lights. 

In  addition  to  this  we  sell  along  our  lines  to  24  other  consumers,  such  as 
planing  mills,  elevators,  brick  plants,  tile  plants,  etc.  We  will  connect  up 
within  the  next  few  days  a  cement  mill  which  will  use  between  600,000  and 
700,000  kilowatts  per  month. 

Hardly  a  week  passes  that  we  do  not  have  inquiry  for  power,  and  just  yester- 
day a  large  zinc  mill  on  our  line  was  -conferring  with  us  for  powe.r  to  the 
amount  which  will  be  consumed  by  the  cement  mill  or  more. 
Very  truly,  yours, 

(Signed)  G.  K.  JEFFRIES, 

General  Superintendent. 

The  CHAIRMAN.  Then  your  electric  line  is  also  a  power  company? 

Mr.  HENRY.  Yes,  sir;  the  transmission,  as  I  stated  at  the  begin- 
ning, is  of  such  a  character  that  it  carries  an  immense  volume  of 
power. 

Mr.  WARREN.  Is  that  generally  true  of  interurbans? 

Mr.  HENRY.  Yes,  sir;  it  is. 

Mr.  WARREN.  Most  of  them  furnish  power? 

Mr.  HENRY.  Yes,  sir;  that  is  a  fair  illustration  of  the  situation. 
On  our  little  road  we  have  13  towns  and  villages  that  we  supply 
with  power.  Then  we  supply  grain  elevators  and  farmers,  anybody 
that  wants  it. 

Mr.  WARREN.  Many  of  those  places,  I  suppose,  were  without  any 
service  until  you  supplied  it? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       705 

Mr.  HENRY.  All  of  them  that  are  mentioned.     We  have  no  com- 
petition.    We  put  them  in  nowhere  where  there  is  competition. 
What  I  wanted  to  refer  to  before  was  this: 

The  freight  tonnage  carried  in  and  out  of  Indianapolis  for  the  year  1918, 
by  interurban  freight  trains,  amounted  to  151,654  tons. 

The  express  business  carried  in  and  out  of  Indianapolis  for  the  year  1918, 
in  the  express  and  baggage  compartments  of  passenger  cars,  amounted  to  12,673 
tons. 

If  you  will  just  permit,  I  should  like  to  say  a  word  there,  and  I 
do  not  want  you  to  consider  it  as  too  much  criticism,  but  I  would 
like  to  have  you  consider  it  as  little  criticism. 

This  refers  to  express  business.  Before  the  Railroad  Adminis- 
tration organized  the  American  Railway  Express  Co.  there  were 
contracts  with  almost  all  of  the  electric  lines  in  the  country,  the  in- 
terurban electric  lines,  for  carrying  the  business  of  the  old  line  ex- 
press companies. 

Mr.  WARREN.  On  what  basis? 

Mr.  HENRY.  They  were  paying  us  about  40  or  50  per  cent  of  the 
receipts.  That  is  the  same  general  kind  of  contract  that  the  steam 
roads  had ;  but  when  the  American  Railway  Express  Co.  was  formed 
by  the  Railroad  Administration,  they  immediately  commenced  di- 
verting the  business  from  the  electric  lines  to  the  steam  lines.  I 
would  also  state  personally  that  the  accounting  department  aided 
also  in  cutting  down  the  revenue  of  the  electric  railways;  so  much 
so  that  on  our  little  road,  where  we  had  been  getting  about  $500  a 
month  from  the  Adams  Express  Co.,  it  commenced  going  down  right 
away.  During  the  first  six  months  it  went  down  to  about  three- 
fourths  of  what  it  had  been,  and  for  the  month  of  November  they 
sent  us  a  check  for  4  cents.  I  had  that  check  photographed  and 
have  it  hanging  up  in  my  office.  I  wanted  to  bring  you  a  copy  of 
it,  but  I  forgot  it. 

Mr.  WARREN.  What  effect  does  that  have  upon  the  express  service 
to  the  communities? 

Mr.  HENRY.  It  has  hurt  them.  These  communities  that  we  servo 
in  many  instances  have  no  steam  roads.  That  does  not  apply  to  all 
of  them.  We  run  to  the  same  place  in  many  cases;  but  not  only 
that,  they  do  not  get  the  frequent  service  that  we  give.  For  instance, 
take  the  C.,  I.  &  V.,  that  runs  along  our  line  from  Indianapolis  to 
Connersville.  I  do  not  know  what  their  present  schedule  is,  but 
they  only  have  a  local  passenger  train  stopping  once  a  day,  and  that 
is  westbound.  They  run  it  down  to  the  east  and  transfer  the  express, 
and  that  is  only  once  a  day  that  they  stop  their  westbound  train; 
whereas  on  our  line  they  get  it  every  hour,  or  every  hour  and  a  half 
throughout  the  day,  if  they  want  it. 

In  view  of  the  fact,  the  traction  lines  have  gone  into  the  express 
business,  and  the  public-service  commission  of  our  State  has  granted 
off-line  and  interline  rates.  We  are  going  into  the  business,  and  we 
are  increasing  our  business.  We  did  before  what  we  called  station- 
delivery  express.  We  did  not  use  a  wagon-and-pick-up-and-delivery 
system.  That  is  one  of  the  things  that  the  war  and  the  formation 
of  the  Railroad  Administration  have  put  on  us.  I  will  tell  you 
some  of  the  rest  of  them  after  a  little  bit. 


706       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Now,  I  have  a  very  interesting  letter  here  from  the  Western  Ohio 
Railway  Co.,  from  Mr.  Carpenter,  which  I  would  like  to  read: 

THE  WESTERN  OHIO  RAILWAY  Co., 

Lima,  Ohio,  July  19,  1919. 
CHART.KS  L.  HENRY, 

President  Indiana  d  Cincinnati  Traction  Co., 

Care  of  The  New  Wittard  Hotel,  Washington,  D.  C. 

DEAR  SIR  :  Replying  to  your  favor  of  the  16th  instant,  beg  to  advise  there  Is 
nothing  striking  or  exceptional  to  the  general  rule  to  the  operation  of  our  line 
that  I  am  able  to  report.  However,  I  wish  to  state  a  few  items  that  in  my 
judgment  should  he  included  in  your  report,  and  you  without  much  doubt  will 
have  these  already  in  your  mind. 

During  the  sugar-beet  season  we  have  been  of  material  benefit  to  the  sugar- 
beet  growers  by  being  able  to  place  cars  near  to  their  fields  and  thus  save  con- 
siderable time  and  expense  in  hauling  the  produce  to  places  for  shipment.  This 
1s  also  true  of  many  other  commodities,  especially  with  factories  located  in  the 
various  villages  along  our  -line. 

We-  have  just  concluded  a  contract  for  the  handling  of  about  2,000  carloads 
of  cement,  sand,  and  gravel  for  the  building  of  public  highway  which  runs 
adjacent  to  our  tracks.  The  contractor  was  able  to  make  a  less  price  for  his 
work  on  this  road  by  reason  of  the  prompt  and  convenient  delivery  we  were 
able  to  make,  thus  effecting  a  saving  to  the  State  and  all  other  parties  who 
are  taxed  for  this  improvement.  In  this  case  we  receive  the  carloads  from  the 
Baltimore  &  Ohio  in  Wapakoneta,  Ohio,  and  transport  them  to  various  sidetracks 
upon  the  road  where  the  work  is  being  performed,  and  as  above  stated,  afford 
a  great  saving  to  the  contractor,  besides  effecting  a  more  prompt  delivery  of 
the  material,  as  compared  with  their  haul  by  wagons  or  trucks. 

Last  year  we  completed  a  contract  for  16  miles  of  Dixie  Highway,  amounting 
to  3,800  carloads  of  business,  which  was  handled  in  the  same  manner  as  the 
above,  also  making  a  saving  to  the  contractor  and  the  taxpayers. 

We  operate  through  service  between  Dayton,  Lima,  Toledo,  and  Detroit, 
and  all  intermediate  stations,  which  through-freight  service  handles  shipments 
to  all  points  reached  by  interurban  lines  in  the  States  of  Indiana,  Michigan, 
Ohio,  Kentucky,  and  on  account  of  the  short  time  in  which  this  freight  is 
delivered  it  makes  quite  a  saving  to  the  public  located  in  this  territory  in  the 
way  of  being  able  to  order  their  goods  in  the  morning  and  in  many  instances 
have  same  in  their  possession  the  same  evening  or  the  following  morning. 

During  the  war  the  interurban  lines  in  this  territory  were  a  great  factor  in 
the  movement  of  all  classes  of  freight,  and  especially  Government  freight,  used 
in  the  manufacture  of  war  supplies,  and  the  service  rendered  at  that  time  and 
also  at  present  is  practically  the  same  as  express  service. 

At  the  present  time  we  are  handling  many  carloads  of  castings,  automobiles, 
automobile  starters,  wheels,  etc.,  from  Dayton  to  Detroit,  Pontiac,  Grand 
Rapids,  and  various  other  manufacturing  centers  and  are  giving  second  morn- 
Ing  delivery  from  Dayton  to  points  mentioned.  Shippers  are  gradually  appre- 
ciating this  prompt  interurban  service,  but  we  are  handicapped  in  many  places 
by  municipal  restrictions  as  to  the  number  of  carloads  that  can  be  handled  in 
each  train,  and  in  some  places  we  are  restricted  to  the  movement  of  one  motor 
car  and  one  additional  load  at  a  time,  which  causes  a  great  deal  of  expense 
doubling  through  at  nighttime,  when  the  train  consists  of  8  to  10  carloads.  Our 
average  cars  per  train  for  the  last  12  months  lias  been  6  cars.  Thus  you  can 
see  the  extra  expense  incurred  by  reason  of  the  municipal  restrictions.  In 
some  instances  the  municipalities  object  to  the  movement  of  freight  cars  at 
any  time  during  the  day.  This  handicaps  our  movement  and  causes  additional 
expense  by  reason  of  being  obliged  to  pass  through  these  corporations  during 
the  night.  It  is  therefore  necessary  for  us  to  maintain  a  day  and  night  force 
in  order  to  handle  the  business,  both  in  train  service  and  station  service,  adding 
as  you  will  see  very  materially  to  our  operating  expense.  We  believe  we 
should  in  some  manner  be  relieved  from  these  restrictions  and  added  expenses. 

During  the  year  1918  we  handled  1,316  carloads.  During  the  year  1917, 
1,717  carloads.  This  was  straight  carload  business  and  does  not  include  the 
L,  C.  L.  business,  which  is  loaded  and  unloaded  in  our  freight  houses,  but 
consists  of  solid  carloads,  loaded  by  consignor  and  unloaded  by  consignee  to 
and  from  the  cars.  You  will  note  from  the  above  figures  a  decrease  in 
the  carload  business  of  -101  cars  for  the  year  1918,  and  has  continued  on  a 
decline  to  the  present  date,  due  to  the  decrease  in  production  of  the  various 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       707 

factories  that  were  served  and  the  motor-truck  competition.  At  the  present 
time  we  are  confronted  with  motor-truck  competition  between  almost  all  points 
which  are  local  to  our  line,  and  while  at  this  time  the  motor  trucks  have  not 
proven  a  success,  they  have  been  the  means  of  depriving  us  of  many  carloads 
of  business.  From  this  competition  I  believe  we  should  have  some  relief.  Just 
what  the  remedy  is  to  be  I  am  only  able  to  suggest,  namely : 

Any  truck  line  doing  a  transportation  business  for  profit  should  file  a  tariff 
and  pay  an  additional  license  for  the  privilege  of  so  doing.  The  public  roads 
are  free,  of  course,  for  the  public,  and  no  taxes  can  be  legally  imposed  for  the 
use  of  same,  but  this  truck  service  is  fast  wearing  out  the  roads  for  which  the 
public  are  taxed,  and  they  are  contributing  nothing  whatever  to  its  main- 
tenance, but  a  license  tax  would,  to  some  extent,  contribute  to  the  same. 

The  steam  roads  should  be  induced  to  advance  their  interstate  passenger 
rates,  which  would  entitle  the  iuterurbans  to  advance  their  rates.  The  steam 
roads  are,  as  I  understand,  operating  a  passenger  service  at  a  loss,  and  the 
deficit  is  being  made  up  in  part  from  freight  earnings  and  the  balance  finally 
to  be  paid  by  the  Government  or  taxpayers.  The  interurban  roads  should  be 
relieved  of  cost  of  new  paving  and  repairs  to  paving.  There  should  also  be 
some  legislation  to  relieve  the  electric  railways  and  for  that  matter  the  steam 
lines  from  the  tremendous  financial  burden  from  crossing  accidents,  most  of 
which  are  due  to  carelessness  of  the  public  operating  motor  cars  and  other 
vehicles. 

Trusting  the  suggestions  herein  named  may  be  of  some  assistance  to  you,  I 
remain. 

Yours,  very  truly, 

THE  WESTERN  OHIO  RAILWAY  Co., 
(Signed)  F.  D.  CARPENTER, 

President  and  General  Manager, 

You  will  see  the  immense  amount  of  business  that  they  do  in  certain 
towns. 

Here  is  a  letter  from  the  Cleveland,  Southwestern  &  Columbus 
Railway,  which  I  will  treat  in  the  same  way.  I  have  a  map  of  the 
road  with  that. 

JULY  19,  1919. 
Mr.  CHARLES  L.  HENRY, 

President  Indianapolis  d  Cincinnati  Traction  Co., 

New  Willard  Hotel,  Washington,  D.  C. 

DEAR  MR.  HENRY  :  In  reply  to  your  communication  of  July  16,  permit  me  to 
inclose  you  two  maps  of  our  road.  The  territory  outlined  in  green  is  a  very 
good  dairy  country,  and  practically  all  of  the  milk  produced  goes  to  the  city 
of  Cleveland.  The  red  line  shows  some  of  the  minor  dairy  farms,  the  product 
of  which  practically  all  goes  to  Mansfield. 

We  handle  on  our  road  over  fifty  thousand  10-gallon  cans  of  milk  per  mouth. 
The  rate  ou  this  milk  is  fixed  by  the  Interstate  Commerce  Commission  and  the 
public-utilities  commission  at  18  cents  per  can  for  a  10-gallon  can  over  an 
average  distance  of  25  miles.  This  rate  compels  us  to  return  the  empties  free. 

The  milk  has  to  be  carried  at  certain  hours  of  the  day.  The  convenience  of 
the  shipper  in  getting  his  milk  to  the  stands  and  getting  the  milk  into  the  city 
before  the  he;it  of  the  day,  are  factors  which  we  have  to  take  into  consideration, 
and  provide  service  accordingly. 

In  addition  to  the  above,  we  handle  a  large  quantity  of  cream,  which  is  not 
on  daily  shipments  and  which,  according  to  the  public-utilities  commission,  we 
are  compelled  to  handle  at  the  same  rate  that  we  handle  milk ;  the  injustice 
that  we  complujUi  of  in  this  respect  is,  if  we  lose  a  can  of  cream  we  have  to 
pay  the  price  of  cream  for  it,  while  handling  it  at  the  milk  rate. 

We  also  handle  over  some  of  the  territory  referred  to,  into  Cleveland  alone, 
iipproximately  105,000  dozen  eggs  per  month,  and  40,000  pound's  of  butter  per 
month. 

We  undoubtedly  could  increase  the  business  in  dairy  and  farm  products  If 
we  were  not  limited  in  equipment,  which  at  the  present  time  we  are  unable 
to  procure  on  account  of  limitation  of  our  finances. 

With  kindest  personal  regards,  permit  me  to  remain, 
Very  sincerely,  yours, 

,  General  Manager. 


708       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Commissioner  BE  ALL.  That  road  has  not  done  very  well? 

Mr.  HENRY.  No;  and  there  are  a  good  many  reasons  for  it. 
'     Commissioner  BEALL.  Yes. 

Mr.  HENRY.  I  can  tell  you  more  that  have  not  done  very  well,  too. 

Commissioner  BEALL.  Yes. 

Mr.  HENRY.  But,  in  a  business  way,  they  are  serving  the  com- 
munities, and  that  is  the  subject  I  am  on  now. 

The  Indiana  Railways  &  Light  Co.  is  a  road  running  into  and  out 
of  Kokomo,  both  ways;  and  I  have  a  letter  from  them  on  the  same 
subject: 

INDIANA   RAILWAYS  &  LIGHT  Co. 

Kokomo,  Jnd.,  July  -18,  1919. 
MR.  CHARLES  L.  HENRY, 

General  Manager,  Indianapolis  &  Cincinnati  Traction  Co., 

Neiv   Willard   Hotel,    Washington,    D.    C. 

DEAR  SIR  :  Having  been  informed  that  you  will  present  the  cases  of  the  in- 
terurban  companies  to  the  GoVernment  commission  appointed  for  the  purpose 
of  investigating  the  present  financial  condition  and  future  prospects  of  such 
interurban  properties,  we  desire  to  acquaint  you  with  the  location  of  the  Indi- 
ana Railways  &  Light  Co.  and  as  far  as  possible  with  the  service  it  performs 
to  the  public  in  general,  which  information  we  hope  will  be  of  some  assistance 
to  you  in  presenting  the  deplorable  condition  of  the  industry  to  the  com- 
mission. 

For  the  reason  that  the  financial  condition  of  the  steam  and  electric  rail- 
ways of  the  country  is  so  well  known,  we  will  omit  any  further  reference  to 
this  phase  of  the  matter. 

The  Indiana  Railways  &  Light  Co.  operates  an  interurban  railway  between 
the  cities  of  Frankfort,  in  Clinton  County ;  Kokomo,  in  Howard  County ;  and 
Marion,  in  Grant  County ;  all  in  Indiana,  a  distance  of  52.8  miles  and  the  line 
parallels  the  Toledo,  St.  Louis  &  Western  Railroad,  almost  the  entire  distance 
and  connects  with  the  Terre  Haute,  Indianapolis  &  Eastern  Traction  Co.  at 
Frankfort,  the  Union  Traction  Co.  of  Indiana  at  Kokomo,  and  the  Union 
Traction  Co.  of  Indiana  and  Marion  &  Bluffton  Traction  Co.  at  Marion. 

j  The  first  operation  of  an  interurban  line  by  this  company  was  performed  in 
1903  from  Kokomo  to  Greentown,  Ind.,  a  distance  of  10  miles,  and  this  line 
was  extended  in  1905  from  Greentown  to  Marion,  a  distance  of  18  miles,  and 
the  line  was  further  extended  in  1912  from  Kokomo  to  Frankfort,  a  distance 
of  26  miles,  and  since  1912  there  have  been  no  extensions  and  none  are  an- 
ticipated. 

These  lines  traverse  a  rich  farming  territory  and  serve  three  incorporated 
towns  and  eight  unincorporated  towns  and  villages,  in  addition  to  the  three 
cities  named,  and  the  frequent  service  of  interurban  cars  enables  the  laborers 
of  the  intermediate  towns  to  take  up  employment  in  the  three  cities  named, 

,    which  are  largely  manufacturing  centers. 

p  The  farmers  along  the  line  have  frequent  service  to  and  from  their  nearest 
public-highway  crossings,  both  passenger  and  freight,  and  have  always  been 

i  lavored  by  special  service  in  emergencies.  As  an  example:  In  January  and 
February  of  1918  when  the  demand  for  stock  cars  in  the  South  by  the  Govern- 
ment for  war  purposes  compelled  the  railroads  of  this  territory  to  embargo 
shipments  of  stock  for  lack  of  cars,  this  company  arranged  to  transport  the 
hogs  and  cattle  to  the  Indianapolis  market  with  its  freight  equipment  and  in 
the  meantime,  using  improvised  methods  to  perform  service  to  those  de- 
pending on  the  freight  service  along  its  line. 

Arrangements  were  quickly  made  with  the  Union  Traction  Co.  of  Indiana, 
Indianapolis  Traction  &  Terminal  Co.,  and  Terre  Haute,  Indianapolis  &  East- 
ern Traction  Co.  for  the  use  of  their  tracks  and  also  with  the  farmers  and  stock 
buyers  along  this  line ;  and  by  running  the  train  of  three  cars  night  and  day, 
making  two  round  trips  per  day,  we  were  able  to  relieve  the  situation,  to  the 

'"  "extent  that  9,000  head  of  livestock  were  marketed  by  reason  of  the  operation  of 
the  train  on  44  trips  from  points  along  the  line  to  Indianapolis,  an  average  dis- 
tance of  80  miles.  The  farmer  was  permitted  to  load  his  stock  at  any  point 
along  the  right  of  way,  and  the  charges  for  transportation  were  very  little  iu 
excess  of  rates  for  steam-road  service. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       709 

Many  similar  instances  of  minor  nature  might  be  mentioned,  where  this  inter- 
urban  railway  has  relieved  the  stress  of  circumstances  in  such  emergencies  and 
at  no  great  profit  to  itself  and,  for  the  fact  that  it  is  not  built  or  equipped  for  ex- 
tensive carload  business,  at  a  great  inconvenience  to  itself  and  a  part  of  the 
public  in  general. 

However,  this  instance  of  helpfulness  has  been  greatly  appreciated  by  the 
farmers  and  citizens  in  general  and  the  company  was  given  favorable  com- 
mendation by  the  local  newspapers  along  the  line,  in  many  articles  concerning 
the  relief  obtained. 

For  many  years  the  paralleling  steam  road  passenger  service  has  been  very 
inadequate  to  the  needs  of  the  public  in  this  53  miles  and  so  far  as  passenger 
service  is  concerned,  this  line  is  a  necessity  as  great  as  if  no  parallel  line  was 
in  existence  and  is  a  valuable  adjunct  to  the  life  and  growth  of  the  com- 
munities which  it  serves  in  many  ways — one  of  the  most  important  being  that 
all  of  the  smaller  towns  receive  lighting  and  power  service,  they  being  a  part  of 
the  23  towns  outside  of  Kokomo  receiving  such  service,  a  great  many  of  them 
being  some  miles  from  the  line;  this  being  made  possible  by  the  fact  that  cur- 
rent is  taken  from  the  railway  high-tension  lines  at  frequent  intervals  for 
transmission  to  other  localities  entirely  off  of  the  line  and  these  branches  pro- 
vide power  and  lights  for  farmers  along  about  100  miles  of  highway. 

It  would  appear  that  this  interurban  line,  with  its  various  methods  of  serv- 
ing the  public,  so  intermingled  that  the  disposal  of  one  means  of  the  non- 
success  of  the  others,  is  indispensable  so  far  as  the  public  welfare  is  con- 
cerned, and  for  this  reason  should  be  allowed  to  exist  and  after  paying  rea- 
sonable wages  to  its  employees,  as  other  industries  are  permitted  to  do,  and 
after  paying  all  expenses  incident  to  the  proper  operation  of  the  property, 
should  be  permitted  to  pay  its  stockholders  a  reasonable  return  on  its  actual 
valuation. 

The  company  also  operates  8  miles  of  city  car  lines  in  Kokomo  and  there 
have  been  no  additions  to  the  tracks  of  these  lines  since  1902  and  since  that 
time  there  has  been  no  change  whatever  in  the  charges  for  the  transportation 
of  the  public  over  the  lines,  and  in  the  meantime  public  opinion  has  compelled 
a  change  from  single-truck  to  double-truck  cars,  at  a  great  expense,  and  the 
cost  of  labor  and  material  has  increased  entirely  out  of  proportion  to  the  num- 
ber of  passengers  carried  ;  and  while  Kokomo  has  in  this  period  grown  from  a  city 
of  7,000  to  28,000,  at  present  it  has  not  had  a  foot  of  track  built  for  the  purpose 
of  transporting  the  public,  many  of  whom  now  live  far  beyond  the  present 
lines,  and  these  must  walk  as  far  as  they  can  ride  in  their  trips  to  and  from 
the  center  of  the  city. 

This  condition  is  deplorable  and  is  a  hindrance  to  the  further  growth  of  the 
city  and  is  practically  the  same  condition  as  exists  in  hundreds  of  other  cities 
in  the  country  and  there  are  reasons  for  such  conditions,  vei'y  well  known  to 
those  who  might  have  observed  in  the  past,  not  the  least  of  which  is  the  con- 
tinual regulation  of  income  by  State  and  municipal  officials,  without  in  any 
way  attempting  to  consider  the  expenditures  incident  to  the  operation. 

This  company  can  not  extend  its  lines  to  suit  the  needs  of  this  city  for  the 
reason  that  sane  men  will  not  invest  money  in  a  hazardous  industry,  in  which 
facts  obtained  from  past  and  present  conditions  indicate  that  there  can  be  no 
reasonable  return  on  actual  valuation  and  with  present  conditions  and  the  out- 
look for  the  future  there  can  be  but  very  little  hope  that  circumstances  sur- 
rounding such  public  utilities  will  become  improved  to  the  extent  that  they 
may  again  take  their  position  on  the  same  plane  with  private  industry  and  in 
the  meantime  the  public  must  suffer  the  inconvenience  brought  about  by  the 
lack  of  adequate  efficient  service. 

Our  experience  has  taught  us  that  it  is  not  the  public  in  general  that  object 
to  these  public  utilities  being  allowed  to  earn  a  reasonable  return  on  valuation 
after  paying  a  reasonable  wage  to  its  workers  and  other  operating  expenses, 
but  that  it  is  one  of  those  who  claim  to  represent  the  public  In  some  political 
office  or  position,  and  usually  all  of  his  efforts  for  their  benefit  are  directed 
toward  public-service  corporations  and  without  a  thought  of  the  future,  or  of 
any  phase  of  the  matter  not  beneficial  to  his  constituents. 

This  condition,  however,  is  being  gradually  relieved  by  the  various  public- 
service  commissions,  but  the  outlook  for  that  radical  improvement  necessary  to 
stabilize  such  industries  is  in  no  sense  encouraging. 

For  these  and  many  other  reasons,  not  only  the  public  should  be  fully  in- 
formed, but  public  officials  should  by  some  method  be  educated  to  consider  both 
sides  of  the  matter  of  utilities,  which  must  serve  their  constituents  and  there 


710       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

must  be  that  degree  of  fairness  on  all  sides  that  will  breed  confidence  if  such 
utilities  can  supply  the  needs  of  growing  communities  and  expand  to  other 
communities  which  are  in  crying  need  of  them. 
Yours,  very  truly, 

C.  P.  RYAN,  G.  P.  d  F.  A, 

Here  is  a  letter  from  the  fruit  district  in  the  southwest  part  of 
Michigan : 

BERRIEN  COUNTY  BANK,  July  17,  1919. 
Mr.  JAMES  H.  POUND, 

Benton  Harbor,  Mich. 

DEAR  Mr.  POUND:  In  reply  to  your  request  of  this  day,  relative  to  the  letter 
of  Mr.  Charles  L.  Henry,  I  beg  to  advise  that  the  Millburg  Fruit  Growers' 
Association  last  year  shipped  approximately  30  carloads  of  fruit  and  had 
shipped  in  14  carloads  of  supplies ;  that  the  Benton  Center  Fruit  Gorwers' 
Association  shipped  approximately  38  carloads  out  and  20  carloads  of  sup- 
plies in. 

You  will  appreciate,  of  course,  when  you  make  a  comparison  of  these  figures 
with  previous  years,  that  the  fruit  crop  was  practically  a  failure;  during  the 
year  of  1916  the  Millburg  Fruit  Growers'  Association  shipped  183  carloads  of 
peaches  alone  over  your  line.  While  the  crop  this  year  is  not  so  large  as  dur- 
ing 1916,  nevertheless  we  are  expecting  that  shipments  from  these  two  points 
on  your  line  will  more  than  double  last  year's  record. 

I  am  frank  to  say  that  if  it  were  not  for  your  line  in  connection  with  these 
two  points,  which  as  you  know  I  am  vitally  interested  in,  the  market  for  fruits 
would  be  much  less  than  at  present. 

Trusting  that  this  is  the  information  desired,  I  am, 
Very  truly,  yours, 

JAS.  M.  ROSE,  Cashier. 

The  CHAIRMAN.  Mr.  Henry,  would  you  not  have  a  right  to  as- 
sume that  this  commission  regards  the  electric  lines  as  a  necessary 
institution,  and  that  we  are  disposed  to  do  all  we  can  to  help  them  out 
in  their  difficulty? 

Mr.  HENRY.  All  right;  I  do  assume  that,  but  I  do  assume  that 
possibly  some  members  of  the  commission  need  to  be  enlightened 
on  the  subject  of  the  great  advantages  which  we  give  the  com- 
munities over  and  above  what  the  steam  roads  give  them.  That 
is  the  only  point  that  I  thought  there  might  be  some  doubt  about. 

I  want  to  read  here  a  letter  from  the  Ohio  Electric  Railway  Co. : 

THE  OHIO  ELECTRIC  RAILWAY  Co., 

Springfield,  Ohio,  July  19,  1919. 
Mr.  CHARLES  L.  HENRY, 

New  Willard  Hotel,  Washington,  D.  C. 

MY  DEAR  MR.  HENRY  :  Mr.  Dana  Stevens,  vice  president  of  this  company, 
has  referred  your  letter  of  the  loth  instant  to  me,  in  which  you  asked  for  a 
statement  from  the  traffic  manager  of  this  company  with  reference  to  the  extent 
of  its  merchandise-freight  business  and  the  manner,  especially  the  expedition, 
in  which  it  is  handled. 

In  response  wish  to  advise  that  this  company  operates  510  miles  of  inter- 
urban  track  over  which  freight  business  is  handled,  and  the  total  gross  freight 
revenue  for  the  year  1918  amounted  to  $613.052.32. 

Merchandise  freight  is  handled  in  the  territory  between  Fort  Wayne, 
Union  City,  and  Richmond,  Ind.,  and  Lima.  Defiance,  Toledo,  Dayton,  Spring- 
field, Columbus,  Newark,  and  Zanesville,  Ohio,  over  this  company's  line.  Ship- 
ments received  during  the  day  at  Toledo  and  Fort  Wayne  on  the  one  hand, 
and  Dayton,  Springfield,  and  Columbus  on  the  other,  are  forwarded  in  the 
evening  and  reach  destination  the  following  morning,  making  an  over-night 
delivery  for  L.  C.  L.  shipments. 

In  addition  to  this  service,  solid  merchandise  cars  are  handled  between  all 
the  larger  points  on  the  line.  For  example,  Columbus  will  load  cars  for 
Zanesviile,  Newark,  Springfield,  or  Dayton.  When  these  are  loaded  to  their 
full  capncity  before  the  schedule  time  of  our  regular  freight  trains,  they  are 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       711 

coupled  to  one  of  our  local  passenger  cars  and  handled  through  to  destina- 
tion on  passenger-train  schedule.  'Shipments  from  commercial  centers  to 
near-by  points  within  30  or  40  miles  are  delivered  within  a  few  hours  after 
receipt. 

This  quick  service  when  first  inaugurated  created  quite  a  little  fear  in  the 
minds  of  merchants  at  the  smaller  towns  and  villages  that  their  business  would 
be  absorbed  by  the  merchants  at  the  large  centers.  This  fear,  however, 
has  proved  groundless,  and  Instead  It  has  really  been  a  benefit  to  them  in  this 
way :  That  it  has  enabled  them  to  conduct  their  business  with  a  reduced  stock, 
as  sales  can  now  frequently  be  made  from  selection  from  catalogues  where 
otherwise  the  stock  would  have  to  be  carried  on  the  fioor. 

On  rush  orders  the  merchant  can  telephone  to  his  jobber  and  frequently 
have  the  article  in  the  hands  of  the  purchaser  the  same  day  or,  at  the  furthest, 
the  next  morning.  As  far  as  the  matter  of  time  is  concerned,  freight  ship- 
ments over  our  line  make  as  good  and  frequently  better  time  than  those  handled 
by  the  express  company. 

I  trust  that  this  information  is  what  you  desire.     Should  you  wish  anything 
further  along  this  line,  kindly  advise. 
Yours,  very  truly, 

W.  S.  WHITNEY,  O.  P.  d  F.  A, 

Detroit  is  a  large  city,  and  I  want  to  read  to  you  a  statement  of  a 
disinterested  outsider  on  that  subject,  and  then  leave  the  papers  here. 
This  is  from  the  Detroit  Wholesale  Merchants'  Bureau: 

Detroit,  July  18,  1919. 
Mr.  W.  S.  RODGEB, 

General  Traffic  Manager,  Detroit  United  Railway,  Detroit,  Mich. 

DEAR  SIB:  The  question  was  recently  asked  how  the  wholesaling  interests  of 
Detroit  were  affected  by  the  freight  service  given  by  electric  lines  running  from 
this  city  to  points  in  Michigan  and  Ohio.  In  answer  to  that  question,  I  believe 
that  I  can  safely  state  that  70  per  cent  of.  the  shipments  from  wholesale  houses 
in  Detroit  go  out  via  electric  lines.  As  a  result  Detroit  wholesalers  are  vitally 
interested  in  service  given  by  electric  railroad  lines  in  this  section  of  the 
country. 

The  electric  lines  give  the  wholesalers  second  or  third-day  deliveries  to  all 
points  within  a  radius  of  100  and  150  miles.  As  a  result  of  this  they  have 
saved  the  wholesale  interests  of  the  city  thousands  of  dollars  in  business.  Many 
accounts  would  have  been  lost  had  the  wholesalers  depended  upon  deliveries  by 
the  steam  roads  running  out  of  the  city. 

The  electric  lines  have  repeatedly  saved  the  day  for  various  business  interests 
of  the  city.  This  was  particularly  the  case  during  the  extremely  cold  weather 
of  the  winter  months,  and  at  other  times  when  the  railroads  had  proved  their 
inefficiency  in  handling  L.  C.  L.  shipments. 

The  wholesalers  of  Detroit  have  found  It  to  their  advantage  to  ship  their 
goods  via  the  electric  lines  wherever  the  electric  company  is  in  competition  with 
the  railroad. 

It  would  indeed  be  a  serious  blow  to  the  wholesaling  interests  of  the  city 
should  anything  happen  to  curtail  the  service  given  by  the  electric  lines.  We 
believe  that  financial  assistance  should  be  given  to  these  companies  and  every- 
thing possible  should  be  done  to  maintain  a  high  standard  of  efficiency  iu  this 
very  important  link  of  our  country's  transportation  system. 
Very  truly,  yours, 

WHOLESALE  MERCHANTS'  BUREAU, 
W.  E.   WrLiNosos,  Secretary. 

I  have  a  map  of  their  line  also. 

The  Louisville  Traction  linos  are  a  little  different  from  the  rest  of 
the  interurbans  down  there.  They  run  in  and  out  in  that  form. 
[Illustrating.]  They  look  like  snakes  almost,  only  short  distances 
out,  and  I  will  not  take  up  any  time  to  say  anything  about  them. 

Now,  then,  what  is  the  trouble!  That  is  what  you  want  to  hear 
about. 

In  a  general  way,  the  interurbans  have  no  serious  troubles  with  tho 
exception  of  the  goneral  situation.  That  is,  we  are  not  hampered 
by  franchises  to  any  large  extent.  We  are  to  a  certain  extent. 


712       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

For  instance,  take  the  city  of  Indianapolis,  which  will  illustrate 
one  of  them.  I  read  to  you  there  a  letter  about  how  much  stock  one 
shipper  brought  into  Indianapolis.  There  is  a  clause  in  the  franchise 
in  Indianapolis  that  no  live  stock  shall  be  shipped  in  by  an  interurban. 
Only  recently  they  allowed  them  to  start.  That  was  during  the  war, 
when  the  steam  railroads  broke  down  in  their  service,  and  that  was 
the  only  way  they  could  get  stock  in.  Since  that  it  has  been  going 
along,  and  I  do  not  suppose  it  will  ever  be  stopped  again. 

Commissioner  BEALL.  Is  that  statement  quite  correct?  Is  it  not  a 
fact  that  the  Northern  Ohio  Traction  Co.,  for  instance,  has  been  ham- 
pered in  its  business  for  quite  a  number  of  years  on  account  of  the 
franchises  ? 

Mr.  HENRY.  Yes;  I  was  speaking  generally. 

Commissioner  BEALL.  And  other  lines  have  many  difficulties. 

Mr.  HENRY.  Yes;  there  are  a  great  many  difficulties  of  which  I  will 
speak.  Mr.  Carpenter's  letter  and  Mr.  Schneider's  letter  both  refer 
to  those  things. 

Commissioner  BEALL.  But  you  said  a  little  while  ago  that  they  had 
no  franchise  troubles. 

Mr.  HENRY.  Well,  perhaps  my  remark  was  too  general  in  its  form. 

Commissioner  BEALL.  Yes. 

Mr.  HENRY.  There  are  a  great  many  places  where  the  handling  of 
freight  is  restricted  to  one  car,  sometimes  two  cars,  and  sometimes  to 
three  cars.  They  are  bothered  about  the  through  business  in  that 
way.  The  Ohio  Electric  Co.  is  bothered  very  much  about  that. 
That  is  the  largest  company  in  Ohio.  They  are  bothered  very  much 
about  it,  and  the  trouble  is  to  get  a  continuous  acting  business  on  ac- 
count of  these  various  things. 

Even  in  Cleveland  they  do  not  allow  freight  cars  to  run  in.  They 
call  them  express,  whatever  they  take  into  Cleveland.  They  do  not 
allow  freight  cars  to  run  in. 

Then,  there  are  also  the  provisions  regarding  paving  that  you  have 
heard  so  much  about  here  during  the  hearings.  Those  apply  in  nearly 
all  of  these  small  towns.  In  nearly  all  of  them  they  have  just  that 
kind  of  a  provision.  Personally  I  have  only  signed  one  contract  of 
that  kind,  and  that  was  a  renewal  of  one,  which  necessitated  it.  I 
thought  it  better  to  do  that  than  not  to  do  it ;  but  I  never  believed  in 
signing  them.  There  are  lots  of  them  in  existence,  though.  I  might 
say  that  the  first  interurban  contract  that  I  ever  made  Avith  that  town 
provided  also  for  the  handling  of  freight,  that  of  Alexandria;  but 
there  are  a  lot  of  these  franchise  restrictions. 

For  instance,  in  regard  to  what  it  termed  the  State  highways  that 
the  Government  is  assisting  in :  There  are  provisions  in  there  for  the 
paving  of  the  part  of  the  street  where  the  railroad  is,  and  in  many 
towns  and  villages  that  will  apply.  That  will  require  the  elimination 
of  a  great  many  grade  crossings  that  otherwise  would  not  have  to  be 
eliminated,  because  there  was  no  necessity  for  it ;  but  everybody  recog- 
nizes that  with  the  travel  on  these  proposed  paved  highways,  it  will 
be  so  great  that  it  will  require  the  elimination  of  a  great  many  grade 
crossings.  Nowr  if  that  is  carried  to  the  extreme,  as  it  looks  like 
it  will  be,  that  practically  extinguishes  the  ability  of  the  interurban 
roads  in  many  places  to  do  anything.  While  they  are  doing  that, 
alongside  of  them  are  the  gasoline  trucks,  their  best  competitor.  In 
other  words,  the  gasoline  runs  along  without  any  control,  without  any 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       713 

sort  of  arrangement  with  the  public-service  commission  or  any  other 
public  body,  right  straight  alongside  on  the  road  which  we  are  help- 
ing to  pay  for.  We  get  it  both  going  and  coming  that  way,  you 
know.  We  can  not  miss  it. 

Now,  I  want  to  call  your  attention  to  one  thing  in  connection  with 
this  trucking  business.  Just  before  I  came  over  here,  I  was  handed 
a  copy  of  the  United  States  bulletin,  issued  on  July  14,  1919,  which 
I  think  is  very  interesting : 

LARGE   BUBAL   MOTOR   EXPRESS   COMPANY   FEARS   OPERATIONS   OF    SO-CALLED    WILD   CAT 

LINES. 

The  highways  transport  committee  of  the  Council  of  National  Defense  author- 
izes the  following: 

The  general  manager  of  a  new  rural  motor-express  company  in  the  northwest 
submits  some  very  interesting  ideas  to  the  highways-transport  committee  in 
connection  with  the  operation  of  motor  apparatus  for  commercial  purposes,  and 
this  committee  is  glad  to  pass  them  along  to  the  big  and  rapidly  growing  family 
of  highways-transport  committee  enthusiasts  throughout  the  country. 

This  company  is  preparing  to  cover  a  pretty  big  territory  with  a  complete  sys- 
tem of  rural  motor-express  routes.  In  this  connection  its  executives  have  made 
a  study  of  the  various  angles  of  this  work  and  apparently  seem  to  have  devel- 
oped the  practical  end  of  it  most  satisfactorily. 

WILDCATTING  OBJECTIONABLE. 

However,  one  very  pertinent  subject  is  suggested,  and  that  is  the  possibility 
of  a  few  individuals  who  might  attempt  to  haul  freight  from  a  large  city  to 
towns  30  or  40  miles  away  for  a  sum  per  hundredweight  which  would  make  it 
impossible  for  one  operating  a  route  regularly  and  on  fixed  schedule  to  meet 
such  competition.  The  suggestion  made  is  that  a  continuation  of  such  practices, 
wildcatting,  as  it  were,  in  the  motor-transportation  field,  tends  to  discourage 
the  entrance  into  this  field  of  those  who  would  seek  to  serve  the  public  regu- 
larly and  satisfactorily,  and  at  a  cost  to  the  shipper  of  just  enough  to  make  a 
venture  financially  profitable. 

QUESTION  FOB  STUDY. 

This  question  is  then  asked: 

"  Is  there  not  some  way  that  an  honest  company,  which  will  maintain  schedules 
and  protect  shippers  against  loss  in  transit,  can  be  protected  against  operators 
of  the  character  suggested  above?" 

The  highways-transport  committee  believes  this  question  is  one  which  State 
highways-transport  committees  may  very  well  and  profitably  take  up  for  study. 

Any  views  had  on  this  subject  by  State  highway  organizations,  or  by  anyone 
else,  would  be  welcomed  by  the  highways-transport  committee  of  the  Council 
of  National  Defense. 

Now  take  that  and  apply  it  to  the  interurbans.  It  tells  its  own 
story.  It  is  rather  remarkable  that  at  this  early  day  in  the  develop- 
ment of  trucking  that  they  should  have  to  issue  such  a  circular  as 
that.  We  do  not  ask  you  to  do  away  with  the  truck  hauling  by  motors, 
but  we  do  think  they  ought  to  be  under  the  same  kind  01  regulation 
and  restrictions  that  we  are  under. 

Mr.  WARREN.  They  are  like  the  jitneys,  I  suppose,  are  they  not? 

Mr.  HENRY.  They  are  worse;  that  is  all.  The  jitneys  are  lice,  and 
these  are  full-grown  animals.  [Laughter.] 

There  is  no  reason  why  this  sort  of  wildcatting,  as  this  gentleman 
calls  it  here,  should  be  permitted  to  go  on  uncontrolled,  and  I  am 
glad  to  know  that  some  fellow  going  into  the  truck  business  has  seen 
fit  to  call  attention  to  it.  It  may  bring  about  important  results.  It 
is  one  of  the  things  that  you  gentlemen  ought  to  take  into  considera- 

1G00430— ;>0 40 


714       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

tion  and  lake  such  action  as  you  may  think  is  best  in  regard  to  it,  be- 
cause it  amounts  to  a  great  deal. 

Now.  gentlemen,  Mr.  Hill  here  gave  me  a  memorandum  yesterday. 
I  think  you  will  hear  him  in  person.  It  is  about  the  Pacific  slope, 
and  I  am  not  going  to  say  much  about  the  Pacific  slope. 

The  Pacific  Electric  Co.  is  losing  $1,400  a  day,  $500,000  a  year, 
from  jitney  buses  doing  country  business.  Now,  you  may  call  them 
interurban  jitneys,  if  you  want  to.  They  are  absolutely  uncon- 
trolled. 

In  San  Francisco  the  jitneys  were  uncontrolled  absolutely  until  the 
city-owned  property — it  is  not  city-owned,  broadly  speaking,  but  the 
city  built  it  on  Market  Street,  and  when  the  city  built  its  lines  up 
Market  Street,  it  excluded  from  Market  Street  the  jitney,  but  it 
could  not  see  fit  to  do  it  when  the  privately  owned  company  was 
operating  on  Market  Street — and  there  was  no  relief  given  against 
the  jitney  in  San  Francisco  until  the  city  constructed  its  line.  Then 
it  tried  to  protect  its  own  line  without  giving  any  protection  to  its 
other  properties. 

The  CHAIRMAN.  Do  you  think  the  Council  of  National  Defense 
would  be  as  anxious  to  promote  reasonable  regulation  of  the  trucks 
as  it  has  been  in  selling  them? 

Mr.  HENRY.  Do  you  want  me  to  answer  that? 

The  CHAIRMAN.  Yes. 

Mr.  HENRY.  I  think  not,  because  they  have  encouraged  the  selling ; 
they  have  increased  the  selling  by  giving  out  the  idea  of  the  great 
things  that  could  be  done  with  trucking.  On  that  point,  I  want  to 
say  that  the  interurban  people  of  the  country  are  not  afraid  of  the 
truck  competition,  if  the  trucking  business  by  motors  is  put  under 
regulation  and  made  to  handle  business  like  tney  ought  to.  We  can 
take  care  of  them  all  right  if  you  will  put  them  under  regulation. 

Now,  so  far  as  the  general  business  of  the  interurbans  is  con- 
cerned, expense  of  construction  and  maintenance  has  gone  clear  out. 
of  sight.  It  is  fair  to  say,  and  we  say  it  frankly,  that  in  our  section 
of  the  countiy,  where  the  interurbans  are  in  fairly  good  shape  and 
where  the  commissions  have  taken  care  of  us  as  best  they  could  in 
the  matter  of  the  increase  of  rates,  our  receipts  at  this  time  are 
fairly  promising,  quite  promising,  but  the  expense  of  operation  is 
still  going  up.  For  instance,  in  the  last  60  or  90  days  there 
has  been  an  increase  of  about  10  per  cent  in  wages — a  thing  which 
was  wholly  unlocked  for  when  the  armistice  was  signed. 

The  CHAIRMAN.  Has  the  National  War  Labor  Board  made  any 
wage  adjustments  for  your  lines? 

Mr.  HENRY.  The  National  War  Labor  Board  ? 

The  CHAIRMAN.  Yes. 

Mr.  HENRY.  Will  you  permit  a  strong  expression  there?  Thank 
God,  they  stayed  away  from  us.  We  did  not  have  to  go  to  the 
War  Labor  Board.  We  were  able  to  take  care  of  wages  in  a  fairly 
satisfactory  manner,  owing  to  the  suitable  conditions  with  which 
we  surrounded  our  men. 

The  CHAIRMAN.  But  I  presume  that  the  adjustment  which  they 
made  for  the  street-car  lines  and  which  the  Director  General  made 
for  the  steam  railroads  has  had  its  reflection  in  increasing  the  costs 
of  your  companies. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       715 

Mr.  HENRY.  Yes;  it  did  have.  For  instance,  we  have  to  pay  a 
dollar  and  a  quarter  for  ties  that  we  could  get  for  90  cents  if  it  were 
not  for  the  regulation  of  prices  by  the  Railroad  Administration. 
They  bought  35  or  40  of  them,  and  they  put  a  price  on  them,  and  that 
is  the  price  that  they  charge  us  when  we  want  more  of  them. 

They  are  paying  trackmen  $3  a  day  at  a  minimum,  while  we  have 
our  men  working  right  across  the  fence,  and  they  were  work- 
ing contentedly  and  happily  at  $1.83,  when  this  commenced.  Since 
then,  we  have  put  our  wages  up  to  $2.50,  and  finally  to  $3  a  day. 
Those  are  the  things  which  have  helped  us.  The  Railroad  Ad- 
ministration and  the  outgrowth  of  the  war  has  helped  us  in  increas- 
ing our  operating  expenses  all  along  the  line.  That  is  the  history 
of  it. 

Another  thing  that  I  want  to  call  your  attention  to  is  this:  I 
have  a  letter  here  from  Mr.  Faber,  of  the  Aurora,  Elgin  &  Chicago 
Railroad  Co.,  which  calls  attention  to  a  matter  which  is  very  perti- 
nent. They  started  out  to  increase  passenger  rates.  They  came  to 
the  suburban  rates,  which  had  always  been  ridiculously  low  for  a 
long  number  of  years.  I  will  not  say  "  always,''  because  I  have  not 
lived  always,  but  for  a  long  time. 

This  is  not  a  long  letter,  and  it  tells  the  story  quite  straight^ 

THE  AURORA  ELGIN  &  CHICAGO  RAILROAD  Co., 

Aurora,  III.,  July  21.  1919. 
Mr.  CHAS.  L.  HENKY, 

President  and  General  Manager,  Indianapolis  &  Cincinnati 

Traction  Co.,  Indianapolis,  Ind. 

DEAR  MR.  HENRY:  Permit  me* to  suggest  that,  in  your  remarks  before  the 
Federal  Electric  Railway  Commission  at  Washington  on  Wednesday,  you  call 
operating  out  of  the  so-called  metropolitan  districts,  where  the  electric  roads 
find  themselves  in  an  absolutely  helpless  condition  as  a  result  of  the  ruinous 
competition  in  suburban  passenegr  rates  established  by  the  steam  railroads 
on  their  so-called  commutation  and  multiple-trip-ticket  rates. 

You  are  very  familiar  with  the  condition  of  the  electric  intenirban  railroads 
of  the  country  to-day,  particularly  with  respect  to  the  competition  of  the  steam 
lines,  where  the  rates  are  3  cents  per  mile. 

What  I  want  to  particularly  call  your  attention  to,  in  addition  to  the  condi- 
tions with  which  you  are  familiar,  is  the  ruinous  competition  of  the  extremely 
low  rates  on  suburban  multiple-trip-ticket  rates  in  effect  on  the  steam  railroads. 
The  rates  charged  by  the  steam  railroads  on  commutation  business  are,  in  some 
instances,  as  low  as  0.4  cent  per  mile.  The  2.1-ride  tickets,  good  for  one  year 
and  good  for  bearer,  are  sold  at  from  0.9  cent  to  1.35  cents  per  mile.  These 
tickets  are  scalped  by  storekeepers  and  others,  and  are  generally  used  by  oc- 
casional riders  in  the  communities  served,  and  therefore  establish  the  going 
rate  paid.  This  business  is  not  only  done  at  a  direct  and  substantial  loss  to 
the  steam  railroads,  but  prescribes  and  limits  the  rates  of  the  electric  inter- 
urbans,  and  results  in  a  return  of  less  than  cost  to  these  lines,  and  therefore  to 
a  confiscation  of  their  earnings  and  properties. 

Attached  herewith  please  find  a  few  letters  taken  from  my  file,  from  which 
yon  will  note  that  on  May  27  Traffic  Director  Chambers  advised  that  Director 
General  McAdoo  had  instructed  that  a  careful  study  be  given  these  rates  at 
once,  with  the  view  to  placing  them  on  a  consistent  and  reasonable  basis,  and 
for  that  purpose  a  committee  was  subsequently  appointed,  with  Mr.  Smith,  of 
the  New  Haven  road,  as  chairman. 

On  June  17,  1918,  a  conference  of  the  Inter-Regional  Passenger  Committee 
was  held  in  Chicago,  for  the  purpose  of  standardizing  surburban  fares,  and  the 
writer  appeared  as  representative  of  the  electric  interurban  roads.  A  further 
conference  of  this  committee  was  held  in  New  York  City,  and  on  July  12  this 
committee  recommended  a  uniform  rate  per  mile  for  54  and  60-ride  monthly 
tickets,  and  that  all  forms  of  trip  tickets  be  removed  from  sale,  except  a  2."- 
rido  family  ticket,  good  for  90  days,  to  be  sold  at  the  rate  of  2±  cents  per  mile. 


716       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Director  Chambers  approved  the  recommendations,  with  the  exception  that 
he  decided  it  was  inexpedient  to  change  the  rate  on  54  and  60-ride  individual 
monthly  tickets  and  that  the  rate  to  be  charged  for  the  25-ride  tickets  was 
changed  from  2}  cents  per  mile  to  2  cents  per  mile.  In  this  form  the  recom- 
mendations were  approved  by  the  Railroad  Administration,  and  the  effective 
date  of  the  new  rates  was  fixed  for  February  10,  1919. 

As  a  result  of  the  announcement  in  the  Chicago  newspapers  of  the  change  in 
suburban  rates,  the  State  attempted  to  enjoin  the  administration  from  making 
the  new  rates  effective.  In  the  meantime,  the  question  of  State  rights  with 
respect  to  the  fixing  of  intrastate  rates  for  telephones  and  railroads  was  raised 
in  a  number  of  States,  and  the  administration  decided  to  hold  up  the  commu- 
tation rate  matter  until  the  Supreme  Court  of  the  United  States  decided  defi- 
nitely the  question  of  whether  the  administration  or  the  State  had  the  power  to 
fix  intrastate  rates.  The  Supreme  Court  recently  unanimously  decided  that  this 
power  was  vested  with  the  administration.  I  have  been  informed  that  the 
steam  railroads  have  requested  some  modification  in  the  Government  order 
as  proposed,  and  that  the  final  recommendations  are  now  before  the  administra- 
tion at  Washington.  In  the  meantime,  the  electric  lines  are  unable  to  obtain, 
relief  through  increased  rates  to  offset  the  advanced  cost  of  operation. 

The  effect  of  these  extremely  low  suburban  multiple-trip  ticket  rates  upon 
the  electric  lines  serving  the  same  territory  is  to  limit  the  price  of  transpor- 
tation over  their  lines  and  forces  them  to  do  business  at  rates  that  spell  disaster. 

There  is  some  hope,  through  the  obtaining  of  relief  through  increased  rates, 
for  the  local  street-railway  properties  In  large  cities  where  distances  are  such 
that  most  of  the  people  must  ride.  There  is  no  relief  that  I  can  see  for  the 
electric  interurban  roads  if  the  competing  steam  roads  are  allowed  to  continue 
to  furnish  passenger  service  at  rates  which  are  admitted  by  them  to  be  much 
below  their  out-of-pocket  costs,  regardless  of  investment,  taxes,  etc. 

During  my  work  at  Washington,  as  manager  of  the  American  Electric  Rail- 
way Association  War  Board,  I  had  opportunity  to  see  a  report  covering  the  cost 
of  operating  the  suburban-commutation  business  operated  by  the  steam  rail- 
roads in  the  Chicago  district,  prepared  by  Mr.  C.  F.  Balch,  statistician  of  the 
Chicago  &  North  Western  Railroad.  This  report  shows : 

Gross  revenue  from  transportation  for  year  ended  Dec.  31,  1918_  $6,  251,  609.  54 
Transportation    expenses    and    maintenance   of    equipment    ex- 
penses (commonly  known  as  out-of-pocket  expenses) 1,569,422.76 

Total  operating  costs  amounted  to 7,  936,  766.  96 

Net  revenue   (deficit) 1,685,157.42 

To  this  deficit  should  be  added — 

Estimated  taxes  assignable  to  suburban  traffic 337,  614.  6& 

Rental  of  property  used  in  suburban  service 3,  853,  929. 15 

From  these  figures,  the  amount  of  gross  revenue  which  it  would  be  neces- 
sary to  derive  from  suburban  service  to  make  it  remunerative  as  all-rail  traffic 
conducted  by  class  1  railroads  in  the  western  district  in  1916  would  have  to 
be  $12,128,310.80,  or  about  double  the  amount  that  was  actually  derived  from 
this  class  of  business,  viz,  $6,251,609.54. 

The  Federal  Electric  Railway  Commission  coul-1  i»s  helpful  in  this  matter  by 
urging  the  administration  to  act  promptly  and  establish  these  suburban  mul- 
tiple-trip-ticket rates  upon  a  basis  that  would  recognize  the  cost  of  the  service 
and  a  fair  return  upon  the  investment  in  the  property. 
Very  truly,  yours, 

EDWIN  C.  FABER, 

Vice  President  and  General  Manager. 

P.  S.  Please  return  the  inclosed  papers  for  my  files  after  they  have  served 
your  purpose. 

E.  C.  F. 

Now  then,  they  raised  it  10  per  cent,  and  they  stopped  at  that. 
They  put  the  steam  roads'  passenger  rates  up  to  3  cents,  but  they 
raised  the  suburban  rates  10  per  cent,  and  left  them  so  low  that 
neither  the  steam  roads  nor  the  electric  roads  can  do  business  and 
make1  any  money.  They  can  not  do  it.  We  have  not  anything  of 
that  kind  at  Indianapolis,  but  that  is  the  situation  there. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       717 

Mr.  WARREN.  Mr.  Henry,  do  you  know  about  the  railways  in  the 
small  towns,  as  to  what  their  condition  is? 

Mr.  HENRY.  The  electric  railways? 

Mr.  WARREN.  Yes. 

Commissioner  BEALL.  Do  you  mean  the  interurban  roads? 

Mr.  WARREN.  Well,  I  mean  others. 

Mr.  HENRY.  You  mean  giving  local  city  service? 

Mr.  WARREN.  Yes. 

Mr.  HENRY.  In  small  cities? 

Mr.  WARREN.  Yes. 

Mr.  HENRY.  Yes,  sir ;  I  know  a  great  deal  about  them. 

Mr.  AVARREN.  AVill  you  tell  us  about  their  condition  ? 

Mr.  HENRY.  Their  condition  is  worse  than  any  others,  than  those 
in  the  larger  cities.  The  conditions  have  hurt  them  worse.  The  ex- 
pense of  operation  has  run  high.  I  do  not  know  any  of  them  in  any 
of  the  small  cities,  in  the  interurban  field,  which  I  have  been  talking 
about,  which  is  making  any  money.  They  are  like  the  interurban 
roads,  about  which  I  was  going  to  tell  you,  that  on  account  of  the 
conditions  which  I  have  cited,  there  is  not  an  interurban  road  in  our 
section  of  the  country,  and  I  do  not  think  in  any  other  section,  that  is 
paying  a  dividend  on  its  stock,  either  preferred  or  common — not  one 
of  them.  They  are  trying  to  live  through  these  conditions  and  do 
the  best  they  can,  and  some  of  these  things  I  have  spoken  to  you 
about  are  permanently  existing.  ,They  are  not  just  for  the  day. 
They  have  all  of  these  burdens  that  you  have  heard  about  for  the 
last  couple  of  days.  There  is  no  reason  to-day,  and  there  never  was, 
in  my  opinion,  which  I  will  state — I  am  an  Irishman,  and  I  have  a 
right  to  state  my  opinion — in  my  opinion  there  never  was  a  reason, 
and  there  is  not  now  any  reason,  why  any  charge — and  that  is  as 
broad  as  I  know  how  to  make  it — to  be  put  up  against  an  interurban, 
or  city  line  for  that  matter,  but  I  am  speaking  about  interurbans, 
except  the  cost  of  carding  the  passengers  and  the  freight  and  express 
business.  There  is  not  anything,  gentlemen,  that  is  so  absolutely 
necessary  to  the  prosperity  of  this  country  as  transportation.  We  can 
not  exist  without  it.  The  cities  and  towns  of  the  country  have  not 
learned  to  appreciate  what  might  be  done,  even  in  the  use  of  inter- 
urbans. These  interurban  cars  ought  to  be  allowed  to  run  right  into 
their  market  houses,  with  the  produce  of  the  country  for  a  hundred 
miles  around,  and  cut  out  all  of  the  charges  for  trucking  and  dray- 
age  and  everything  of  that  kind.  It  can  be  done  just  as  easily  as  not, 
and  it  should  be  done.  That  is  one  of  the  things  that  should  be  done 
to  help  the  business  and  to  help  the  community. 

Now,  there  is  not  any  reason  why  anything  more  should  be  charged 
against  the  man  who  is  riding  on  our  line  or  shipping  goods  on  our 
line,  or  shipping  express  on  our  line — anything  at  all.  for  only  the 
cost  and  the  reasonable  profit  to  do  that  business.  Why?  Why! 
You  take  it  in  the  cities.  The  merchant  may  ride  down  town,  if  he 
wants  to.  in  his  limousine,  but  his  customers  are  going  down  on  the 
street  car.  That  is  the  way  it  is.  The  man  from  the  country  may 
ride  in  alongside  of  the  interurban  road  to  Indianapolis  to  trade  or 
to  attend  to  business,  or  anything  of  that  kind,  but  the  mass  of  the 
people  are  going  to  ride  on  the  interurban  cars,  and  they  do  ride  on 
them  right  along,  constantly. 


718        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

You  heard  something  said  here  yesterday,  I  believe  it  was,  about 
the  decrease  of  business.  We  had  a  striking  illustration  of  that.  Our 
fares  were  put  up  to  2£  cents  a  mile  in  the  last  few  days  of  January  of 
last  year.  I  kept  an  accurate  account,  a  distributor's  account,  of 
every  day  since  then.  Our  business  began  running  down  in  the  num- 
ber of  passengers — down,  down,  down,  down,  and  down,  and  I 
couldn't  understand  it ;  and  when  Air.  McAdoo  put  the  railroad  fares 
up  to  3  cents,  I  said,  "  Now,  we  will  see  how  our  number  of  passengers 
will  increase."  That  was  put  on  on  the  10th  of  June,  last  year,  and 
the  following  month,  in  July,  it  showed  the  greatest  loss  in  the  num- 
ber of  passengers  on  our  line  that  we  had  ever  had  at  any  time — 25 
per  cent  of  the  number  of  passengers  as  compared  with  July  of  the 
year  before. 

Now,  that  was  not  attributable  to  the  fares.  It  is  attributable  to 
two  or  three  things  besides  the  rate.  In  the  first  place,  the  people 
had  made  up  their  minds  to  save  their  money ;  they  were  not  going 
to  spend  their  money  unless  they  had  to,  and  that  is  the  reason  that 
they  stopped  riding  a  great  deal.  The  other  was  that  the  flower  of 
the  country,  the  young  men  of  the  land,  had  gone  into  the  Army. 
They  constituted  the  moving  part  of  the  population  very  largely. 
That  was  another  thing  which  really  cut  down  the  number  of  fares. 
Since  then,  since  the  close  of  the  war — I  mean  the  real  close  of  the 
war;  I  do  not  mean  the  theoretical  close  of  the  war — since  the  real 
close  of  the  war,  they  have  been  coming  back  gradually,  and  our 
business  is  increasing  constantly,  all  the  time.  Now,  under  a  2  or  3 
or  4-cent  fare,  as  against  a  2^-cent  fare  a  year  ago,  we  have  just  the 
10  per  cent  increase,  and  our  passenger  business  shows  an  increase  of 
over  20.000.000  last  year.  So  that  about  as  much  is  coining  from  old 
business,  coming  back,  as  well  as  the  increased  fare. 

Mr.  WARREN.  How  does  that  traffic  compare  with  that  of  two 
years  ago? 

Mr.  HENRY.  In  number  of  passengers? 

Mr.  WARREN.  Yes. 

Mr.  HENRY.  It  is  still  less  than  it  was  two  years  ago. 

Mr.  WARREN.  But  not  very  much? 

Mr.  HENRY.  Not  so  much  less. 

Mr.  WARREN.  So  that  there  is  a  decided  increase  in  revenue? 

Mr.  HENRY.  Oh,  yes;  the  increase  in  revenue  is  very  good.  We 
did  not  ask  the  commission  to  allow  us  to  charge  a  3-cent  fare.  We 
asked  for  a  2f -cent  fare,  but  that  is  what  they  gave  us. 

Mr.  WARBEN.  Have  you  any  doubt  that  a  reasonable  increase 
"would  permanently  increase  your  revenue  account? 

Mr.  HENRY.  There  is  no  doubt  about  it. 

Mr.  WARREN.  So  that  you  are  not  afraid  of  the  effect  of  increased 
fares? 

Mr.  HENRY.  No,  sir;  we  are  not  afraid.  We  put  in  a  2^-cent  fare 
in  July,  1917,  in  the  face  of  the  2-cent  law  on  the  statute  book  regu- 
lating the  steam  roads. 

Mr.  WARREN.  And  you  did  not  lose  any  more  then  than  you  did 
after  the  3-cent  fare  went  into  effect? 

Mr.  HENRY.  No;  we  lost  more  when  it  came  to  the  3-cent  on  the 
steam  roads  than  we  did  before. 

Mr.  WARREN.  Mr.  Henry,  the  other  day  a  question  was  asked  of 
one  of  the  witnesses  whether  the  street  railways  had  considered— 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       719 

the  city  roads  now,  and  I  suppose  you  are  pretty  familiar  with  the 
city  system  in  Indianapolis? 

Mr.  HENRY.  Yes;  I  know  a  good  many  of  them. 

Mr.  WARREN.  Would  there  be  a  material  increase  from  revenue 
by  doing- city  express  business?  What  do  you  think  about  that?  I 
am  not  speaking  of  the  interurbans. 

Mr.  HENRY.  That  would  depend  a  great  deal  on  the  way  the  cities 
are  built,  how  compact,  largely.  The  less  compact,  the  more  need 
there  is  for  that  kind  of  business.  The  more  compact,  the  less  need 
there  is,  because  of  the  short  distances;  but  I  think  in  almost  every 
case,  very  much  could  be  done  on  that. 

Mr.  WARREN.  It  would  necessitate  some  sort  of  a  freight  terminal 
on  each  line,  would  it  not;  either  that  or  wagon  deliveiy? 

Mr.  HENRY.  Yes,  it  would,  but  I  think  it  could  be  worked  out  very 
largely  without  very  much  building  in  many  places. 

Mr.  WARREN.  You  think  that  is  a  thing  they  may  do  ? 

Mr.  HENRY.  I  do.  I. think  the  street  railway  must  look,  perhaps 
not  to  as  great  a  degree  as  the}'  should,  to  the  income  from  freight 
and  express,  but  there  is  no  reason  at  all  wh}r  the  street-railway  car 
should  not  pull  a  trailer  hauling  anything  that  is  hauled  in  a  truck 
alongside  of  it.  If  there  is,  I  never  could  find  a  reason  for  it. 

Mr.  WARREN.  Except  that  the  truck  can  go  to  the  sidewalk,  and 
the  trailer  can  not. 

Mr.  HENRY.  Yes;  it  can  do  that,  but  I  am  not  talking  about  the 
inconvenience  of  the  people. 

Mr.  WARREN.  Oh ! 

Mr.  HENRY.  So  far  as  the  convenience  of  the  people  is  concerned, 
that  does  not  mean  so  much. 

Mr.  WARREN.  Xo;  I  do  not  mean  that,  but  I  mean  as  a  revenue 
producer,  whether  the  company  could  make  much  net  money  out 
of  it. 

Mr.  HENRY.  I  think  in  large  cities  it  could,  but  in  small  cities,  no. 

Mr.  WARREN.  Yes? 

Mr.  HENRY.  That  would  be  my  notion  about  that. 

Mr.  WARREN.  Do  you  know  of  any  cases  where  street-railway  cars, 
as  I  understand  they  do  in  Grand  Rapids,  carry  a  mail  box? 

Mr.  HENRY.  Yes,  they  do  there,  and  I  happen  to  know  that  they 
do  in  Des  Moines,  Iowa,  simply  from  the  fact  of  my  daughter's  be- 
ing out  there  as  an  aide  in  the  hospital,  I  know  about  that.  I  know 
about  those  two  places. 

Mr.  WARREN.  So  that  letters  can  be  dropped  in  the  box  on  the  car? 

Mr.  HENRY.  Yes;  dropped  in  the  post-office  box  on  the  car. 

Mr.  WARREN.  Do  they  have  any  of  them  on  interurbans? 

Mr.  HENRY.  Xo,  sir. 

Mr.  WARREN.  These  interurbans,  Mr.  Henry,  are  built  largely  in 
the  highway? 

Mr.  HENRY.  No,  sir.  Originally  they  started  to  build  them  on 
the  highways,  but  they  soon  disregarded  that;  they  discovered  that 
it  was  a  mistake,  and  they  are  now  largely  built  on  private  rights 
of  way. 

Mr.  WARREN.  And  where  they  are  built  on  the  highways,  they  are 
usually  built  outside  of  what  we  call  the  worked  portion  of  the 
highway? 


720       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  HENRY.  Yes;  and  whenever  the  highway  is  wide,  for  instance, 
like  the  old  national  road  built  across  the  country,  a  hundred  feet 
wide — and  I  might  say  that  that  is  theoretical — but  they  are  not 
any  more;  the  honest  farmer  has  encroached  on  them;  they  are 
built  clear  outside  of  it,  from  the  traveled  highway.  We  have  a 
road  10  or  12  miles  on  the  old  Michigan  right  of  way,  which  is 
theoretically  a  hundred  feet  wide,  and  we  are  outside  of  the  side 
ditch  of  the  highway,  even,  and  there  are  some  places  where,  on  the 
highways 

Mr.  WARREN.  Where  they  approach  villages? 

Mr.  HENRY.  Yes;  they  have  to  do  that  where  we  go  through  the 
streets  of  villages. 

Mr.  WARREN.  But  the  great  percentage  of  their  mileage 

Mr.  HENRY.  Oh,  a  large  part. 

Mr.  WARREN  (continuing).  Is  ordinarily  on  the  highways;  they  are 
built  alongside  of  it  ? 

Mr.  HENRY.  Yes. 

Mr.  WARREN.  But  they  are  on  private  right  of  way,  are  they  not  ? 

Mr.  HENRY.  Yes,  sir ;  we  have  41  miles  of  road  from  Indianapolis 
to  Rushville.  That  is  not  on  the  highway  after  we  get  away  from 
the  suburbs  of  Indianapolis.  We  even  have  our  private  right  of 
way  through  the  little  towns,  and  then  beyond  Rushville,  20  miles 
farther,  it  is  the  same  way. 

Mr.  WARREN.  As  I  understand  you,  none  of  these  companies  at  the 
present  time  are  paying  their  dividends. 

Mr.  HENRY.  Xo,  sir;  we  do  not  know  what  a  dividend  is,  Mr. 
Warren. 

The  CHAIRMAN.  How  long  has  that  condition  lasted? 

Mr.  HENRY.  Well,  with  our  company  it  is  bound  to  exist  until  we 
get  our  road  completed  to  Cincinnati ;  that  is,  we  do  not  expect  to  pay 
dividends  until  we  get  there.  So  that  is  out  of  the  question,  as  far  as 
dividends  are  concerned,  but  with  most  of  the  companies  the  dividend 
on  preferred  stock  was  paid  four  or  five  years  ago. 

Mr.  WARREN.  They  all  had  to  stop  ? 

Mr.  HENRY.  Yes. 

Mr.  WARREN.  Are  they  earning  fixed  charges  and  their  interest? 

Mr.  HENRY.  No,  sir ;  they  are  not  all.  In  Indiana  they  are  mostly 
and  in  Ohio,  and  so  forth,  but  they  are  not  all  of  them  earning  their 
fixed  charges.  There  are  some  roads  that  are  not.  Most  of  them  now 
are.  Our  condition  is  better  under  the  increased  fares  than  it  was 
before. 

Mr.  WARREN.  And  what  further 

Mr.  HENRY.  Mr.  Warren,  will  you  allow  me  to  interject  a  remark 
right  there  ? 

Mr.  WARREN.  Yes,  sir. 

Mr.  HENRY.  In  Illinois  the  condition  is  peculiar.  Our  public- 
service  commission  held,  and  I  guess  rightly  so,  that  they  had  no 
right  to  raise  the  fares  above  the  statutory  limitation ;  so  the  roads  in 
Illinois,  all  of  them,  went  to  charging  3  cents  a  mile;  and  it  went 
into  the  courts,  and  they  enjoined  the  public  authorities  from  inter- 
fering with  them,  and  they  are  operating  on  3  cents  a  mile  in  that 
way.  That  is  a  peculiar  condition  in  Illinois. 

Commissioner  SWEET.  WThat  has  been  your  experience  with  regard 
to  patronage? 


PROCEEDINGS  Or  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       721 

Mr.  HENRY.  Do  you  mean  out  there  ? 

Commissioner  SWEET.  In  Illinois. 

Mr.  HENRY.  They  claim  they  have  done  well  by  it.  They  have 
lost  very  little  patronage.  Nobody  will  claim  that  an  increased  fare 
does  not  do  any  injury  to  the  roads.  It  always  does  some. 

Commissioner  SWEET.  But  going  to  a  3-cent  fare  in  Illinois  has  not 
proved  serious? 

Mr.  HENRY.  No ;  only  in  Ohio.  They  are  nearly  all  on  the  3-cent 
basis  in  Ohio.  Our  State  is  right  in  there  at  2f  cents,  and  in  Michi- 
gan they  could  not  raise  the  fares  because  of  local  legislation.  The 
last  legislature  made  a  provision  for  them  to  raise  their  fares.  I  can 
not  tell  you  just  what  the  arrangement  was  just  now. 

Mr.  WARREN.  None  of  your  roads  were  taken  over  or  guaranteed 
any  return  by  the  Railroad  Administration? 

Mr.  HENRY.  Xo,  sir;  but  they  were  assured  of  losses. 

Mr.  WARREN.  The  assurance  proved  correct,  did  it  not? 

Mr.  HENRY.  Yes;  they  were  assured  of  a  loss,  and  they  got  it. 

Mr.  WARREN.  Do  you  feel  that  a  further  increase  of  rates,  an  im- 
mediate increase  of  rates,  would  help  you? 

Mr.  HENRY.  In  our  individual  case,  I  have  some  doubt  about  it. 
Our  community  is  there;  we  are  so  situated  that  I  would  rather 
have  to-day  the  2f-cent  fare.  I  think  at  this  time  that  is  the  best 
basis. 

Mr.  WARREN.  What  are  the  companies  doing  about  depreciation, 
Mr.  Henry? 

Mr.  HENRY.  You  mean  as  to  their  account? 

Mr.  WARREN.  Yes. 

Mr.  HENRY.  Under  the  instructions  of  the  Interstate  Commerce 
Commission,  which  we  follow  in  our  accounts,  we  keep  a  deprecia- 
tion account  on  our  equipment,  and  nothing  else.  They  have  never 
required  it,  except  on  the  equipment. 

Mr.  WARREN.  Independently  of  the  accounts,  are  the  companies 
earning  enough  properly  to  take  care  of  depreciation? 

Mr.  HENRY.  No,  sir;  they  are  not.  Our  State  commission — not 
in  interurban  cases,  but  in  other  public  utilities  of  the  State — fixed 
a  sort  of  rule  in  the  different  hearings  that  7  per  cent  for  income  and 
3  per  cent  for  depreciation,  which  would  make  10  per  cent,  was 
right;  that  is.  in  deciding  what  they  would  allow  them  to  charge 
in  rate  cases,  they  fixed  that  rule  tentatively. 

Mr.  WARREN.  Yes. 

Mr.  HENRY.  But  we  never  had  any  opportunity  to  use  that  rule. 

Mr.  WARREN.  Either  as  regards  the  return  or  the  depreciation? 

Mr.  HENRY.  No;  we  did  not. 

Mr.  WARREN.  Well,  the  first  suggestion  you  would  make  is  the 
elimination  of  these  local  requirements  which  retard  and  interfere 
with  your  business  and  add  unnecessary  charges  on  your  income? 

Mr.  HENRY.  No;  that  is  not  the  first. 

Mr.  WARREN.  What  would  l)e  your  first? 

Mr.  HENRY.  That  is  not  the  first,  because  it  is  not  the  quickest. 

Mr.  WARREN.  What  is  the  first? 

Mr.  HENRY.  The  first  ought  to  be  the  quickest,  and  that  ought  to 
be  everything  that  the  Government  and  the  State  can  do  to  help  them 
in  an  emergency,  in  the  emergency  that  is  surrounding  the  roads. 


7.22       PROCEEDINGS  Or  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION1. 

One  of  them  is  the  Government.  The  Government's  administration 
of  the  railroads  ought  to  be  equitable  and  fair.  I  do  not  know  any 
reason  why  the  Government,  running  one  utility,  should  run  it  in 
such  a  way  as  to  cripple  other  utilities  which  are  needed  just  as 
much. 

Mr.  WARREN.  And  from  your  knowledge  of  it,  they  are  the  same 
kind  of  service,  at  that? 

Mr.  HENRY.  Absolutely  the  same  general  kind  of  service.  An- 
other thing:  I  listened  with  a  great  deal  of  interest  to  some  of  the 
things  that  have  been  said  here  in  regard  to  the  taxation  question. 
The  professor,  in  talking  about  the  income  tax,  mentioned  that.  I 
had  occasion  a  short  time  ago,  in  appearing  before  our  State  tax 
board,  to  argue  a  point  with  them.  It  does  not  have  any  bearing 
on  this  question,  except  that  it  is  similar  in  its  results,  if  we  could 
get  it.  I  contended  before  the  State  tax  board,  and  I  think  rightly, 
that  our  properties  had  no  value  for  the  purpose  of  taxation,  or  for 
any  other  purpose,  for  that  matter,  except  the  value  represented  by 
their  earning  power.  We  are  working  under  the  State.  We  are 
trustees  for  the  State.  We  can  not  quit  our  business  if  wre  want  to. 
We  can  not  fix  our  rates  if  we  want  to,  except  as  the  commission 
authorizes  u,s.  We  can  not  even  tear  up  our  tracks,  unless  the  com- 
mission authorizes  it.  So  that  there  can  be  no  reason,  in  my  opin- 
ion, why  we  should  be  taxed  upon  a  value  any  more  than  what  our 
earning  power  shows  at  this  time. 

Applied  to  our  individual  case,  I  showed  the  commission,  in 
round  numbers — we  were  speaking  about  their  assessment — it  was 
$2,000,000  as  they  fixed  it,  whereas  if  we  applied  it  under  the  10 
per  cent  that  I  spoke  of  there,  it  should  have  been  $700.000  less. 

Mr.  WARREN.  The  valuation? 

Mr.  HENRY.  Yes.  Now,  that  may  not  be  an  income-tax  proposi- 
tion, but  it  comes  to  the  same  point. 

The  CHAIRMAN.  Would  you  want  to  use  that  same  basis  of  value 
for  rate-making  purposes? 

Mr.  HENRY.  Well,  I  would  say  this  in  that  connection :  Our  com- 
mission has  never  had  any  formal  valuations  of  any  of  the  prop- 
erties, but  they  have  had  informal  valuations  of  them,  and  in  one 
case — I  will  not  give  the  name,  as  I  am  not  authorized  to  do  it — 
tentatively  the  tax  board  had  fixed  a  valuation  that  was  $5,000  a 
mile  above  what  the  public-service  commission  was  using  in  its 
permission  for  the  fixing  of  rates.  That  does  not  answer  your 
question,  but  it  shows  how  it  is  turned  the  other  way. 

The  CHAIRMAN.  I  think  it  depends  upon  the  extent  to  which  you 
capitalize  the  earnings.  Some  railroads  will  have  a  very  large  value 
and  some  will  not  have  any  value  at  all. 

Mr.  HENRY.  They  have  no  value,  except  what  their  earnings  show, 
and  if  they  have  the  earnings,  I  do  not  know  any  reason  why  they 
should  not  be  taxed  upon  the  value  according  to  the  earnings. 

Mr.  WARREN.  You  look  upon  them  something  as  a  highway? 

Mr.  HENRY.  Yes. 

Mr.  WARREN.  A  highway  produces  no  income,  and  the  abutting 
owner,  who  owns  no  fee  in  the  middle  of  the  highway  subject  to 
servitude,  is  not  taxed. 

Mr.  HENRY.  That  is  right.  I  think  taxation  is  a  matter  of  justice, 
distributed  properly. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       723. 

Mr.  WARREN.  Well,  you  have  heard  what  Prof.  Bullock  said  this 
morning — that  he  would  take  off  these  special  franchise  taxes,  and 
when  a  sufficiently  serious  emergency  existed,  he  thought  it  would 
be  proper  to  take  off  all  the  taxes,  even  the  property  tax. 

Mr.  HENRY.  Temporarily. 

Mr.  WARREN.  Temporarily? 

Mr.  HENRY.  Yes,  sir. 

Mr.  WARREN.  Do  you  think  such  an  emergency  as  that  has  arrived  ? 

Mr.  HENRY.  I  think  it  has. 

Mr.  WARREN.  And  that  if  all  of  those  taxes  could  be  temporarily 
removed  from  these  companies,  they  could  pay  dividends? 

Mr.  HENRY.  Yes. 

Mr.  WARREN.  Is  there  anything  else?  That  is  the  second.  The 
first  thing  you  say  is  that  the  Government  ought  not  to  discriminate 
against  these  electric  railways. 

Mr.  HENRY.  The  next  is  that  after  you  have  taken  care  of  the 
emergency  which  is  before  us,  then  all  of  these  burdens  that  are 
not  chargeable  as  a  part  of  the  transportation  expense  should  be 
taken  off  of  every  one  of  the  roads. 

Mr.  WARREN.  And  that  should  be  a  permanent  change? 

Mr.  HENRY.  That  should  be  a  permanent  change. 

Mr.  WARREN.  Then,  how  about  the  regulation  of  the  trucks? 

Mr.  HENRY.  The  regulation  of  the  trucks?  I  should  say  that  they 
should  be  regulated  locally  by  the  public-service  commissions  of  the 
States,  and  that  they  should  be  required  to  file  schedules  and  observe 
them.  That  is  my  notion  about  that. 

Mr.  WARREN.  And  they  should  be  required  to  render  their  services 
regularly  ? 

Mr.  HENRY.  Yes. 

Mr.  WARREN.  And  reliably? 

Mr.  HENRY.  Yes. 

Mr.  WARREN.  Just  as  the  railways  do? 

Mr.  HENRY.  Absolutely.  In  other  words,  in  the  language  of  the 
article  which  I  read  f  rom  that  circular,  the  "  wildcatting  "  ought  to 
be  stopped. 

Mr.  WARREN.  And  although  the  jitneys  are  only  lice,  as  compared 
with  these  trucks,  the  jitnevs  ought  to  be  subjected  to  similar  treat- 
ment? 

Mr.  HENRY.  Oh,  yes. 

Mr.  WARREN.  Is  there  anything  further? 

Mr.  HENRY.  I  do  not  think  of  anything  else,  Mr.  Warren. 

Mr.  WARREN.  How  about  the  delays  in  securing  an  increase  of 
rates? 

Mr.  HENRY.  Well,  that  hurt  us  locally  and  generally  all  over  the 

\  country,  more  than  any  other  one  thing.    It  is  largely  attributable, 

or  has  been,  to  a  condition.     I  gave  you  an  instance  of  the  delays 

which  we  had.     But  you  take  Michigan.    Just  a  month  ago,  not  GO 

days,  that  was  the  first  relief  that  they  got  on  the  question  of  rates. 

Mr.  WARREN.  Well,  how  long  had  they  tried  to  get  it? 

Mr.  HENRY.  Well,  they  tried  right  away;  but  I  think  the  com- 
mission was  right,  and  I  think  the  traction  companies  believed  they 
were  right,  in  saying  that  they  had  not  any  power,  and  that  they 
had  to  go  to  the  legislature. 


724       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  That  was  not  a  question  of  delay  on  the  part  of  the 
commission  ? 

Mr.  HENRY.  No.  sir;  I  do  not  think  the  commission  in  any  case 
that  I  know  of — the  State  commission — can  be  justly  criticized,  ex- 
cept that  they  did  not  see  the  need  quick  enough.  We  felt  it  quicker 
than  they  could  see  it. 

Mr.  WARREN.  But  where  there  are  laws  that  interfere  with  prompt 
action,  or  where  there  are  franchise  obligations  that  interfere  with 
prompt  action,  or  some  things  that  prevent  action  altogether,  you 
think  they  should  be  furnished  by  changing  those  laws? 

Mr.  HENRY.  I  do. 

Mr.  WARREN.  And  those  franchise  provisions? 

Mr.  HENRY.  Yes,  I  do ;  and  the  people  believe  it. 

Mr.  WARREN.  You  think,  so  far  as  your  State  is  concerned — Indi- 
ana— when  that  situation  exists;  or  is  brought  about,  you  can  rely 
upon  the  commission  for  sufficiently  prompt  action  ? 

Mr.  HENRY.  I  do.  I  have  great  confidence  in  our  commission,  not 
only  in  its  present  make-up,  but  in  former  makes-up  of  the  com- 
mission. 

Mr.  WARREN.  How  about  the  other  States  in  which  the  interurbans 
operate  ? 

Mr.  HENRY.  So  far  as  I  know — and  I  know  a  great  deal  about 
it,  probably  as  much  as  anybody  does  in  the  country — the  State 
commissions  have  not  been  unfavorable  to  the  interurbans.  They 
are  regarded  as  the  people's  mode  of  transportation,  the  mode  which 
the  people  want,  and  it  should  be  taken  care  of. 

Mr.  WARREN.  Have  you  had  much  opposition  from  the  people 
"which  you  serve  in  the  increases  ? 

Mr.  HENRY.  No,  sir;  none.  I  went  down  to  the  towns — this  will 
illustrate  it — I  wTent  down  to  the  towns  along  our  line,  the  principal 
towns,  before  I  filed  the  application  for  the  2.5-cent  fare,  and  I  put  a 
notice  in  the  paper  and  called  for  a  public  meeting,  and  I  got  an 
actual  affirmative  indorsement  from  every  one  of  these  communities 
to  the  commission  to  grant  the  increase ;  and  I  think,  in  many  cases, 
we  make  mistakes  in  not  going  right  to  the  people  to  get  their  affirma- 
tive support. 

Mr.  WARREN.  So  that  when  you  took  your  case  before  the  com- 
mission you  had  practically  the  indorsement  of  all  your  communities  ? 

Mr.  HENRY.  I  had  it  absolutely. 

Mr.  WARREN.  Do  you  think,  perhaps,  the  delay  would  have  been 
greater  if  you  had  not  had  that  ? 

Mr.  HENRY.  No.  I  think  they  got  muddled  on  the  2-cent-fare  law. 
That  caused  the  most  of  the  delay. 

Mr.  WARREN.  Yes. 

Mr.  HENRY.  I  used  the  word  "  muddled,"  because  it  was  muddled. 
The  proposition  itself  was  as  clear  as  could  be,  but  they  got  muddled 
on  it.  They  did  not  want  to  violate  the  law,  and  they  thought  they 
could  say  that  they  had  not  jurisdiction  and  get  rid  of  the  bother. 
That  is  the  only  thing  I  blame  them  for. 

Mr.  WARREN.  That  is  all  I  want  to  ask. 

The  CHAIRMAN.  What  three  States  embrace  the  Central  Electric 
Traffic  Association  ? 

Mr.  HENRY.  Excuse  me.     I  did  uot  catch  your  question. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       725 

The  CHAIRMAN.  I  say,  what  three  States  are  embraced  in  the 
Central  Electric  Traffic  Association? 

Mr.  HENBY.  The  Central  Electric  Traffic  Association  embraces 
nearly  all  of  the  roads  in  Indiana,  Ohio,  Michigan,  a  few  of  the  roads 
around  Louisville,  Ky.,  and  a  few  in  the  western  part  of  Pennsyl- 
vania. 

The  CHAIRMAN.  And  your  mileage  is  something  over  6,000? 

Mr.  HENRY.  Yes,  sir. 

The  CHAIRMAN.  How  many  railroads  are  there  ? 

Mr.  HENRY.  I  can  not  give  you  the  number.  I  do  not  have  them 
in  my  mind. 

The  CHAIRMAN.  Do  you  have  available  figures  showing  the  mile- 
age of  each  separate  corporation  ? 

Mr.  HENRY.  Of  each  of  these  ? 

The  CHAIRMAN.  Yes. 

Mr.  HENRY.  I  can  get  that.  I  have  not  got  that  with  me,  but  I 
can  furnish  it  to  the  commission,  and  would  be  very  glad  to  do  it. 

The  CHAIRMAN.  Will  you  file  with  this  commission  a  statement 
showing  the  mileage  of  each  of  those  railroads  ? 

Mr.  HENRY.  Yes,  sir. 

The  CHAIRMAN.  Their  capitalization  divided  into  stocks  and 
bonds? 

Mr.  HENRY.  I  may  have  difficulty  about  doing  that.  I  will  do  it 
as  far  as  I  can. 

The  CHAIRMAN.  Let  me  present  my  request,  and  then  do  the  best 
you  can — the  capitalization  divided  between  stocks  and  bonds,  and 
also  a  statement  showing  what  dividends  had  been  paid  upon  the 
stock,  and  the  other  fixed  charges  during  the  past  five  years. 

Mr.  HENRY.  I  will  try  to  get  that.    I  can  get  most  of  it,  I  know. 

Mr.  WARREN.  These  statistical  data  that  the  commission  has  asked 
for  from  time  to  time,  I  presume,  it  will  be  perfectly  proper  to  file 
after  our  hearings  are  closed?  . 

The  CHAIRMAN.  Oh,  yes. 

Mr.  HENRY.  There  are  12  roads  running  out  of  Indianapoljs,  and 
in  order  that  you  may  know  that  the  service  which  I  speak  of  was 
not  attributable  to  a  want  of  steam  railroads,  there  are  15  steam 
railroads — not  companies,  roads. 

Commissioner  SWEET.  Are  you  a  lawyer? 

Mr.  HENRY.  No,  sir;  I  used  to  be. 

Commissioner  SWEET.  You  are  a  "has  been  "? 

Mr.  HENRY.  I  am  a  "  has  been  ";  yes,  sir.  1  was  a  lawyer  until  I 
drifted  into  Congress,  and  I  drifted  out  of  Congress  into  this. 

Commissioner  SWEET.  You  have  been  a  Member  of  Congress? 

Mr.  HENRY.  Yes.    I  will  have  to  plead  guilty  to  that. 

Commissioner  SWEET.  Among  your  other  sins? 

Mr.  HENRY.  Yes. 

Commissioner  SWEET.  You  have  had  a  good  deal  of  experience  in 
dealing  with  people,  have  you  not — the  public? 

Mr.  HENRY.  A  very  great  deal.    I  always  keep  close  to  them. 

Commissioner  SWEET.  And  you  have  found  that  by  going  right  to 
the  public  with  your  Intemrban  problems  and  presenting  the  facts 
to  them  honestly  and  squarely,  you  met  with  a  friendly  and  hearty 
response  ? 

Mr.  HENRY.  Yes,  sir. 


726       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Do  you  think  that  rule  would  apply  to  the 
city  railways,  as  well  as  the  mterurbans? 

Mr.  HENRY.  Not  as  fully,  but  in  a  general  wa}r ;  yes.  You  can  not 
reach  them  the  same  way. 

Commissioner  SWEET.  That  is  because  the  dense  urban  population 
is  more  difficult  to  get  hold  of? 

Mr.  HENRY.  Yes.  And  also  there  is  a  difference  in  the  character 
of  parts  of  the  population.  In  the  small  communities,  you  do  not 
find  the  bad  spots  in  the  population  as  much  as  you  do  in  the  cities. 

Commissioner  SWEET.  I  think  I  know  what  you  mean.  What  we 
call  the  laboring  element,  the  manual  labor 

Mr.  HENRY.  No. 

Commissioner  SWEET.  They  are  not  as  intelligent? 

Mr.  HENRY.  No;  I  do  not  mean  that.  I  have  the  greatest  con- 
fidence in  the  world  in  the  laboring  element,  when  they  are  let  alone ; 
when  they  do  not  have  labor  agitators  in  their  midst,  there  is  no 
trouble  with  them.  You  can  reason  with  them,  just  as  well  as  you 
can  with  anybody  else. 

Commissioner  SWEET.  But  are  they  as  much  inclined  to  reading  as 
the  ordinary  laborer  of  the  country  ? 

Mr.  HENRY.  Oh,  yes;  they  are.  We  have  quite  a  number  of  intelli- 
gent laboring  people  in  our  part  of  the  country. 

Commissioner  SWEET.  Well,  what  is  the  difference? 

Mr.  HENRY.  For  instance,  in  Indianapolis,  there  is  a  Greek  settle- 
ment, there  is  an  Italian  settlement,  and  so  on,  like  that.  We  do  not 
have  a  great  deal  of  it.  In  New  York  you  have  much  more. 

Commissioner  SWEET.  You  do  not  find  that  in  the  rural  commu- 
nities? 

Mr.  HENRY.  No;  in  proportion,  it  is  greater  in  the  cities.  They 
soon  get  amalgamated  in  the  smaller  communities. 

Commissioner  SWEET.  They  Americanize  rather  quicker? 

Mr.  HENRY.  Yes,  sir;  they  do. 

Commissioner  SWEET.  There  are  not  so  many  of  them  to  hobnob 
together  ? 

Mr.  HENRY.  But  outside  of  that,  I  think  the  proposition  is  just  as 
good  for  the  cities  as  it  is  for  the  country,  the  country  town — that 
is,  to  go  to  the  people  and  present  it. 

Commissioner  SWEET.  What  is  the  rule  on  these  interurban  roads 
that  you  are  connected  with  with  regard  to  passengers  within  city 
limits?  Do  you  take  them  on  and  discharge  them — 

Mr.  HENRY.  In  Indianapolis,  and  that  is  the  only  large  city  we 
touch,  the  city  ordinance  under  which  we  enter  the  city  requires  us 
to  make  the  same  stops  as  the  city  cars,  and  to  carry  city  passengers 
at  5  cents  within  the  city,  from  a  point  within  to  a  point  within.  At 
the  time  that  was  made,  the  city  company  issued  tickets  at  6  for  a 
quarter,  or  25  for  a  dollar,  and  the  little  difference  of  5  cents — I  was 
instrumental  in  getting  it — kept  the  city  traffic  off  of  our  cars  very 
largely,  but  now,  since  the  city  company  is  charging  5  cents  we  are 
cursed  with  it — a  regular  nuisance. 

Commissioner  SWEET.  You  mean  the  local  business  has  increased 
beyond  what  you  want? 

Mr.  HENRF.  They  will  take  the  seats  of  the  interurban  passenger 
going  at  a  distance  ought  to  have. 

Mr.  WARREN.  You  do  not  want  the  city  business  on  your  line  ? 


F'     PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       727 

Mr.  HENRY.  We  do  not  want  it.  That  will  have  to  be  changed  in 
order  to  relieve  us  from  that.  The  commission  regulates  an  inter- 
urban  ride  as  a  ride  to  or  from  a  point  outside  the  city,  although  it 
starts  within  the  city. 

Commissioner  SWEET.  At  the  time  the  interurban  car  reaches  the 
city  limits 

Mr.  HENRY.  It  doos  not  make  any  difference  in  our  interurban  fare. 

Commissioner  SWEET.  It  does  not? 

Mr.  HENRY.  No,  sir.  We  get  our  mileage  onto  the  terminal  sta- 
tion, under  the  order  of  the  commission. 

Commissioner  SWEET.  That  is  different  from  the  interurbans  in 
Michigan;  is  it  not? 

Mr.  HENRY.  It  is  different  from  a  good  many  States,  but  that  is 
our  situation. 

Commissioner  SWEET.  I  think  the  interurban  rule  in  Michigan  is 
to  charge  a  5-cent  rate  from  the  city  limit  to  the  terminal  station. 

Mr.  HENRY.  A  good  many  of  them  do,  but  it  is  not  right,  and  our 
commission  said  so.  Our  commission  said  it  was  a  pail  of  his  ride 
until  he  got  to  his  destination. 

Commissioner  SWEET.  Have  you  any  reason  to  doubt  your  ability 
to  get  a  raise  to  the  3-cent  per  mile  fare  from  your  commission,  if  you 
should  gro  to  the  commission  for  it? 

Mr.  HENRY.  That  is  guesswork,  and  we  never  have  a  doubt  about 
guesswork. 

Commissioner  SWEET.  Well,  do  you  think  you  could  get  it? 

Mr.  HENRY-.  I  think  so;  but  they  would  do  it  reluctantly,  because 
they  have  said  it  is  to  our  interest  to  charge  only  the  2|-cent  fare. 

Commissioner  SWEET.  Do  you  think  the  same  way  ? 

Mr.  HENRY.  I  do  now.  I  might  change  my  mind.  I  always  re- 
serve the  privilege  to  change  my  mind,  but  at  the  present  time  I 
think  the  2f-cent  fare  is  what  we  ought  to  charge. 

Commissioner  SWEET.  Then  you  do  not  think  you  could  get  relief 
by  increasing  the  fare? 

Mr.  HENRY.  I  do  not,  in  our  case,  because  we  have  already  gotten 
relief  by  an  increase  of  fare  from  2  cents  up. 

Commissioner  SWEET.  What  is  your  explanation  of  the  fact  that 
they  can  do  that  in  Illinois  and  can  not  do  it  in  Indiana? 

Air.  HENRY.  I  should  say  they  are  getting  more  money  than  they 
got  at  2J  cents.  I  don't  know  what  their  local  conditions  are. 

Commissioner  SWEET.  But  they  are  charging  a  3-cent  fare? 

Mr.  HENRY.  Yes. 

Commissioner  SWEET.  I  understood  you  to  say  it  was  without 
particular  objection. 

Mr.  HENRY.  No;  if  I  said  that,  it  was  not  my  intention  to  say  it, 
because  there  has  been  a  great  deal  of  objection  on  the  part  of  the 
people  of  the  State  to  the  3-cent  fare  in  Illinois,  but  there  was  very 
little  in  Ohio. 

Commissioner  SWEET.  Well,  has  it  increased  their  revenues  or  not? 

Mr.  HENRY.  Oh,  yes. 

Commissioner  SWEET.  Then,  why  would  it  not  increase  your  reve- 
nues? 

Mr.  HKNRY.  Well,  it  might  do  it.  I  don't  know  whether  it  would 
in  our  case.  I  think  we  could  get  more  revenue  at  the  2$  cents  than 
we  would  at  3  cents.  The  people  rather  like  it  because  they  think  we 


728       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

are  giving  them  a  special  privilege  in  carrying  them  for  less  than  the 
steam  roads,  and  more  people  ride  at  that  rate  than  they  would  at  the 
3-cent  rate,  in  my  opinion. 

Commissioner  SWEET.  What  is  it  you  want  the  Railroad  Adminis- 
tration to  do  ? 

Mr.  HENRY.  Well,  as  they  are  going  to  have  a  very  short  life  it  is 
hardly  wortli  mentioning  it,  but  I  will  tell  you.  One  of  them  is  that 
in  the  express  business  they  should  direct  the  American  Railway  Ex- 
press Co.  to  give  the  interurbans  their  proportion  of  the  express  busi- 
ness of  the  country. 

The  CHAIRMAN.  Has  that  question  ever  been  put  up  to  the  Railroad 
Administration  ? 

Mr.  HENRY.  I  took  it  up  personally  with  Mr.  Thielen — I  think  that 
is  his  name — under  an  appointment,  along  with  others.  I  happened 
to  be  the  chairman  of  the  committee,  and  I  addressed  him  on  the 
subject,  and  I  put  the  subject  up  to  him  just  as  it  wras;  and  his  answer 
was,  "  Well,  you  would  not  expect  us  when  we  are  running  the  steam 
railroads" — this  is  in  effect,  not  in  words — "you  would  not  expect 
us,  in  looking  out  for  the  income  of  the  steam  railroads,  to  give  the 
business  over  to  the  electric  lines,  when  we  do  not  have  to."  That  was 
in  effect  his  answer. 

Commissioner  SWEET.  What  do  you  think  was  wrong  about  that 
answer  ? 

Mr.  HENRY.  What? 

Commissioner  SWEET.  Outside  of  your  personal  interest,  why  was 
not  that  a  good  answer  ? 

Mr.  HENRY.  I  will  tell  you  why  it  is  not.  They  are  representing 
the  people  of  the  United  States,  and  we  are  a  part  of  the  people  of  the 
United  States,  just  the  same  as  the  owners  of  the  steam  railroads  are, 
and  they  have  no  moral  right,  in  running  the  steam-railroad  busi- 
ness, to  run  it  in  such  a  way  as  to  cripple  any  other  industry  that  is 
entitled  to  live  just  as  well  as  they  are  and  that  people  are  dependent 
upon  just  as  much  as  they  are  on  them. 

The  CHAIRMAN.  Do  you  believe  that  the  Government  should  not 
have  diverted  any  traffic  from  any  line,  unless  it  was  necessary  to  do 
so  for  w*ar  purposes  ? 

Mr.  HENRY.  That  is  exactly  what  I  do. 

The  CHAIRMAN.  I  agree  with  you. 

Mr.  HENRY.  Another  thing  they  can  do,  while  on  that  subject,  is 
this :  They  have  an  agreement  with  the  short-line  railroads  by  which 
they  allow  them  two  days'  free  overtime 'on  freight  cars  before  de- 
murrage commences.  Now,  they  turn  a  car  over  to  Mr.  Faber,  in  Illi- 
nois, on  the  line  from  Elgin- to  Chicago,  or  to  Mr.  Budd,  on  the  line 
from  Chicago  to  Milwaukee,  and  they  charge  them  from  the  minute 
they  get  it. 

Commissioner  SWEET.  They  charge  demurrage  right  off? 

Mr.  HENRY.  Yes.  They  did  that.  I  do  not  know  whether  they 
changed  that  at  all  or  not.  I  know  they  are  doing  it  in  many  cases. 
In  other  cases  the  traffic  was  so  large  that  there  was  some  hope  they 
would  change  it. 

Commissioner  SWEET.  What  is  the  next  thing  you  would  have  the 
Railroad  Administration  do? 

Mr.  HENRY.  The  Railroad  Administration  itself  2 

Commissioner  SWEET.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       729 

Mr.  HENRY.  Well,  they  can  not  do  it  now,  but  they  ought  to  cut 
clown  the  abnormal  price  of  material  which  they  fixed  without  rea- 
son, and  which,  therefore,  set  a  pattern  against  us  for  prices. 

Commissioner  SWEET.  Are  you  referring  to  steel,  now,  and  coal  ? 

Mr.  HENRY.  I  refer  principally  to  ties  and  poles  and  things  of  that 
kind.  Nobody  is  buying  a  steel  rail. 

Commissioner  SWEET.  Do  you  mean  the  prices  that  were  fixed  dur- 
ing the  war? 

Mr.  HENRY.  Yes;  and  still  maintained.  Xot  only  that,  but  we  can 
hardly  get  the  ties.  They  are  making  every  effort,  of  course,  to  catch 
up  with  their  rehabilitation.  They  got  behind,  of  course,  during  the 
war. 

Commissioner  SWEET.  Do  you  think,  Mr.  Henry,  that  the  Railroad 
Administration  fixed,  or  can  fix,  these  prices? 

Mr.  HENRY.  They  do  fix  them.     I  will  tell  you  how  they  do  it. 

Commissioner  SWEET.  Now? 

Mr.  HENRY.  They  fix  them  now.  This  is  the  way  they  fix  them. 
They  say, "  We  will  give  you  $1.25  for  all  the  crossties  in  a  certain  ter- 
ritory," and  then  different  prices  in  others.  That  is  the  price  that 
is  fixed  there,  and  when  we  have  got  to  buy  from  that  territory  we 
have  to  buy  at  the  same  price  because  the  Government  fixed  the  price. 

Not  long  ago  I  inquired  for  some  45-foot  cedar  poles.  I  made 
some  five  or  six  inquiries,  and  the  answers  came  back  as  though 
they  had  taken  a  rubber  stamp  and  stamped  the  price  which  they 
quoted.  They  were  just  exactly  alike,  just  as  much  so  as  if  they 
had  used  the  same  rubber  stamp  on  all  of  them.  I  was  quite  well 
acquainted  with  the  salesmen  of  several  of  the  companies,  and  I  talked 
to  them  very  freely  about  it.  I  said,  "  I  realize,  of  course,  that 
you  are  not  going  to  break  your  combination  price."  They  said, 
"What  do  you  mean  by  combination  price?"  I  said,  "I  mean  the 
combination  price  you  have  agreed  you  won't  sell  to  us  for  aivv- 
thing  less  than  the  price  that  is  fixed  for  poles  by  the  Railroad  Ad- 
ministration." Although  they  can  buy  only  one-tenth  or  one- 
hundredth  of  the  number  of  poles,  because  they  don't  have  much 
use  for  that  kind  of  a  pole,  it  fixed  a  certain  price  there,  and  I 
offered  them  $1.40  for  less  than  that.  I  was  just  trying  them,  and 
finally  I  bought  them  at  that  from  a  man  who  broke  out  of  the  gang. 

Commissioner  SWEET.  This  price  fixing  that  you  are  speaking  of 
is  not  a  matter  of  law  ? 

Mr.  HENRY.  No,  sir. 

Commissioner  SWEET.  It  is  something  that  inheres  in  every  large 
buyer,  ordinarily,  does  it  not,  whether  governmental  or  any  other 
large  buyer? 

Mr.  HENRY.  Usually  the  large  buyer  gets  the  cheaper  prices.  If 
you  count  the  Government  as  the  large  buyer,  it  fixed  the  higher 
prices  paid,  although  they  were  normal  at  the  time  they  were  fixed. 

Commissioner  SWEET.  What  else  do  you  want  from  the  Railroad 
Administration? 

Mr.  HEXRY.  That  is  all  I  have  now. 

Commissioner  SWEET.  That  is  all. 

Mr.  WARREN.  That  is  all,  Mr.  Henry. 

The  CHAIRMAN.  You  are  excused.  Mr.  Henry. 

Mr.  WARREN.  Mr.  Kellogg,  will  you  take  the  stand,  please? 
100043°— 20 47 


730       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

STATEMENT  OF  MR.  CHARLES  W.  KELLOGG. 

WARREN.  Will  you  give  your  full  name,  Mr.  Kellogg? 

KELLOGG.  Charles  W.  Kellogg. 

WARREN.  And  your  residence 1 

KELLOGG.  Boston,  Mass. 

WARREN.  What  is  your  occupation? 

Mr.  KELLOGG.  I  am  with  Stone  &  Webster,  of  Boston,  and  have 
been  in  charge  of  the  street-railway  business,  amongst  others,  for 
about  15  years. 

Mr.  WARREN.  Have  you  in  connection  with  your  work  had  occa- 
sion to  give  special  attention  to  the  one-man  car  or  the  safety  car, 
so  called? 

Mr.  KELLOGG.  I  have  this  year,  as  chairman  of  the  committee  of 
the  American  Railway  &  Electric  Transportation  &  Traffic  Associa- 
tion, which  is  studying  that,  among  three  or  four  other  subjects; 
and  it  was  on  account  of  the  study  which  we  have  made  of  that  sub- 
ject that  I  was  asked  to  testify  here  to-day,  as  I  understand  it. 

Shall  I  go  right  on  and  tell  about  the  car? 

Mr.  WARREX.  Yes;  go  right  ahead. 

Mr.  KELLOGG.  The  one-man  car,  so  called,  has  to  be  distinguished 
in  two  ways.  The  method  of  operating  a  street-car  with  one  man 
instead  of  two  simply  is  the  closing  up  of  the  back  platform  and 
having  one  man  on  the  front  end  of  the  car;  and  that  is  one  that 
has  been  in  use  in  the  street-railway  business  by  small  companies, 
iust  as  a  matter  of  saving  platform  expense,  for  a  great  many  years. 
There  is  nothing  new  about  that  method  of  running  a  street-car, 
but  there  is  a  very  new  thought  contained  in  the  so-called  Birney 
safety,  designed  by  a  man  named  Birney  from  St.  Louis,  Charles 
S.  Birney.  This  car  was  the  result  of  jitney  competition.  As  you 
all  remember  who  have  followed  the  street-railway  business,  about 
five  years  ago  there  was  a  terrific  flood  of  light  automobiles,  mostly 
Ford  cars,  that  came  out  on  the  streets,  and  especially  in  the  south- 
ern cities,  where  the  climate  was  mild,  which  created  havoc  with 
the  street-railway  business. 

It  was  the  feeling  of  Mr.  Birney  and  others  that  the  only  way  to 
get  that  business  back  was  to  build  a  street -car  which  would  simu- 
late as  nearly  as  possible  the  conditions  which  that  seemed  to  be 
able  to  create. 

That  meant  a  light  car,  so  as  to  save  power  and  so  as  to  accelerate 
quickly.  It  meant  a  one-man  car,  because  there  was  only  one  man 
to  run  a  jitney;  and  that  was  how  the  one-man  car,  as  they  use 
the  term  to-day,  the  one-man  safety  car,  came  into  use.  Xow, 
this  car  was  very  light  as  compared  to  -the  old  ones.  Let  me  go  a 
little  further  back  in  the  business.  About  10  or  15  years  ago,  or, 
perhaps,  as  long  as  15  years  ago,  there  was  a  perfect  mania  among 
street-railway  companies  for  heavy  street-cars,  Pullman  cars. 

The  CHAIRMAN.  Why? 

Mr.  KELLOGG.  It  was  felt  that  they  were  more  dignified;  they  rode 
smoother  on  relatively  poor  track,  and  therefore  would  attract 
traffic.  And  anyone  who  has  studied  the  situation  and  remembers 
the  conditions  in  those  days  will  know  that  even  a  small  town  that 
did  not  have  large  heavy  double-truck  cars  was  considered  rather 
out  of  the  running. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       731 

It  was  not  until  after  all  of  the  city  systems  were  equipped  with 
.  these  very  heavy  cars,  weighing  around  50,000  pounds — some  of  them 
even  heavier — that  the  industry  woke  up  to  the  fact  that  an  enor- 
mous unnecessary  weight  was  being  dragged  around  the  streets, 
that  they  meant  excessive  investment,  a  correspondingly  heavy 
track,  and  an  expensive  construction  to  carry  these  big  cars.  It 
meant  correspondingly  more  power-station  capacity  to  move  them, 
including  in  that  also  substations,  cables,  etc.,  and  correspondingly 
higher  maintenance  costs,  both  of  the  cars  themselves  and  for  the 
track  they  ran  over  to  keep  the  service  going. 

The  CHAIRMAN.  Would  you  say  that  these  large  cars  were  urged 
by  the  car  manufacturers? 

Mr.  KELLOGG.  I  should  say  not,  although  I  am  not  able  to  pass  on 
that  point.  At  all  events,  the  street  railways  were  willing  customers. 

It  was  not  until  after  this  effect  had  occurred — I  think  that  is  a 
fair  statement — until  it  had  practically  fully  occurred,  that  the  re- 
sults were  realized  by  the  industry.  Xow,  in  view  of  the  big  invest- 
ment that  has  been  made,  it  seemed  impossible  to  scrap  this  large 
investment. 

I  have  mentioned  that  past  history  simply  to  indicate  that,  in  ad- 
dition to  fighting  the  jitney  competition,  the  light  one-man  car  also 
filled  a  long-left  want  for  some  economy  in  power  consumption  and 
platform  time  on  the  part  of  the  street  railways. 

Another  very  important  feature  of  this  new  car,  which  distin- 
guishes it  decidedly  from  past  types  of  one-man  operation  which  I 
mentioned  and  which  might  be  called  a  sort  of  home-made  car,  is 
the  safety  devices,  because  it  was  realized  that  the  public  would  not 
stand  in  large  cities  for  car  operation  by  one  man,  unless  there  were 
special  devices,  such  as  to  make  the  operation  of  the  car  safe  in  case 
that  one  man  should  be  taken  ill  or  drop  dead  or  anything  should 
happen  to  divert  his  attention. 

That  brought  out  the  so-called  dead  man's  handle,  more  or  less 
similar  to  what  is  on  a  great  many  elevators,  where  if  the  man  takes 
his  hand  off  the  controller,  it  immediately  automatically  goes  back 
and  shuts  the  power  off;  also  if  the  controller  automatically  throws 
off  in  that  manner,  the  brakes  are  applied  on  this  car  and  sand  ap- 
plied to  the  track  and  the  car  is  brought  to  a  quick  standstill. 

There  are  other  special  devices,  such  as  allowing  for  the  hand- 
opening  of  the  doors  when  this  automatic  stop  is  made;  all  of  which 
has  tended  to  make  this  Birney  car  not  only  actually  safe  but  to 
convince  the  public,  which  uses  the  car,  that  it  is  safe. 

This  new  car  weighs  about  13,000  pounds  as  against  an  average 
weight  of  the  former  city  cars,  which  it  replaced,  of  not  less  than 
35,000  pounds,  and,  as  I  said  before,  a  great  many  considerably 
heavier. 

At  the  present  time — and  meaning  by  the  "  present  time  ",  up  to 
October  1  this  vear — there  are  1,100  ox  these  Birney  cars  in  opera- 
tion in  the  United  States,  and  there  are  now  under  order  and  in 
process  of  manufacture  about  (500  more  than  that  1,100,  200  of  this 
latter  being  for  the  Brooklyn  Rapid  Transit  Co. 

Now,  in  connection  with  the  stud}'  which  the  committee  of  which 
I  am  chairman  has  made,  we  sent  out  questionnaires  to  all  of  the 
member  companies  in  the  street-railway  business.  The  questionnaires 
contained  about  50  questions  covering  all  the  various  features  which 


732       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

the  Birney  car,  or  other  one-man  cars,  were  supposed  to  furnish, 
and  I  have  here,  in  a  report  which  I  have  worked  out  for  my  com- 
mittee this  year,  the  tabulated  results  of  the  answers  to  these  ques- 
tionnaires, which  are  very  interesting. 

They  are  quite  brief,  and  if  the  commission  will  permit  me,  I  will 
read  them  through  very  briefly. 

First,  regarding  power  consumption,  of  course  there  will  be  no 
power  saving  by  converted  one-man  cars,  but  only  by  the  Birney 
safety  cars. 

The  average  reduction  in  energy  consumption  per  car-mile  of  using 
the  Birney  cars  is  51.2  per  cent. 

Taking  3  kilowatt  hours  per  car-mile  as  a  fair  average  for  most 
city  systems,  this  means  a  saving  of  about  1.5  kilowatt  hours  per  car- 
mile.  Actual  figures  from  45  companies 

Commissioner  BEALL.  May  I  ask  you  a  question  right  there  ? 

Mr.  KELLOGG.  Sure. 

Commissioner  BEALL.  Have  you  compared  that  car  with  a  car  that 
will  carry  two  or  three  times  as  many  people  ? 

Mr.  KELLOGG.  No;  I  am  comparing  that  with  a  car  which  will 
carry  substantially  as  many.  I  will  read  those  figures  oft'. 

As  to  general  dimensions,  the  Birney  car  seats  from  30  to  32  and, 
as  you  know,  the  seating  capacity  of  40  to  44  is  quite  a  good-sized 
city  car.  The  seating  capacity  is  quite  thoroughly  comparable, 
although  that  of  course  is  one  of  the  ways  the  weight  was  cut  down. 

Commissioner  BEALL.  Well,  how  about  the  standing  room? 

Mr.  KELLOGG.  How  about  the  standing  room? 

Commissioner  BEALL.  You  make  your  money  from  the  strap- 
hangers, do  you  not,  and  not  from  the  seated  passengers?  If  you 
ran  all  of  your  cars  on  seating  capacity,  you  would  not  make  any 
money,  would  you? 

Mr.  KELLOGG.  You  do  with  the  Birney  car.  That  is  one  of  the 
surprising  things  that  I  am  coming  to  later  with  regard  to  this  car. 

I  will  say  this  with  regard  to  the  heavy  peak-load  traffic,  that 
where  it  is  found  that  large  cars  need  to  be  used  over  the  peak  to 
carry  the  heavy  traffic,  it  is  still  possible  to  run  those  heavy  cars 
and  use  all  of  that  power  and  use  the  two  trainmen  only  a  few  hours 
a  day,  with  this  light  power  car  that  saves  power  and  labor.  As.  a. 
matter  of  fact,  the  weight  per  foot  of  this  car  is  very  low. 

Commissioner  BEALL.  Well,  they  carry  the  same  capacity  of  stand- 
ing passengers  as  the  other  will ;  do  they  not  ? 

Mr.  KELLOGG.  It  will  carry  more  per  ton  of  weight  on  the  car ;  yes. 

Commissioner  BEALL.  That  is  not  what  I  asked  you,  but  will  the 
car  itself  carry  them? 

Mr.  KELLOGG.  No ;  the  car  itself  will  not.     It  is  a  smaller  car. 

Mr.  WARREN.  It  is  a  much  narrower  car  ? 

Mr.  KELLOGG.  It  is  not  conspicuously  narrower.  It  is  a  little  bit 
narrower.  The  over-all  width  of  this  car  is  8  feet. 

Commissioner  BEALL.  What  I  wanted  to  bring  out  so  that  we  can 
understand  it  is  this :  Would  you  have  to  have  big  cars  in  the  cities 
to  handle  the  rush-hour  crowd? 

Mr.  KELLOGG.  You  would  in  some  cases,  and  in  some  cases  you 
would  not. 

Commissioner  BEALL.  That  makes  a  very  big  difference,  whether 
this  car  will  answer  for  all  the  demands  of  the  average  lines,  or 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       733 

whether  it  is  only  adapted  to  special  business,  and  you  have  to  havo 
your  other  equipment  anyhow. 

Mr.  KELLOGG.  It  is  not  a  panacea.  There  are  some  lines  where  it 
would  not  work.  That  is  perfectly  true. 

Commissioner  BEALL.  Well,  right  there,  if  it  is  proper,  I  would 
like  to  ask  you  this  question :  I  think  you  have  operated  quite  a  num- 
ber of  them,  have  you  not,  in  the  West,  around  Seattle  and  other 
places  ? 

Mr.  KELLOGG.  Yes ;  mostly  down  in  Texas  and  the  Southeast. 

Commissioner  BEALL.  Well,  have  you  not  found  that  they  were 
only  adapted  to  lines  which  can  not  pay,  or  only  to  lines  wThere  you 
have  lighter  traffic  and  not  such  frequent  service,  and  where  you  do 
not  have  a  very  big  load  ? 

Mr.  KELLOGG.  No ;  that  is  not  so. 

Commissioner  BEALL.  That  is  not  true? 

Mr.  KELLOGG.  No;  that  is  not  true. 

The  CHAIRMAN.  At  this  point,  we  will  adjourn  until  8  o'clock 
to-night. 

(Whereupon,  at  5  o'clock  p.  m.,  a  recess  was  taken  until  8  o'clock 
p.  m.) 

EVENING    SESSION. 

STATEMENT  OF  MR.  CHARLES  W.  KELLOGG— Continued. 

Mr.  WARREN.  Mr.  Kellogg,  will  you  proceed  with  the  result  of  your 
investigation? 

Mr.  KELLOGG.  When  we  adjourned,  Mr.  Chairman,  Mr.  Beall  had 
a  question  I  do  not  think  I  had  answered  quite  satisfactorily,  and 
that  was  with  regard  to  the  smaller  size  of  these  cars.  I  think  you 
made  the  point.  Mr.  Beall,  that  while  the  amount  of  power  consump- 
tion was  small,  the  car  itself  was  smaller,  and  as  to  that  I  think  per- 
haps the  fairest  way  to  put  it  is  that  the  Birney  car,  seating,  say 
32.  has  a  power  consumption  about  half  as  large  as  a  car  seating  40 
to  44;  so  that  while  the  car  is  smaller  there  is  some  less  power  per 
seat. 

Commissioner  BEALL.  How  about  the  rush-hour  capacity?  Will  it 
hold  as  many  people  standing?  That  was  not  really  my  point.  I 
think  you  missed  it. 

Mr.  KELLOGG.  I  do  not  think  I  did  get  your  point. 

Commissioner  BEALL.  I  was  simply  trying  to  find  out  whether 
that  necessitated  any  duplication  in  whole  or  in  part  by  larger  cars 
to  handle  peak  loads. 

Mr.  KELLOGG.  It  Avould  require  more  of  the  Birney  cars  to  furnish 
the  same  number  of  seats  than  of  the  larger  cars. 

Commissioner  BEALL.  I  did  not  mean  quite  that.  I  mean — a  good 
many  companies  have  the  Birney  cars  and  whether  they  would  not 
also  have  to  have  larger  cars  also  to  some  degree? 

Mr.  KELLOGG.  To  some  degree  they  might ;  yes. 

Commissioner  BEALL.  I  am  not  trying  to  make  out  a  point,  but  to 
get  information. 

Mr.  KELLOGG.  It  might  work  out  that  way. 

Mr.  WARREN.  What  about  snow?  I  have  particularly  the  New 
England  cities  in  mind,  where  we  have  at  least  a  month  of  very 
heavy-snow  weather. 


734       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  KELLOGG.  We  have  hud  reports  from  one  or  two  Northern 
cities  that  they  are  sometimes  bothered  with  snow,  and  also  from 
one  company  in  Illinois — Mr.  Bosenbury,  of  the  Illinois  Traction 
Co.,  who  reports  that  in  that  case  they  take  out  their  heavier  cars 
and  leave  the  light  cars  in  the  barn. 

Mr.  WARREN.  That  would  mean  more  or  less  duplicate  equip- 
ment? 

Mr.  KELLOGG.  That  would  mean  more  or  less  duplicate  equipment 
in  that  case. 

Mr.  WARREN.  Something  like  the  open-car  proposition,  where  the 
company,  to  run  open  cars  in  the  summer  weather,  has  to  have  two 
equipments  of  cars. 

Mr.  KELLOG.  That  would  tend  to  reduce  the  saving  that  could  be 
made  from  the  operating  feature. 

The  CHAIRMAN.  Are  any  of  these  cars  used  in  the  congested  por- 
tions of  the  city  ? 

Mr.  KELLOGG.  Well,  they  are  in  some  cases.  The  closest  headway 
we  had  reported  was  one  minute;  and  in  the  city  of  Seattle  I  know 
these  Birney  cars  run  in  with  the  other  cars  through  the  congested 
district  and,  as  far  as  our  reports  go,  they  are  able  to  hold  their 
place  in  line  with  the  other  cars. 

Mr.  WARREN.  Is  that  the  largest  city  that  uses  them? 

Mr.  KELLOGG.  I  should  say  perhaps  Seattle  was — no ;  Kansas  City 
uses  them,  and  Kansas  City  I  think  is  larger  than  Seattle,  and  it 
uses  Birney  cars. 

Mr.  WARREN.  How  long  has  Kansas  City  used  them? 

Mr.  KELLOG.  That  I  can  not  say.  My  impression  would  be  per- 
haps six  months  or  something  of  that  sort.  It  is  quite  recent. 

The  CHAIRMAN.  You  stated  that  200  are  being  built  for  the 
B.  R.  T.— in  Philadelphia,  is  it? 

Mr.  KELLOGG.  No;  the  Brooklyn  Rapid  Transit. 

The  CHAIRMAN.  How  will  they  be  used  there  ? 

Mr.  KELLOGG.  They  will  be  used  in  some  of  the  lighter  lines  where 
traffic  is  not  so  heavy. 

Commissioner  BEALL.  We  have  a  lot  of  lines  in  the  semisuburban 
section. 

Mr.  KELLOGG.  That  would  be  where  they  would  be  used  first. 

Commissioner  BEALL.  They  would  not  attempt  to  use  them  in  the 
thickly  settled  portions  of  the  city  ? 

Mr.  KELLOGG.  No ;  they  will  first  be  used  in  the  lighter  lines. 

Mr.  WARREN.  Kansas  City  started,  did  it  not,  with  some  made- 
over  cars?  Did  they  not  start  with  35  cars  that  they  made  over 
themselves? 

Mr.  KELLOGG.  That  I  do  not  know,  Mr.  Warren. 

Mr.  WARREN.  Do  you  know  whether  or  not  they  use  them  so  far 
as  they  have  actually  used  them  on  the  suburban  lines — that  is,  the 
outlying  lines  ? 

Commissioner  BEALL.  Where  do  you  mean  ?  To  Independence  and 
those  sections? 

Mr.  WARREN.  Yes.     I  do  not  know  the  names  of  the  places. 

Commissioner  BEALL.  That  is  one  of  their  principal  suburban 
lines. 

Mr.  WARRBN.  But  not  in  their  congested  section. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       735 

Commissioner  GADSDEX.  I  can  answer  that,  because  I  was  there 
last  week.  Mr.  Keeney  is  running  those  cars  right  in  between  the 
others  in  the  congested  part  of  the  town. 

The  CHAIRMAN.  You  may  proceed,  Mr.  Kellogg. 

Mr.  KELLOGG.  If  the  commission  please,  I  will  read  the  results  of 
the  answers  to  these  questionnaires. 

The  next  subject  we  took  up  was  the  saving  of  the  trainmen,  and 
the  replies  show  that  the  operator  on  a  one-man  car  was  paid  more 
than  either  of  the  other  trainmen  on  a  two-man  car  by  about  five- 
eighths  of  the  companies  which  answered  the  question. 

Commissioner  MEEKER.  Are  you  going  to  submit  the  results  of  the 
questionnaire  to  the  commission? 

Mr.  KELLOGG.  I  am  going  to  have  to  dictate  it  because  this  thing 
is  just  some  notes  I  have  for  reference.  The  figures  are  fairly 
simple,  however,  and  I  think  it  will  be  perfectly  clear  in  the  record. 

I  have  here  a  list  of  the  additional  amounts  in  cents  per  hour  paid 
to  the  operators  of  one-man  cars  and  they  average  4  cents  an  hour 
more  than  is  paid  to  either  of  the  men  on  a  two-man  car.  The  theory 
of  that  is  that  the  company  shares  with  the  trainmen  part  of  the  sav- 
ing which  is  secured  from  this  method  of  operation. 

As  to  the  question  of  how  the  trainmen  feel  toward  one-man  cars, 
the  replies  showed  favorable  83  and  unfavorable  10. 

Commissioner  BKALL.  What  ij-    ha- — systems  or  men? 

Mr.  KELLOGG.  Systems  reporting  that  their  men  were  favorable  or 
unfavorable  respectively,  showing  the  men  in  89  per  cent  of  the 
systems  favored  the  Birney  car. 

Commissioner  MEEKER.  How  reliable  are  those  returns?  Can  we 
accept  the  statement  of  the  company  officials  whether  the  men  are 
favorable  or  unfavorable  without  question? 

Mr*  KELLOGG.  That  was  the  only  source  of  information  the  com- 
mittee had  to  go  by.  I  do  not  think  there  was  any  plebiscite  taken 
or  anything  like  that. 

Mr.  WARREN.  May  I  state  one  thing  from  my  own  conferences 
with  the  men?  Do  you  happen  to  know  whether  or  not  the  men 
in  a  number  of  instances  have  included  in  their  demands  in  making 
contracts  for  their  wages  and  working  conditions  a  demand  that 
every  car  shall  be  operated  by  a  crew  of  two  men? 

Mr.  KELLOGG.  I  do  know  that  the  Amalgamated  Association 
through  its  president  has  come  out  very  strongly  against  these  cars. 
Mr.  Million  has  issued  two  or  three  manifestoes  ridiculing  and  criti- 
cizing the  cars  very  severely ;  and  in  giving  these  figures  that  I  have 
given  I  am  simply  giving  the  information  we  received  from  the  com- 
panies to  whom  we  sent  out  the  questions. 

Mr.  WAHREN.  But  you  did  not  visit  the  companies;  you  did  not 
have  an  opportunity  to  ask  them  questions. 

Mr.  KELLOGG.  Xo;  we  did  not.  It  was  all  done  by  mail  with  a 
formal  printed  questionnaire. 

Mr.  WARREN.  Yes. 

Mr.  KKLLOGG.  The  same  ratio  was  reported  in  answering  the 
question  as  to  whether  the  trainmen  opposed  the  inauguration  of 
one-man  car  operation,  the  opposition  being  classified  as  seven  due  to 
labor-union  feeling  and  three  due  to  apprehensions  of  the  men  as  to 
the  difficulty  of  accounting.  Of  course  the  man  who  runs  these  cars 


736       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

is  pretty  busy ;  lie  has  to  operate  the  car  and  take  care  of  his  trip 
sheet  and  the  money  and  change,  and  lie  is  a  pretty  busy  man. 

In  answer  to  the  question  as  to  whether  or  not  trainmen  have  been 
assured  that  they  would  not  lose  their  jobs  due  to  the  starting  of 
one-man  operation  the  companies  were  divided  about  equally,  39 
reported  that  they  had  made  this  promise  and  42  that  they  had  not. 
The  recommendation  of  our  committee  would  be  to  the  effect  that 
such  a  promise  should  be  made,  for  the  reason  that  these  cars  are  in- 
troduced gradually  and  the  number  of  men  who  fall  out  of  the 
ranks  for  one  reason  or  another  is  sufficient  to  prevent  the  company 
from  being  obliged  to  hold  extra  men  on  account  of  that  promise. 

Commissioner  GADSDEN.  Would  not  that  be  entirely  taken  care  of 
by  the  unusual  turnover  in  employment? 

Mr.  KELLOGG.  It  apparently  has  been. 

Mr.  WARREN.  That  is  the  dropping  out  of  men? 

Mr.  KELLOGG.  That  is  the  dropping  out  of  men  for  one  reason  or 
another — it  would  be,  very  easily. 

Mr.  WARREN.  Do  you  not  think  that  with  a  60-cents-an-hour  wage 
that  turnover  is  going  to  be  very  much  lessened  ? 

Mr.  KELLOGG.  I  should  imagine  it  would  be. 

Mr.  WARREN.  Taking  Boston,  for  instance,  it  is  62  cents  an  hour 
for  an  8-hour  day.  That  is • 

Mr.  KELLOGG.  Pretty  good  money  for  unskilled  labor. 

Mr.  WARREN.  That  is  $5  a  day  without  any  of  the  overtime  and 
the  bonuses  which  will  necessarily  go  with  the  shorter  hours.  I 
apprehend  myself  that  the  turnover  is  going  to  be  very  much  less. 

Mr.  KELLOGG.  I  think  it  will  be  hard  to  keep  them  out  of  the  busi- 
ness pretty  soon. 

Mr.  WARREN.  There  have  always  been  more  applications  than 
places  in  normal  times. 

Mr.  KELLOGG.  With  regard  to  the  public  attitude  toward  one-man 
cars,  it  was  reported  as  friendly  by  84  and  unfriendly  by  18.  It  was 
also  stated  that  this  latter  number  was  changed  to  4  after  a  trial  of 
the  cars  themselves. 

Commissioner  BEALL.  May  I  ask  there,  is  there  anything  in  your 
questionnaire  which  would  show  whether  those  which  reported  un- 
favorably among  the  users  of  the  cars,  whether  it  was  the  large 
towns  or  small  towns,  or  whether  it  is  interspersed  between  different 
classes  of  cities  as  regards  the  size  of  population  ? 

Mr.  KELLOGG.  I  am  sorry  to  say  I  could  not  answer  that  question 
without  referring  to  the  original  record.  I  do  not  have  it  in  mind. 

Commissioner  BEALL.  All  right. 

Commissioner  MEEKER.  Can  not  you  submit  that  information? 
Because  that  would  be  important. 

Mr.  KELLOGG.  I  would  be  very  glad  to  do  so.  I  will  get  that  and 
send  it  in. 

With  regard  to  the  question  of  fare  collection  on  one-man  cars,  the 
replies  show  that  no  difficulty  or  no  change  from  conditions  with 
two-men  cars  took  place  in  88  cases;  and  three  companies  reported 
difficulty,  saying  however,  it  wras  only  to  a  limited  degree.  In  the 
matter  of  schedules • 

Mr.  WARREN.  Before  you  leave  the  other  matter,  did  the  question- 
naire indicate  whether  the  fare  collections  in  those  cases  that  had  no 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       737 

difficulty  were  flat  fares,  so  far  as  the  territory  covered  by  the  one- 
man  cars  was  concerned,  or  whether  they  were  zone  systems  ? 

Mr.  KELLOGG.  They  did  not.  There  would  be  more  difficulty  with 
a  zone  system. 

Mr.  WABKEN.  In  fact,  on  a  good  many  lines,  even  where  it  is  not 
technically  know  as  a  zone  system — that  is,  a  5-cent  fare  with  an 
increment  of  1  or  2  cents  for  each  zone  thereafter — there  are  a  good 
many  lines  where  there  is  more  than  one  5  cents  collected  by  a  good 
many  companies. 

Mr.  KELLOGG.  Yes.  It  is  also  true,  of  course,  in  the  case  of  the 
complicated  zone  system,  where  some  kind  of  a  ticket-issuing  ma- 
chine would  have  to  be  used :  it  might  become  almost  impossible  for 
one  man  to  do  that  class  of  business.  That  particular  subject  did 
not  happen  to  come  up  in  the  questions  which  we  sent  out.  I  do  not 
think  there  is  any  company  yet  using  that  machine,  although  the  Pub- 
lic Service  Corporation  of  New  Jersey.  I  believe,  is  planning  to  do  so. 

Mr.  WARREN.  I  suppose  a  prepayment  zone  and  an  inclosed  area 
where  the  great  majority  of  the  passengers  took  the  car — take  Bos- 
ton for  instance,  with  which  you  are  familiar,  the  subways  are  pre- 
payment areas. 

Mr.  KELLOGG.  Yes. 

Mr.  WARREN.  And  if  in  the  cities  generally  it  were  possible  at  a 
congested  center  to  establish  a  prepayment  area  where  every  pas- 
senger would  pay  his  fare  when  he  went  into  the  area  and  take  his 
car  in  the  area,  that  would  help  out  with  the  one-man  car. 

Mr.  KELLOGG.  It  would ;  yes. 

With  regard  to  schedules,  the  replies  to  the  questions  under  this 
heading  had  to  be  clearly  distinguished  between  the  converted  one- 
man  car — meaning  by  that  a  former  two-man  car  that  had  been 
rebuilt  to  operate  with  one  man — and  the  Birney  car,  because  of 
course  the  former  cars  simply  ran  as  they  did  before  and  we  found 
an  average  of  14.76  per  cent  increase  in  scheduled  speed  reported 
from  the  use  of  the  Birney  cars.  The  headway  had  been  increased 
by  the  companies  reporting  on  43.7  per  cent,- ma  king ' 

Mr.  WARREN.  That  means  they  ran  more  cars? 

Mr.  KELLOGG.  That  means  they  ran  more  cars — 43.7  per  cent  more 
cars  at  an  average  speed  of  14J  per  cent  greater,  which  made  an 
average  increase  in  car  frequency  of  58.46  per  cent. 

Commissioner  BEALL.  How  much  more  money  did  they  take  in? 
That  is  your  test. 

Mr.  KELLOGG.  That  is  the  next  question  I  have  to  answer.  One 
more  point  before  I  get  to  that.  One  question  as  indicating  the 
range  of  adaptability  of  Birney  cars,  the  headways  are  from  1  to 
30  minutes  reported. 

Now,  on  the  matter  of  earnings,  of  course  these  reports  on  earnings 
refer  to  the  most  successful  lines  where  the  conditions  were  exactly 
right  for  the  use  of  these  cars;  and  the  most  successful  lines  showed 
a  slight  decrease  in  gross  per  car-mile,  from  21.11  cents  to  20.65  cents, 
with  this  increase  in  car-miles  operated  of  53.4  per  cent  and  an  in- 
crease in  gross  earnings  of  51  per  cent.  In  other  words,  where  the 
conditions  are  just  right  for  the  use  of  these  cars  their  benefit  comes 
from  taking  the  saving  in  operating  expense — that  is.  in  power  and 
platform  time — and  spending  that  money  on  additional  service. 


738       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Now  I  want  to  explain  right  there,  so  that  the  commission  will 
realize  the  limitations  of  this  Birney  car,  that  the  only  place  where 
it  can  accomplish  its  best  results  is  where  the  schedule  initially  is 
such  that  more  people  will  ride  if  cars  come  more  frequently  or — 
that  is  the  only  case.  Xow  the  other  cases  would  be  a  very  light 
traffic  in  a  small  city  where,  if  you  had  a  car  every  30  seconds,  you 
would  get  no  more  people  because  no  more  are  there  to  ride.  There 
the  car  would  save  nothing  but  platform  expense  and  fuel ;  or  in  a 
very  dense  traffic  where  cars  were  frequent  enough  to  be  in  sight, 
you  might  say,  most  of  the  time.  The  Birney  car  would  add  nothing 
there  to  the  amount  of  traffic,  so  its  most  useful  field  is  in  cases  where 
the  traffic  on  a  line  can  be  increased  if  the  frequency  is  furnished; 
and  that  represents  the  maximum  effective  use  of  these  cars. 

Mr.  WARREX.  Before  you  leave  that,  Mr.  Kellogg,  you  said  the 
earnings  were  21  cents  a  mile? 

Mr.  KELLOGG.  Before,  and  20.65  afterwards. 

Mr.  WARREX.  Is  not  that  a  pretty  light  earnings  per  car-mile? 
Would  not  that  indicate  that  these  companies  were  not  in  districts  of 
heavy  traffic?  My  recollection  is 

Mr.  KELLOGG.  That  is  a  light  average ;  yes. 

Mr.  WARREX.  I  think  the  average  for  the  country  is  something  like 
36  or  38 — is  it  not — now  ? 

Mr.  KELLOGG.  I  do  not  happen  to  have  that  figure  in  mind.  I 
did  not  know  it  was  quite  as  high  as  that. 

Mr.  WARREX.  I  may  be  wrong,  but  I  know  they  have  gone  up — 
the  earnings  per  car-mile.  During  the  last  year,  owring  to  the  in- 
crease in  rates 

Mr.  KELLOGG.  Oh,  yes;  I  think  perhaps  that  is  true. 

Mr.  WARREX.  And  my  impression  is  that  the  rates  of  some  com- 
panies in  Massachusetts  are  over  40  cents,  but  it  used  to  run  around 
25  or  26. 

Mr.  KELLOGG.  These  earnings  that  I  am  referring  to  are  on  a  car- 
mile  basis. 

Next  as  to  the  effect  of  Birney  cars  in  eliminating  jitney  compe- 
tition :  As  I  explained  this  afternoon,  the  Birney  car  was  born  from 
jitney  competition;  that  is  what  produced  the  car.  The  replies  to 
that  question  do  not  make  much  of  a  showing  because  a  large  number 
of  the  companies  reported  they  were  not  bothered  with  j  itney  compe- 
tition, but  nine  companies  reported  complete  and  two  companies  par- 
tial elimination  of  jitney  competition  due  to  the  use  of  Birney  cars. 
Those  companies  were  largely  in  the  South — Texas  and  the  South- 
east, where  the  mild  winter  enables  the  jitney  to  flourish  a  good  deal 
more  than  it  can  in  the  North  and  where  the  size  of  the  cities  is  such 
that  it  is  just  about  right  for  jitney  service. 

Regarding  operating  features,  the  answers  as  to  whether  accident 
reduction  had  been  secured,  47  companies  reported  reductions  and  22 
companies  no  reduction.  I  am  inclined  to  believe,  however,  that 
those  22  were  considerably  of  the  old  converted  type,  because  there 
were  24  companies  which  had  no  safety  devices  on  their  cars. 

We  asked  the  question  as  to  car  maintenance — whether  any  saving 
could  be  made  in  car-maintenance  cost  through  the  use  of  the  Birney 
car.  This  question  was  really  more  for  an  expression  of  opinion 
than  for  actual  experience  because,  as  you  probably  realize,  this  de- 
vice is  quite  new.  While  there  will  be  1,100  of  these  cars  in  use  in 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       739 

this  country  by  October  1,  still  the  actual  number  in  use  is  still  pretty 
small  and  the  time  in  wliich  they  have  been  used  is  very  brief. 

Mr.  "\VARREX.  They  are  all  new  in  other  words? 

Mr.  KELLOGG.  Yes.  They  are  skimming  the  cream  now.  But  at 
all  events  six  of  the  companies  predicted  a  substantial  reduction  in. 
car  maintenance ;  about  half  of  the  companies  predicted  a  saving  in 
the  cost  of  track  maintenance.  Of  course,  there  were  no  figures  on 
that,  but  that  was  their  opinion. 

With  regard  to  the  question  of  acceleration — of  course  you  realize 
that  the  increase  in  speed  obtained  by  these  cars  is  obtained  almost 
entirely  through  their  quicker  acceleration;  they  pick  up  more 
quickly.  There  were  several  companies  that  had  actual  figures  on 
that,  giving  the  acceleration  in  miles  per  hour  per  second ;  and  they 
showed  for  the  average  car  1.67  and  for  the  Birne}'  car  2.53. 

Mr.  WARREN.  What  does  that  mean  ?  What  do  those  figures  indi- 
cate ? 

Mr.  KELLOGG.  Those  are  miles  per  hour  per  second  in  acceleration 
of  the  car.  One  point  we  asked  particularly  about  was  that  of  flag- 
ging railroad  crossings.  You  gentlemen,  of  course,  realize  that  it 
has  been  the  practice  from  time  immemorial  in  the  street-railway 
business  when  a  street-car  approaches  a  railroad  crossing  for  the 
conductor  after  the  car  has  been  stopped  to  get  off  and  go  ahead  of  the 
car  onto  the  crossing,  look  up  and  down  the  track  and  signal  the  car 
to  come  across.  With  the  Birney  car  that  practice  is  impossible; 
in  fact  it  would  be  dangerous  for  the  trainman  to  leave  the  car  and 
go  onto  the  railroad  crossing.  So  the  method  of  flagging  is  simply 
to  stop  the  car,  for  the  operator  to  look  up  and  down  the  track,  and, 
if  all  is  clear,  to  proceed.  There  is  some  difference  of  opinion  as 
to  the  safety  of  that.  Personally  I  do  not  think  with  a  normal  rail- 
road crossing  where  the  view  is  unobstructed  that  that  method  of 
flagging  is  any  more  dangerous  than  the  old-fashioned  method.  But 
wherever  a  complicated  set  of  tracks  are  crossing  it  is  necessary  with 
the  Birney  cars  to  maintain  a  flagman  who  can  actually  be  there 
at  all  times.  Of  course,  to  such  an  extent,  whatever  that  amounts  to, 
it  tends  to  offset  the  saving  in  expense  in  the  use  of  these  cars. 

Mr.  WARREX.  Would  that  mean  one  man  or  two?  It  would  mean 
two;  would  it  not?  He  would  have  to  be  there  during  the  hours 
the,  car  runs? 

Mr.  KELLOGG.  Yes,  you  would  have  to  have  a  man  on  a  flag  cross- 
ing where  the  view  was  obstructed  or  there  were  a  great  man}*  tracks, 

Mr.  WARREX.  And  to  cover  the  period  of  operation  it  would  re- 
quire two  men? 

Mr.  KELLOOG.  Yes,  two  9-hour  men,  probably. 

Mr.  WARREX.  Yes. 

Mr.  KEIJ.OGG.  The  answer  to  the  general  question  of  whether  the 
saving  with  the  one-man-car  operation  would  lead  the  company  to 
favor  the  extension  of  its  use  showed  this  result:  Extension  favored 
by  7(>  companies;  not  favored  by  2.  That  seemed  like  a  pretty  de- 
cisive vote. 

Commissioner  SWEET.  No  replies  from  the  rest  of  them? 

Mr.  KELLOGG.  No,  some  of  them  did  not  answer  some  of 
the  questions.  It  seemed  to  work  out  that  way.  I  think  that  is  true 
of  all  questionnaires. 


740       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  That  you  ask  questions  and  some  people 
answer  some  and  some  answer  others,  like  a  ballot. 

Mr.  KELLOGG.  Yes;  like  a  ballot. 

The  committee  feels  that  the  most  valuable  features  of  the  Birney  car 
in  the  order  of  their  importance  are:  First,  improved  service  to 
the  public  both  as  to  frequency  and  safety;  second,  increased  earn- 
ings; third,  decreased  expenses  (although,  as  I  just  explained,  the 
maximum  results,  when  conditions  are  right  are  obtained  by  taking 
the  saving  in  expenses  and  spending  it  on  service). 

The  committee  also  agreed  that  part  of  the  saving  should  be  shared 
with  the  trainmen  at  a  slightly  higher  hourly  rate,  although  we  did 
not  feel  like  recommending  exactly  what  that  percentage  should  be. 

Mr.  WARREN.  You  said  the  average  so  far  was  4  cents  ? 

Mr.  KELLOGG.  Four  cents. 

Commissioner  GADSDEN.  What  is  the  range? 

Mr.  KELLOGG.  From  1  to  10;  but  most  of  them  are  in  the  middle 
range.  That  is,  it  is  not  a  uniform  range  from  1  to  10.  There  is 
just  one  at  1  and  one  at  10,  as  I  remember. 

Commissioner  BEALL,.  I  suppose  on  the  average  system  there  would 
not  be  more  than  one-third  of  your  motormen  who  would  be  capable 
of  satisfactorily  operating  that  kind  of  a  car,  would  there? 

Mr.  KELLOGG.  Possibly  not. 

Commissioner  BEALL.  Is  that  what  the  objection  is? 

Mr.  KELLOGG.  Although  the  men  seem  to  like  it.  That  is,  the  work 
interests  them. 

Commissioner  BEALL.  The  fellow  who  can  do  it  likes  it  because  he 
gets  more  money? 

Mr.  KELLOGG.  Yes.  Well,  it  interests  them.  They  say  'the  day 
passes  quicker;  that  is  the  comment  you  hear  the  men  make. 

Mr.  WARREN.  It  requires  the  combination  of  the  capacity  of  a  mo- 
torman  and  a  conductor,  to  a  certain  extent. 

Mr.  KELLOGG.  It  does.  It  requires  quite  a  high  bookkeeping  skill, 
and  in  fact  some  of  the  old-line  motormen,  the  old  fellows  who  have 
been  on  the  front  end  for  a  great  many  years,  do  not  seem  to  be  able 
to  handle  the  one-man  car  at  all ;  it  confuses  them. 

Mr.  WARREN.  That  is  due  to  the  bookkeeping  end  of  it,  I  suppose. 
i:  Mr.  KELLOGG.  Yes;  they  do  not  know  the  bookkeeping  part. 

Mr.  WARREN.  Do  you  know  how  the  conductors  have  made  out 
in  running  them  ?  Are  they,  as  a  rule — or  are  a  good  many  of  them 
able  to  take  on  the  work  of  a  motorman  and  do  it  satisfactorily  ? 

Mr.  KELLOGG.  We  asked  that  question;  and  the  replies  seemed 
to  be  rather  inconclusive.  The  men  I  talked  with  who  seemed  to 
have  the  most  experience  with  Birney  cars  seemed  to  feel  that  an 
ex-conductor  makes  the  best  operator. 

Mr.  WARREN.  An  ex-conductor? 

Mr.  KELLOGG.  An  ex-conductor;  because  he  has  had  that  experi- 
ence in  handling  trip  sheets,  transfers,  fares,  and  so  forth. 

Mr.  WARREN,  And  he  can  take  on  the  work  of  a  motorman  better 
than  the  motorman  can  take  on  the  work  of  a  conductor. 
•  Mr.  KELLOGG.  Yes,  although  that  is  not  universal.     That  is  to  say, 
there  is  no  reason  why  an  intelligent  motorman  should  not  run  one 
of  these  cars. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       741 

As  I  have  just  stated,  one  of  our  conclusions  is  that  when  inagu- 
rating  one-man-car  service  it  is  good  policy  to  assure  the  trainmen 
that  no  man  will  lose  his  job  on  account  of  the  new  cars. 

Mr.  WARREN.  That  is  to  head  off  their  opposition? 

Mr.  KELLOGG.  That  is  to  head  off  opposition ;  and  it  is  a  perfectly 
feasible  thing  to  do. 

The  other  conclusions  I  have  here  have  already  been  covered 
more  or  less  in  my  testimony.  We  point  out  the  fact  that  the  sav- 
ing which  can  be  obtained  from  Birney  cars  depends  very  largely  on 
the  traffic  existing  at  the  time  and  that  a  very  small  community  can 
save  only  a  certain  amount  of  operating  expense;  a  very  dense  line 
can  probably  save  very  little  if  anything.  So  that  the  zone  of  great- 
est usefulness  is  where  increased  riding  can  be  obtained  from  increas- 
ing the  frequency. 

Another  point  which  has  been  brought  out  in  the  discussion — 
this  is  really  recapitulating — is  the  fact  that  where  traffic  is  too 
heavy  over  the  peak  field  for  the  Birney  cars,  naturally  the  old 
heavy  cars  can  be  used  at  that  time.  Of  course,  that  is  a  very 
mixed  blessing,  because  it  requires  having  two  extra  trainmen  avail- 
able for  that  service,  to  whom  you  have  to  pay  the  minimum  wage 
for  waiting  around  all  day,  and  it  also  means  maintaining  the 
heavier  car;  so  as  such  it  is  rather  a  disadvantage  than  an  advantage. 

Mr.  WARREN.  That  minimum  wage  is  running  now  at  what  num- 
ber of  hours,  do  you  know,  generally,  Mr.  Kellogg? 

Mr.  Kellogg.  1  think  the  practice  varies  a  good  deal  on  that. 

Mr.  WARREN.  It  is  increasing? 

Mr.  KELLOGG.  But  I  have  in  mind  it  is  at  least  eight  hours  and 
in  some  cases  nine.  I  think  it  is  at  least  eight  hours  a  man  is 
guaranteed,  so  if  he  can  not  be  used  eight  hours  you  are  simply 
wasting  that  much  money. 

Commissioner  GADSDEN.  There  would  not  be  any  saving  in  that 
feature. 

Mr.  KELLOGG.  No;  that  would  be  rather  an  adverse  feature.  An- 
other adverse  feature,  as  Mr.  Warren's  question  pointed  out,  wTould 
be  in  case  of  heavy  snow  storms,  where  the  light  car  could  not  get 
by  as  well  as  the  heavy  one.  It  might  be  necessary  to  have  spare 
heavy  equipment  for  that  purpose. 

The  committee  felt  that  standardization  was  quite  desirable.  So 
far,  these  Birney  cars  have  been  built  all  of  a  pattern  almost  en- 
tirely, and  it  is  rather  hoped  that  that  may  lead  to  somewhat  lower 
construction  costs  if  these  cars  can  be  gotten  put  in  very  large 
numbers  from  the  same  pattern  on  the  general  principle  of  quantity 
production. 

Mr.  WARREN.  On  the  whole,  your  feeling  is  that  the  car  promises 
considerable  help  within  a  certain  range  where  it  is  adopted  to  use; 
is  it  not  ? 

Mr.  KKLLOGG.  Within  a  certain  range  the  results  which  have  been 
obtained  are  remarkable. 

Mr.  WARREN.  I  suppose,  on  the  other  hand,  that  the  car  is  so  new 
that  the  answers  to  these  questions  are  all  more  or  less  tentative — 
that  is.  no  company  has,  for  instance,  used  them  long  enough  to 
know  what  the  life  of  the  car  will  be  or  what  its  maintenance  will  be. 

Mr.  KKLLOCG.  That  is  true.     What  I  said  about  maintenance  ex- 


742       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

presses  the  belief  of  managers  who  reported  on  that  point.  The 
same  thing  was  true  of  track  maintenance;  it  was  simply  an  expres- 
sion of  opinion. 

Mr.  WARREN.  I  suppose  the  latter  would  be  based  on  the  theory 
that  a  lighter  vehicle  ought  to  use  up  the  track  much  more  slowly 
than  a  heavier  vehicle  would. 

Mr.  KELLOGG.  Yes. 

Mr.  WARREN.  I  think  our  own  experience  would  demonstrate  that, 
when  we  used  to  run  lighter  cars. 

Mr.  KELLOGG.  Yes. 

Mr.  WARREN.  I  think  that  is  all  I  have  to  ask,  Mr.  Chairman. 

Commissioner  MEEKER.  Do  the  passengers  like  this  higher  accelera- 
tion of  the  Birney  car  or  do  they  object  to  it? 

Mr.  KELLOGG.  Do  the  passengers  object  to  it? 

Commissioner  MEEKER.  Yes. 

Mr.  KELLOGG.  No ;  so  far  as  I  know,  they  dp  not. 

Commissioner  MEEKER.  Does  it  mean  starting  so  suddenly  that  it 
gives  a  perceptible  jerk? 

Mr.  KELLOGG.  No;  the  jerk  would  have  no  particular  effect  on  ac- 
celeration. Acceleration  is  the  actual  gain  in  speed  in  miles  per 
hour  for  each  second  of  time,  which  is  a  perfectly  gradual  process 
right  through  from  rest  to  full  speed. 

Commissioner  MEEKER.  There  is  not  any  greater  jerk  in  the  actual 
starting  of  the  Birney  car  as  compared  with  the  heavier  car? 

Mr.  KELLOGG.  No,  sir. 

Commissioner  MEEKER.  The  same  is  true  of  stopping,  of  course? 

Mr.  KELLOGG.  The  same  would  be  true  of  stopping.  Of  course,  on 
stopping  any  car  the  matter  of  standing  people  up  on  their  ears  is 
a  pure  question  of  the  motorman.  With  a  car  equipped  with  air 
brakes,  careless  braking  is  always  possible  regardless  of  the  weight 
of  the  car ;  but  the  acceleration  is  entirely  a  matter  of  the  weight  of 
the  car  and  the  capacity  of  its  motors,  friction  loss,  and  so  forth. 

Commissioner  MEEKER.  There  is  no  greater  possibility  of  standing 
the  passengers  on  their  ears  in  stopping  with  the  Birney  car  than 
with  the  old-fashioned  car? 

Mr.  KELLOGG.  I  should  say  not ;  no. 

Commissioner  SWEET.  Is  the  motor  lighter  on  these  cars  than  on 
the  heavier  cars  ? 

Mr.  KELLOGG.  Yes. 

Commissioner  SWEET.  Is  it  in  proportion  to  the  weight  of  the  car  ? 

Mr.  KELLOGG.  In  proportion  to  the  weight  of  the  car.  The  wheels 
are  lighter,  the  trucks  are  lighter,  the  axles  are  lighter.  Weight  has 
been  saved  in  every  part  of  the  car. 

Commissioner  SWEET.  It  is  a  single  truck,  I  understand  ? 

Mr.  KELLOGG.  Single  track;  yes. 

Commissioner  SWEET.  Do  the  cars  ride  as  easily  as  the  others  ?  Is 
there  any  difference  in  that  respect? 

Mr.  KELLOGG.  They  ride  as  easily  as  any  single  truck. 

Commissioner  SWEET.  Well,  not  as  easily  as  a  double-truck  car? 

Mr.  KELLOGG.  Probably  not,  although  their  lightness  makes  them 
ride  a  little  bit  easier. 

Commissioner  SWEET.  A  little  easier? 

Mr.  KELLOGG.  I  think  it  does;  yes. 

Commissioner  SWEET.  That  is  not  true  of  automobiles,  is  it? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       743 

Mr.  KELLOGG.  No. 

Commissioner  SWEET.  The  heavier  automobiles  ride  easier,  do  they 
not? 

Mr.  KELLOGG.  I  think  they  do;  yes,  the  ones  I  have  ridden  in. 

Commissioner  SWEET.  Why  is  not  that  true  of  cars? 

Mr.  KELLOGG.  Well,  the  case — you  are  talking  now  about  single- 
truck  cars,  of  course? 

Commissioner  SWEET.  I  am  comparing  the  single-truck  car  of  the 
Birney  type  with  a  double-truck  car. 

Mr.  KELLOGG.  Well,  of  course,  no  single-truck  car  will  ride  as 
smoothly  as  the  double-truck  car. ' 

Commissioner  SWEET.  That  is  what  I  had  in  mind. 

Mr.  KELLOGG.  I  misunderstood  your  question. 

Commissioner  SWEET.  So  there  might  be  objection  from  the  pas- 
sengers ? 

Mr.  KELLOGG.  Yes ;  that  is  one  of  the  causes  of  the  battleship  type 
in  the  old  days. 

Mr.  WAKREX.  The  public  used  to  object  to  the  double-truck  cars, 
as  I  remember  it. 

Mr.  KELLOGG.  Yes. 

Mr.  WARREN.  Is  this  a  longer  wheel  base? 

Mr.  KELLOGG.  It  is  an  8-foot  wheel  base.  It  is  rather  longer  for 
the  weight  of  the  car.  I  think  the  car  rides  rather  more  easily  than 
the  average  car  for  that  reason. 

Commissioner  SWEET.  What  is  the  method  of  payment  of  fare  in 
these  cars? 

Mr.  KELLOGG.  As  a  rule  a  recording  fare-box  is  used,  but  that  is  not 
universal. 

Commissioner  SWEET.  That  is  in  the  front  end  of  the  car? 

Mr!  KELLOGG.  Yes ;  the  entrance  and  exit  are  both  at  the  front  end. 

Commissioner  SWEET.  Is  it  necessary  at  the  end  of  the  route  to 
turn  these  cars  around? 

Mr.  KELLOGG.  That  depends  on  track  conditions.  Some  companies 
have  a  Y  and  use  a  single-end  car.  Others  prefer  a  double-end 
operation  or  are  obliged  to  use  it  and  have  double-end  cars.  That  is 
more  a  matter  of  track  arrangement  than  car  arrangement. 

Commissioner  SWEET.  In  that  case  only  the  front  door  would  be 
accessible  to  passengers? 

Mr.  KELLOGG.  Well,  in  the  case  of  the  double-end  car,  there  would 
be  an  exit  and  entrance  from  either  end. 

Commissioner  SWEET.  From  either  end. 

Air.  KELLOGG.  Yes ;  and  as  a  matter  of  fact  the  single-end  cars  as  a 
rule  have  a  safety  door  at  the  rear  so  the  passengers  can  get  out  that 
way.  But  single-end  and  double-end  operation  are  n  question  of 
track  in  almost  all  companies — that  is  as  to  whether  the  car  goes 
around  a  loop  or  a  Y  at  the  end  of  the  line  or  turns  the  trolley  and 
goes  back. 

Commissioner  SWEET.  In  the  one-man  car  is  the  motorman  the  one 
who  keeps  track  of  the  payment  of  fares  by  passengers? 

Mr.  KELLOGG.  He  is  sometimes  called  the  motorman-conductor. 
He  is  a  combination  of  motorman  and  conductor. 

Commissioner  SWEET.  Is  he  supposed  to  see  whether  they  put  their 
fare  in  the  box? 


744       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  KELLOGG.  Yes,  sir.  While  the  car  is  standing  still  he  has 
nothing  else  to  do,  and  it  is  proper  that  he  should  be  watching  the 
passengers,  because  he  can  not  start  the  car  until  the  door  is  closed. 

Commissioner  BEALL.  On  the  Birney  car  you  only  use  the  front 
door,  do  you  not?  You  do  not  let  passengers  get  on  and  off  from 
the  rear  door  except  in  case  of  accident? 

Mr.  KELLOGG.  No. 

Commissioner  BEALL.  I  do  not  think  Mr.  Sweet  quite  caught  that. 

Mr.  WARREN.  They  all  have  to  pass  the  motorman  as  they  get  on. 

Mr.  KELLOGG.  They  all  have  to  pass  the  motorman  as  they  get  on ; 
yes. 

Mr.  WARREX.  Mr.  Sweet  asked  one  question  about  the  ease  of  the 
car.  Does  this  car  have  any  overhanging  platforms  ? 

Mr.  KELLOGG.  Overhanging  in  what  respect? 

Mr.  WARREN.  I  mean  like  the  ordinary  car,  does  it  have  a  platform 
at  each  end  which  extends  the  length  of  the  car  and  tends  to  give  it  a 
teetering  motion? 

Mr.  KELLOGG.  It  has  proportionately  as  much  platform  as  other 
single-truck  cars;  yes. 

Mr.  WARREN.  I  suppose  the  single-truck  car  requires  a  track  in 
better  condition  for  the  same  amount  of  riding  than  a  double-truck 
car  does ;  does  it  not  ? 

Mr.  KELLOGG.  It  does.  But  it  is  a  fact  that  the  trucks  of  the 
Birney  cars  are  designed  to  ride  rather  better  than  the  normal  single- 
truck  cars. 

Commissioner  SWEET.  How  does  the  Birney  car' compare  with  the 
heavier  double-truck  car  in  the  wearing  out  of  the  track  ? 

Mr.  KELLOGG.  Well,  assuming  that  the  wear  and  tear  on  track  is 
largely  a  matter  of  tonnage,  it  would  be  less.  How  much  less  is 
unknown. 

Commissioner  SWEET.  That  would  be  partly  offset  by  the  greater 
speed  of  the  Birney  car.  Would  it  not,  or  would  it  ? 

Mr.  KELLOGG.  The  difference  is  rather  too  slight,  I  think,  to  make 
very  much  difference,  because  the  running  speed  and  the  full  speed 
attained  is  practically  the  same  in  the  other  cars.  The  question  is  in 
the  acceleration  in  starting  and  stopping. 

Commissioner  SWEET.  I  notice  you  do  not  seem  to  make  any  dif- 
ference in  your  recommendations  there  with  regard  to  climate. 
Don't  you  think  that  the  Birney  car  is  better  adapted  to  the  cities 
in  the  southern  part  of  the  United  States  rather  than  the  extreme 
north  ? 

Mr.  KELLOGG.  There  is  no  question  about  that;  that  is  perfectly 
true. 

Commissioner  SWEET.  Or  cities  like  Seattle,  which,  although  in 
the  north,  do  not  have  a  great  deal  of  snow. 

Mr.  KELLOGG.  Yes;  that  is  perfectly  true. 

Commissioner  SWEET.  Before  a  real  test  can  be  made  of  these  cars, 
don't  you  think  that  a  great  deal  more  time  must  elapse  so  that  the 
public  taste  with  regard  to  the  matter  may  be  better  determined? 

Mr.  KELLOGG.  That  is  perfectly  true.    It  is  a  new  thing. 

Commissioner  SWEET.  So  that  it  would  be  stretching  the  point 
somewhat,  do  you  not  think,  for  the  commission  to  make  any  particu- 
lar recommendation  with  ref ard  to  these  cars  2 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       745 

Mr.  KELLOGG.  Oh,  I  think  for  the  commission  to  hang  anything 
definite  on  as  relatively  new  a  proposition  as  this,  especially  with 
its  limited  application,  would  be  very  dangerous. 

Commissioner  SWEET.  About  the  furthest  the  commission  could 
possibly  go,  it  seems  to  me  now,  would  be  to  suggest  the  possibility 
that,  with  the  incentive  that  there  is  at  the  present  time  and  perhaps 
that  there  has  been  during  the  war  more  than  in  ordinary  times, 
economical  improvements  such  as  this  might  be  introduced  through 
the  street-railway  services  of  the  future  that  would  cut  considerable 
figure  ? 

Mi:  KELLOGG.  Yes. 

Commissioner  SWEET.  Which  is  true,  is  it  not? 

Mr.  KELLOGG.  It  is  true.  And  the  company  is  studying  these  things 
all  the  time.  The  work  of  this  committee,  for  example,  has  been 
along  the  lines  the  association  has  been  studying  year  in  and  year 
out. 

Commissioner  SWEET.  What  is  that  committee  ?  Describe  it  a  little 
more  fully. 

Mr.  KELLOGG.  The  committee  I  have  reference  to  is  on  one-man 
operation.  The  American  Electric  Railway  Association  is  the  parent 
association,  called  the  American  Electric  Railway  Association,  and 
then  there  are  two  affiliated  organizations  which  are  really  part  of 
the  main  organization.  One  of  them  is  the  American  Electric  Rail- 
way Transportation  &  Traffic  Association,  and  this  committee  of 
which  I  am  chairman  is  one  of  four  committees  which  have  been 
appointed  this  year — that  is,  the  year  which  will  end  in  October  at 
the  convention — to  study  various  features  and  report  on  them  to  the 
convention.  And  these  committees  during  the  year  either  send  out 
questionnaires  or  study  the  matter  in  any  way  they  can,  the  idea 
being  that  at  all  times  there  are  various  matters  in  process  of  study 
on  the  part. of  the  industry,  and  one  of  the  main  functions  of  the 
American  Electric  Railway  Association  is  to  study  these  things  at 
all  times.  That  is  what  it  was  organized  for. 

Commissioner  SWEET.  And  give  all  the  members  of  it  the  benefit  of 
the  accumulated  knowledge  that  can  be  brought  together  by  these 
committees  when  they  make  their  reports? 

Mr.  KELLOGG.  Yes. 

Commissioner  SWEET.  Which,  of  course,  is  a  very  good  system. 

Mr.  KELLOGG.  That  is  what  the  association  was  organized  for  many 
years  ago. 

Commissioner  SWEET.  In  small  communities,  and  as  a  means  of 
going  from  one  rather  small  community  to  another  not  very  far 
away,  that  kind  of  a  car  would  seem  to  be  exceedingly  useful,  Avould 
it  not? 

Mr.  KELLOGG.  Do  you  i.iean  a  small  interurban? 

Commissioner  SWEET.  Well,  you  might  call  it  interurban,  or  I  think 
it  has  been  spoken  of  as  a  shuttle.  Suppose  there  were  two  villages 
or  small  communities,  neither  one  of  which  would  be  able  to  support 
a  street-car  system,  and  yet  with  a  certain  amount  of  business  between 
them. 

Mr.  KELLOGO.  Yes. 

Commissioner  SWEET.  If  there  was  enough  interchange  there  to 
justify  it — that  is  imaginable — a  car  of  this  kind  would  come  into 
160643°— 20 48 


746       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

play  a  great  deal  quicker  than  the  heavier  double-truck  car  with  two 
men? 

Mr.  KELLOGG.  No  doubt  about  it. 

Commissioner  SWEET.  One  operated  so  cheaply.  It  might  be  serv- 
iceable between  such  places  where  they  could  not  begin  to  afford  one 
of  the  heavier  cars  with  two  men  operating  it. 

Mr.  KELLOGG.  Yes;  that  is  true. 

Commissioner  BEALL,  You  can  not  run  any  single  truck  at  the 
average  interurban  speed,  not  even  with  the  old  type,  can  you  ? 

Mr.  KELLOGG.  Not  with  the  average  interurban  speed.  Of  course 
there  are  interurbans  and  interurbans. 

Commissioner  BEALL.  But  if  you  are  going  to  give  your  pas- 
sengers rides  with  a  good  speed  you  can  not  do  it.  Have  you  ever 
ridden  on  them  ? 

Mr.  KELLOGG.  Yes, 

Commissioner  BEALL.  It  depends  on  the  speed,  and  I  do  not  care 
how  good  your  track  is  either. 

Mr.  KELLOGG.  Well,  there  are  lines  where,  as  Mr.  Sweet  says,  two 
communities  are  not  very  far  apart 

Commissioner  BEALL.  Yes,  if  they  are  close  enough — but  not  a 
real  interurban. 

Mr.  KELLOGG,  No, 

Commissioner  SWEET.  I  did  not  have  in  mind  what  you  call  a 
regular  interurban. 

Mr.  KELLOGG.  An  interurban  generally  means  a  pretty  high-class 
road  with  a  private  right  of  way,  good  track,  well  ballasted,  and 
high-speed  cars,  very  different  from  city  service. 

Commissioner  SWEET.  Take  a  city  like  Washington,  where  about 
4  or  half  past  4  in  the  afternoon  when  the  department  clerks  want  to 
go  home,  there  is  a  great  congestion ;  that  you  would  call  the  peak  ? 

Mr.  KELLOGG.  Yes. 

Commissioner  SWEET.  And,  I  should  imagine,  a  pretty  big  peak, 
would  it  not  be? 

Mr.  KELLOGG.  Yes. 

Commissioner  SWEET.  In  this  city  the  peak  would  perhaps  be 
larger  than  in  many  other  cities. 

Mr.  KELLOGG.  On  account  of  the  large  number  of  employees  off  at 
the  same  time. 

Commissioner  SWEET.  Yes. 

Mr.  KELLOGG.  Yes ;  I  should  think  so. 

Commissioner  SWEET.  With  your  regular  equipment  of  heavy  cars, 
if  you  wanted  to  take  care  of  that  peak,  why  could  not  you  treat  this 
single  man  as  an  assistant,  an  aid  in  carrying  the  load  during  that 
peak  ? 

Mr.  KELLOGG.  For  tripper  service,  you  could. 

Commissioner  SWEET.  And  if  there  were  very  slack  hours  of  the 
day,  we  will  say  from  9  o'clock  to  12  or  1  in  the  morning,  there  are 
periods  when  it  is  necessary  to  run  some  cars  but  when  the  travel 
is  comparatively  light.  Why  would  not  a  car  of  that  kind  answer 
the  purpose  and  save  in  various  ways  in  operation  and  in  the  various 
wnys  you  have  pointed  out? 

Mr,  KFLLOGG.  It  would.  Of  course,  it  all  depends  on  each  indi- 
vidual line.  You  can  not  make  a  general  rule.  You  would  have 
to  take  each  line  and  analyze  it.  If  they  were  planning  to  install 


PROCEEDINGS  OF  FED&BAI,  ELECTRIC  RAILWAYS  COMMISSION,       747 

these  Birney  cars  here  in  Washington  they  would  want  to  analyze 
each  of  their  lines  and  take  each  line  on  its  merits  and  see  if  that  line 
was  apparently  one  where  those  cars  would  work  out.  They  would 
probably  get  some  one  who  had  operated  them  and  get  his  advice  on 
it,  or  else  take  a  line  where  from  all  the  information  they  could  get 
it  appeared  they  could  make  a  saving  and  just  get  the  cars  and  try 
them.  That  is  really  the  way  the  thing  has  developed  all  over  the 
country,  just  by  trial. 

Commissioner  SWEET.  That  is  all. 

The  CHAIRMAN.  If  I  understand  your  testimony  correctly,  the 
principal  object  of  the  one-man  car  is  to  save. 

Mr.  KELLOGG.  No;  that  was  not  what  I  said. 

The  CHAIKMAN.  Well,  let  us  see.  By  the  use  of  the  one-man  car 
you  will  save  capital,  will  you  not,  because  it  costs  less  to  buy  a 
one-man  car  than  it  does  a  large  standard  car? 

Mr.  KELLOGG..  If  it  replaces  a  car  you  already  have,  of  course  it 
means  more  capital. 

The  CHAIRMAN.  You  also  save  in  power  used  to  propel  that  carl 

Mr.  KELLOGG.  Yes. 

The  CHAIRMAN.  And  you  save  in  wages  for  employees? 

Mr.  KELLOGG.  Yes. 

The  CHAIRMAN.  And  you  save  in  the  maintenance  of  the  car? 

Mr.  KELLOGG.  Yes;  the  amount  unknown. 

The  CHAIRMAN.  And  possibly  maintenance  of  3Tour  track? 

Mr.  KELLOGG.  Yes. 

The  CHAIRMAN.  You  also  save  in  fixed  charges  upon  the  capital 
employed  ? 

Mr.  KELLOGG.  Well,  there  again  the  saving  is  problematical,  if  you 
replace  existing  cars  that  are  in  perfectly  good  condition  with  other 
cars.  If  you  will  pardon  the  suggestion,  the  investuiient  feature  of 
Birney  cars  is  a  burden  and  not  a  benefit.  In  other  words,  the  Birney 
car  has  got  by  its  economy  to  offset  additional  investment.  It  is  not 
really  a  saving.  The  investment  feature  is  a  negative  feature. 

The  CHAIRMAN.  Might  there  not  also  be  a  saving  in  the  amount  of 
depreciation  which  you  find  it  necessary  to  set  aside? 

Mr.  KELLOGG.  As  to  that,  experience  has  not  been  quite  long 
enough  to  be  certain.  Of  course,  these  cars  are  a  good  deal  lighter, 
and  some  people  think  there  is  more  depreciation  on  them,  just  like 
there  is  more  on  a  Ford  than  there  is  on  a  Packard.  But  it  is  simply 
something  we  have  not  got  the  experience  on. 

Commissioner  MEEKER.  And  the  Ford  never  wears  out,  while  the 
Pnckard  does. 

Mr.  KELLOGG.  Well,  that  is  what  the  protagonist  for  the  one-man 
car  would  say. 

The  CHAIRMAN.  The  advantages  come,  as  I  understand,  from  your 
being  able  to  start  and  stop  more  quickly? 

Mr.  KELLOGG.  Yes;  we  class  tin?  greatest  advantage  as  improved 
service. 

The  CHAIRMAN.  And  greater  speed  between  points.  Those  are 
your  principal  advantages? 

Mr.  KELLOGO.  Yes. 

The  CHAIRMAN.  Now,  summarizing  the  savings  as  well  as  the  ad- 
vantages, is  not  the  whole  matter  of  peculiar  benefit  to  the  com- 
pany ? 


748       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  KELLOGG.  I  think  three  people  benefit  from  it,  if  you  will 
pardon  the  suggestion.  I  think  the  public  get  a  great  deal  better 
service  where  that  is  feasible  under  the  conditions 

The  CHAIRMAN.  We  will  take  up  the  service  next;  but  is  it  not 
a  peculiar  benefit  to  the  company? 

Mr.  KELLOGG.  By  "peculiar"  do  you  mean  eliminating  others? 

The  CHAIRMAN.  I  am  not  eliminating  anything.  I  am  asking 
you  that  direct  question,  and  you  can  answer  it. 

Mr.  KELLOGG.  It  is  of  benefit  to  the  company. 

The  CHAIRMAN.  That  is  what  I  thought.  Now  is  it  not  also 
true — 

Mr.  KELLOGG.  I  was  not  trying  to  quibble,  but  I  wanted  to  raise 
the  point  that  the  company  was  not  the  only  beneficiary. 

The  CHAIRMAN.  I  am  not  trying  to  get  you  in  a  trap. 

Mr.  KELLOGG.  Yes. 

The  CHAIRMAN.  Is  it  not  also  true  that  your  ability  to  use  this 
equipment  more  readily  than  the  heavier  equipment,  and  perhaps 
the  greater  saving  to  the  company,  will  be  the  real  benefit  to  the 
public  ? 

Mr.  KELLOGG.  Yes;  it  will. 

The  CHAIRMAN.  In  that  you  can  give  them  better  and  perhaps 
more  prompt  service? 

Mr.  KELLOGG.  Yes. 

The  CHAIRMAN.  That  being  so,  why  is  it  not  a  very  good  thing 
to  advocate  the  use  of  the  one-man  car  just  as  much  as  possible? 

Mr.  KELLOGG.  I  think  it  is  a  good  thing. 

The  CHAIRMAN.  If  it  is  a  good  thing  for  the  companies  as  well 
as  for  the  public 

Mr.  KELLOGG.  And  for  the  trainmen. 

The  CHAIRMAN.  And  for  the  trainmen — why  should  it  not  be  a 
good  thing  for  this  commission  to  advocate  the  use  of  such  a  car  ? 

Mr.  KELLOGG.  I  think  they  should  advocate  it  wherever  it  can  be 
used  to  advantage. 

The  CHAIRMAN.  How  many  companies  are  there  that  manufacture 
equipment,  cars? 

Mr.  KELLOGG.  I  only  know  of  two.  There  may  be  more.  There 
is  the  J.  G.  Brill  Co.  in  Philadelphia  and  the  St.  Louis  Car  Co.  of 
St.  Louis.  Mr.  Beck  is  here.  Is  that  right,  Mr.  Beck,  or  are  there 
more  ? 

The  CHAIRMAN.  Are  those  two  separate  companies? 
.  Mr.  KELLOGG.  They  are  two  separate  companies.     Are  there  more 
than  that?     The  Brill  Co.  and  the  St.  Louis  Car  Co. 

Mr.  BECK.  Those  are  the  two  principal  companies,  although  others 
are  in  the  business. 

Commissioner  BEALL.  The  Pullman  Co.  still  makes  cars,  although 
I  do  not  know  but  that  during  the  Avar  they  stopped  making  them. 

The  CHAIRMAN.  So  there  are  three  companies  then  that  manu- 
facture street  cars? 

Mr.  KELLOGG.  The  only  ones  I  know  of  are  the  ones  I  mentioned. 

Commissioner  BEALL.  Who  swallowed  up  the  Kuhlman  Co.? 

Mr.  KELLOGG.  I  think  the  Brill  Co.  took  them  over. 

Commissioner  BEALL.  Did  the  Brill  Co.  take  them  over? 

Mr.  KELLOGG.  I  think  they  did.     I  am  not  sure  of  that. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       74  & 

The  CHAIRMAN.  Is  there  any  relation  existing  between  those  com- 
panies by  stock  ownership  or  directorship  or  anything  else? 

Mr.  KELLOGG.  None  that  I  know  of. 

The  CHAIRMAN.  Which  company  manufactures  the  Birney  car? 

Mr.  KELLOGG.  They  both  manufacture  it.    It  is  not  patented. 

The  CHAIRMAN.  It  is  not  patented? 

Mr.  KELLOGG.  No;  nothing  about  it  patented. 

The  CHAIRMAN.  That  is  very  singular. 

Mr.  KELLOGG.  It  was  given  to  the  world  by  the  inventor. 

Commissioner  GADSDEN.  Does  not  the  Cincinnati  Car  Co.  make- 
cars  ? 

Mr.  KELLOGG.  Maybe  they  do. 

Commissioner  GADSDEN.  I  know  they  do. 

The  CHAIRMAN.  Is  the  Cincinnati  company  a  subsidiary  of  any 
of  the  other  companies  you  mentioned? 

Mr.  KELLOGG.  Not  that  I  know  of,  but  I  really  could  not  testify 
anything  about  that  definitely.  I  say  negatively  that  I  do  not  think 
they  are. 

The  CHAIRMAN.  If  it  could  be  proved  advantageous  to  generally 
use  the  Birney  car,  would  it  not  mean  a  replacement  of  a  lot  of 
equipment  now  in  service? 

Mr.  KELLOGG.  To  such  an  extent  as  they  could  be  used  to  improve 
the  situation,  I  should  say  yes. 

The  CHAIRMAN.  Are  any  of  the  companies  you  know  of  in  posi- 
tion now  to  buy  these  new  cars  and  use  them  for  equipment  which 
they  now  have  which  is  serviceable? 

Mr.  KELLOGG.  Do  vou  mean  are  they  financially  able? 

The  CHAIRMAN.  Y*es. 

Mr.  KELLOGG.  Well,  I  dare  say  a  number  of  companies  might  be. 
I  do  not  happen  to  know  enough  about  things  to  know  directly. 
Most  street-car  companies  are  nearly  broke  now. 

The  CHAIRMAN.  Is  it  not  true  that  these  replacements  must  be 
very  gradual,  if  at  all,  on  account  of  the  financial  condition  of  the 
companies  ? 

Mr.  KELLOGG.  Yes;  and  even  if  they  had  the  money,  they  would 
have  to  go  at  it  gently,  one  line  at  a  time. 

The  CHAIRMAN.  Then  the  one-man  car  is  not  an  expedient  that 
can  remedy  the  present  situation? 

Mr.  KELLOGG.  No.  As  I  said  this  afternoon,  it  is  not  a  panacea; 
it  is  not  something  that  you  simply  fill  in  a  blank  check  and  say  that 
is  all  there  is  to  it.  It  is  a  great  help  in  some  cases. 

The  CHAIRMAN.  Why  is  the  Amalgamated  Association  opposed  to 
the  one-man  car? 

Mr.  KELLOGG.  You  are  asking  me  to  read  the  mind  of  that  gen- 
tleman. I  can  not  do  it. 

Commissioner  BEALL.  What  is  his  argument?  You  say  he  ob- 
jects to  it.  You  say  you  have  read  his  objection.  What  does  he  say, 
ostensibly  ? 

Mr.  KELLOGG.  Ostensibly,  he  says  the  car  is  not  safe ;  it  is  put  out 
by  the  companies  simply  to  save  money;  the  trainmen  do  not  like 
it;  they  get  more  work  out  of  the  men,  and  it  is  just  a  device  to  cut 
out  labor  and  deprive  men  of  their  jcbs — the  usual  talk  that  emanates 
from  that  source. 


750       PROCEEDINGS  Otf  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  CHAIRMAN.  The  questionnaires  that  you  sent  out  covered  that 
question  pretty  thoroughly,  didn't  they? 

Mr.  KELLOGG.  Not  very  fully.  We  did  not  think  it  was  worth 
while  asking  questions  about  it  except  as  to  how  the  trainmen  felt ; 
and  those  answers  I  gave. 

The  CHAIRMAN.  Has  there  been  a  real  protest  by  the  employees  of 
the  companies  where  the  one-man  car  is  in  use? 

Mr.  KELLOGG.  There  have  been  about  10  per  cent  of  the  cases  so 
reported. 

The  CHAIRMAN.  Did  those  protests  result  in  any  strike? 

Mr.  KELLOGG.  Not  that  I  know  of.    I  think  not. 

The  CHAIRMAN.  Do  you  believe  that  the  use  of  the  one-man  ear 
could  be  so  arranged  as  to  take  care  of  the  present  labor  without  any 
grievance  ? 

Mr.  KELLOGG.  Absolutely.    That  is  my  opinion. 

The  CHAIRMAN.  That  being  so,  why  should  the  Amalgamated  As- 
sociation or  the  unions  object  to  it? 

Mr.  KELLOGG.  The  only  reason  I  can  think  of  is  a  general  desire 
to  oppose  anything  which  seems  to  take  a  man  out  of  a  job.  That 
is  to  say,  I  think  they  oppose  labor-saving  devices  on  general  prin- 
ciples, their  purpose  being  to  keep  labor  employed. 

The  CHAIRMAN.  From  the  experience  you  have  had  and  the  study 
you  and  your  committee  have  made,  do  you  believe  that  the  one-man 
car  will  give  satisfactory  public  service? 

Mr.  KELLOGG.  Wherever  conditions  of  traffic  are  right,  I  do. 

The  CHAIRMAN.  Is  it  necessary  to  have  a  better  roadbed  in  order 
to  give  good  service  with  the  one-man  car? 

Mr.  KELLOGG.  Compared  to  former  single-truck  cars,  do  you  mean, 
or  former  double-truck  cars?  Of  course  it  depends. 

The  CHAIRMAN.  Single-truck. 

Mr.  KELLOGG.  I  do  not  think  any  single-truck  car  can  ride  quite  as 
smoothly  as  a  double-truck  car.  To  answer  that  question  we  would 
necessarily  have  to  presuppose  former  conditions,  which  vary  a  good 
deal. 

The  CHAIRMAN.  Well,  I  can  see  that  if  we  wanted  to  pursue  that 
inquiry  it  would  consume  considerable  time ;  so  we  will  not  pursue  it. 

Mr.  KELLOGG'.  I  am  not  trying  to  dodge  it,  but  I  mean  to  answer 
it  categorically  you  would  have  to  know  what  the  conditions  were 
before. 

The  CHAIRMAN.  That  is  all. 

(Witness  excused.) 

STATEMENT  OF  MR.  FRANK  J.  SPRAGTJE. 

Mr.  WARREN.  Your  full  name  is? 

Mr.  SPRAGUE.  Frank  J.  Sprague. 

Mr.  WARREN.  You  are  a  graduate  of  the  Naval  Academy? 

Mr.  RPR  AGUE.  Yes,  sir. 

Mr.  WARREN.  You  are  a  member  of  the  Naval  Advisory  Board,  or 
were  during  the  war? 

Mr.  SPRAGUE.  Yes,  sir. 

Mr.  WARREN.  I  think  you  were  formerly  associated  with  Thomas 
A.  Edison? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       751 

Mr.  SPRAGUE.  For  a  short  time. 

Mr,  WARREX.  And  you  organized,  did  you  not,  and  operated,  the 
first  commercially  successful  electric  railway  in  this  country,  in 
Richmond? 

Mr.  SPRAGUE.  I  equipped  it.    I  did  not  operate  it. 

Mr.  WARREX.  You  equipped  it? 

Mr.  SPRAGUE.  Yes. 

Mr.  WARREX.  That  was  in  1888,  was  it  not? 

Mr.  SPRAGUE.  In  1888. 

Mr.  WARREX.  You  also  developed  the  multiple  control 

Mr.  SPRAGUE.  The  multiple-unit  control  for  train  operation,  yes. 

Mr.  WARREX.  Which  made  it  possible  to  operate  cars  in  trains 
instead  of  single  units  ? 

Mr.  SPRAGUE.  It  is  the  basis  of  operation  of  all  subway  and 
elevated-train  operations, 

Mr.  WARREX.  You  really  were  at  the  very  beginning  of  the 
electric  railway  in  this  country,  were  you  not? 

Mr.  SPRAGUE.  I  suppose  I  might  be  called  the  midwife  of  those 
certain  interests. 

Mr.  WARREX.  Would  you  mind  telling  this  commission,  because 
they  are  studying  that,  what  you  experienced  and  discovered  as  a 
midwife  to  this  industry  and  whether  you  feel  satisfied  with  the 
child,  now  that  it  has  grown  up. 

Mr.  SPRAGUE.  Well,  really,  Mr,  Chairman,  I  do  not  quite  know 
why  I  am  here,  unless  it  is  to  carry  out  a  practice  that  is  often- 
times common.  I  am  reminded  of  an  institution  which  was  rather 
famous  in  London  and  had  its  replica  in  New  York,  known  as  Mrs. 
Jarley's  Wax  Works:  and  in  Xew  York  it  was  the  Eden  Musee. 
All  tourists  were  invited  to  these  places  to  see  what  people  looked 
like  who  had  been  identified  with  either  politics  or  crime  or  scandal 
or  literature. 

I  am  not  directly  interested  at  present  in  electric  railways.  My 
work  for  a  number  of  years  was  in  development,  in  promoting  and 
equipment,  either  directly  or  through  my  agents.  I  built  the  first 
modern  road  in  this  country  and  in  Italy  and  in  Germany.  And 
if  you  are  interested  at  all  in  the  history  of  it,  I,  of  course,  can  give 
you  some  information  on  that  subject. 

The  CHAIRMAN-.  I  do  not  think  we  should  forego  the  privilege  of 
hearing  from  the  midwife. 

Mr.  SPRAGUE.  Well,  it  may  have  a  bearing  upon  the  principle  that 
I  think  ought  to  be  observed  in  the  relation  between  communities 
and  electric  railways. 

There  is  an  impression  that  when  an  individual  or  a  group  get  a 
franchise  they  are  immediately  embarked  on  a  sure  thing  toward  a 
very  happy  return.  But  my  impression  is  that  it  is  very  much 
like  getting  a  patent  out  of  the  United  States  Patent  Office;  it  is 
an  invitation  to  a  costh'  contest.  Oftentimes  they  sink  capital  in  the 
hope  of  some  ultimate  reward. 

I  am  not  interested  in  any  electric-railway  securities.  I  do  not 
own  a  bond  and  have  not  a  share  of  stock,  I  am  not  a  member  of 
any  concern  who  is  interested  in  dealing  with  electric  securities. 
So  my  opinion  is  no  more  than  that  of  a  looker-on  from  the  outside, 
because  my  present  interests  are  quite  in  other  directions. 


752       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

I  think  perhaps  the  history  of  the  growth  of  the  electric  railway 
illustrates  very  clearly  that  there  are  two  sides  which  have  got  to 
be  considered;  not  the  community  alone  on  the  one  side,  but  those 
who  take  the  risks  in  electric-railway  development. 

In  1887  I  took  the  contract  for  the  Richmond  Union  Passenger 
Railway.  I  had  more  hope  than  sense;  more  confidence  than  ex- 
perience. The  basis  of  experience  was  that  of  experiments  which 
I  had  been  carrying  on  on  a  private  track  on  the  elevated  railroads 
in  New  York  City,  or  a  short  branch  of  them.  And  when  I  took 
the  contract  for  the  Richmond  road  we  really  proceeded  on  the  basis 
of  a  blue  print.  That  contract  called  for  the  equipment  of  40  cars, 
80  motors,  a  small  central  station  in  connection  with  the  overhead 
line,  to  be  built  in  60  days  and  to  be  paid  for,  $110,000,  if  satisfactory. 
Most  people  would  say  that  is  an  insane  contract.  Judged  from 
ordinary  commercial  principles  it  was.  But  on  several  occasions 
I  have  had  to  make  precisely  that  same  kind  of  contract  to  carry 
through  some  enterprise  in  which  I  have  been  interested,  and  I  have 
been  interested  in  quite  a  number  of  popular  developments.  I  have 
had  to  take  the  risks. 

At  that  time  the  Richmond  road  as  a  road  did  not  exist.  It  was 
simply  a  franchise  belonging  to  a  lot  of  New  York  politicians.  It 
cost  us  nearer  $200,000  and  it  cost  my  company  over  $100,000 — the 
wrong  side. 

The  CHAIRMAN.  To  get  the  franchise? 

Mr.  SPRAGUE.  No;  I  mean  to  carry  out  the  contract.  It  cost  them 
nearly  $200,000  and  we  lost  over  $100,000;  but  it  began  this  business. 
Well,  that  is  31  years  ago. 

I  look  over  the  field  and  I  see  the  electric  railway  has  perhaps 
had  the  most  remarkable  growth  of  any  industry  in  the  world  in 
the  same  time.  It  represents  to-day,  in  the  United  States  alone,  I 
guess,  $6,000,000,000;  gross  revenues  of  nearly  three-quarters  of  a 
billion ;  men  employed,  about  300.000.  There  has  been  one  continual 
demand  on  the  part  of  the  public  for  the  betterment  and  the  increase 
in  service. 

I  look  back  at  the  Richmond  road.  I  could  not  find  a  vestige  of 
equipment  to-day  for  historical  purposes,  not  a  pound  of  copper  on 
that  entire  road.  The  growth  of  the  art  required  it  to  be  gradually 
abandoned;  it  wore  out.  The  first  motors  used  were  only  7|  horse- 
power, two  on  a  car.  The  cars  were  of  the  ordinary  street-car  type 
finally  with  special  truck.  The  duty  put  upon  the  motors  was  at 
least  100  per  cent  more  than  they  could  reasonably  expect  to  carry. 
They  were  operating  with  30-pound  rails  laid  in  Virginia  mud. 
They  could  not  run  a  single  trip  without  repairs.  Sometimes  we 
had  80  motors  going,  sometimes  2.  And  if  the  people  interested  in 
that  had  not  stuck  to  it,  the  electric-railway  growth  would  have  been 
postponed  some  years. 

In  that  time  there  has  been  a  rather  curious  ratio  of  increase  in 
certain  matters  connected  with  electric  railways.  The  cost  of  the 
cars,  the  weight,  the  power  of  the  motors  have  all  been  just  about 
quadrupled.  The  cost  of  tracks  has  increased  from  six  to  eight 
times.  In  the  last  15  or  16  years  the  revenue  per  car-mile  has  in- 
creased about  50  per  cent.  The  operating  cost  has  about  doubled. 
The  taxes  have  about  doubled.  The  net  return  per  car-mile  has 
remained  almost  stationary. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       753 

Within  recent  years,  owing  to  the  general  increase  of  prices  in 
everything,  the  cost  of  equipment,  the  cost  of  upkeep,  the  cost  of 
operation  of  every  electric  railroad  in  the  country  has  been  very 
materially  and  very  gravelj*  increased;  and  it  seemed  to  be  about  the 
one  business — that  is,  the  selling  of  transportation — in  which  there 
has  been  a  fixity  of  unit  return  with  a  constant  increase  of  the  cost. 

Now  mam7  of  those  increases  of  cost  have  been  due  to  the  ordinary 
increases  in  cost  of  material  and  labor,  but  many  of  them  have  been 
due  to  Government  action,  to  decisions  in  which  the  railroads  had  no 
voice  whatever. 

There  is  another  direction  in  which  that  rather  curious  relation 
lias  been  evidenced.  I  think  the  taxable  area  and  the  livable  area 
of  a  great  many  of  our  cities  has  just  been  about  quadrupled  for  the 
same  nickel  ride.  I  can  give  you  a  single  instance  in  which  I  sup- 
pose, contrary  to  the  knowledge  and  belief  of  a  good  many  people, 
a  single  invention  has  meant  hundreds  of  millions  of  dollars  to  one 
community. 

The  CHAIRMAN.  To  one  wrhat? 

Mr.  SPRAGUE.  A  single  invention  has  meant  hundreds  of  millions 
to  one  community.  Take  the  multiple-unit  system,  to  which  ref- 
erence has  been  made.  That  is  a  system  in  which,  instead  of  a  train 
being  operated  by  a  locomotive,  as  in  steam,  cars  are  individually 
equipped  with  motors  and  controllers  and  with  master  controllers 
and  train  lines  in  such  fashion  that  any  number  of  cars  can  be 
assembled  into  a  train  in  any  end  relation  or  sequence  or  number, 
and  the  characteristics  of  the  train  operated  from  either  end  of  any 
car  are  identically  the  same  as  the  characteristics  of  a  single  unit; 
which  means  that  an  8  or  10-car  train  can  make  the  same  schedule — • 
the  same  stops  with  the  same  maximum  speed — that  a  single  car 
would.  Now,  that  is  the  basis  of  operation  of  all  subway  and 
elevated  railroads. 

I  spent  two  years  in  trying  at  my  own  expense  to  get  that  system 
introduced  on  the  elevated  railroads  in  Newr  York.  On  two  different 
occasions  I  proposed  to  the  directors  of  that  company  that  I  would, 
at  my  own  expense — which  would  have  been  a  very  heavy  expense — 
demonstrate  that  they  could  save  a  thousand  dollars  a  day  in  coal 
alone  on  the  elevated  railroads  and  increase  their  running  schedule, 
increase  their  capacity,  and  decrease  their  strain  on  their  structures. 

Commissioner  MKKKER.  That  is  when  they  were  still  operating 
under  steam  ? 

Mr.  SFRAGUE.  Yes;  but  electric  railways  in  other  directions  were 
being  used,  of  course,  all  over  the  United  States  and  the  world.  I 
finally  got  the  opportunity  to  try  out  that  system  in  Chicago,  still  as 
a  personal  venture.  Well,  the  Chicago  South  Side  Elevated  Railroad, 
which  was  a  steam  railroad,  got  in  the  hands  of  a  receiver  and  the 
stock  went  down  to  about  32  or  33,  and  I  took  the  contract  and  we  lost 
$100,000  in  carrying  it  out,  and  the  road  in  a  year  had  benefited  to 
the  extent,  as  represented  by  the  increase  in  the  stock,  to  somewhere 
about  105  or  110.  That  was  the  first  instance  in  which  that  system 
was  used,  and  then  it  was  afterwards  adopted  in  Boston  and  Brooklyn 
and  New  York. 

Now,  its  value  to  the  city  of  New  York  is  measured  by  the  cost  of 
the  subways  which  would  have  to  be  built  to  give  equivalent  capacity 


754       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

operated  in  any  other  way,  and  that  cost  would  have  been  over  $100,- 
000,000  in  excess  of  the  present  cost  of  the  subways.  And  it  added 
several  hundred  millions  of  dollars  to  the  property  values  in  New 
York  City  and  a  great  many  scores  of  millions  to  the  operating  tax- 
able receipts.  Nobody  got  any  benefits  from  that.  I  did  not  as  an 
inventor,  except  in  a  very  small  sort  of  way.  The  manufacturing 
companies  did  not,  except  in  a  small  sort  of  way,  but  the  public  got 
it  all. 

There  is  another  direction  also  in  which  there  has  been  that  curious 
expansiveness  of  ratio.  The  distance  which  people  can  ride  to-day 
is  oftentimes  about  four  times  what  they  could  in  the  early  days  of 
the  electric  railroads  for  the  same  cost. 

Now,  it  seems  to  me  there  must  be  a  basic  principle  underlying  the 
relation  between  a  community  which  is  served  by  an  electric  railway 
and  those  who  are  interested  in  this  property,  and  that  has  got  to  be 
simply  one  of  fair  dealing.  It  is  absolutely  impossible  to  keep  up 
the  operation  of  electric  railways  unless  the  return  gives  something 
to  those  who  put  the  money  into  it,  otherwise  they  had  better  get 
into  some  other  business;  in  fact  they  would  have  to.  The  welfare 
of  a  community  is  inseparably  connected  with  the  welfare  of  the 
means  of  communication  and  transportation.  You  can  not  destroy 
the  one  without  gravely  hurting  the  other. 

Commissioner  MEEKER.  May  I  ask  a  question  there? 

Mr.  SPRAGUE.  Yes. 

Commissioner  MEEKER.  You  spoke  of  the  general  public's  reap- 
ing all  the  benefits  of  your  invention.  Is  that  wholly  true?  Did 
not  the  stockholders  reap  some  benefit?  You  spoke  of  the  stock  of 
the  Chicago  Elevated  being  at  32,  I  believe,  and  going  to  105  as  a 
result  of  installing  the  electric  system. 

Mr.  SPRAGUE.  I  think  possibly,  if  I  may,  you  have  misunderstood 
me.  I  did  not  say  that  in  all  cases.  I  said  in  that  particular  in- 
stance, wThich  was  a  very  remarkable  instance — that  of  the  introduc- 
tion of  the  multiple-unit  system  in  New  York  City,  those  who  were 
responsible  originally  for  it  received  practically  nothing;  the  public 
got  the  chief  benefit,  and  I  think  that  so  far  as  individual  quotations 
of  the  Interborough  stock  of  New  York  City,  perhaps  they  feel  that 
they  have  not  got  the  benefit  of  it.  I  do  not  know ;  I  am  not  inter- 
ested in  it  at  all. 

Personally,  in  looking  over  some  of  the  testimony  that  has  been 
given  here,  I  do  not  know  that  there  is  anything  I  personally  can 
add  to  the  facts  that  have  been  presented  in  such  an  able  way  by 
gentlemen  like  Mr.  Tripp  and  Mr.  Pardee  and  the  host  of  operating 
and  expert  railway  men  that  are  here.  If  I  can  answer  any  ques- 
tions I  will  be  very  glad  to,  but  I  do  not  want  to  burden  the  record. 

The  CHAIRMAN.  What  business  are  you  now  engaged  in  ? 

Mr.  SPRAGUE.  Well,  the  usual  business  of  sepending  a  lot  of  money 
in  the  hope  of  getting  a  return.  I  am  at  present  the  president  of  the 
Sprague  Speed  Control  &  Signal  Operation,  and  I  have  been  inter- 
ested in  the  past  five  years — excluding  the  two  years  we  have  been  at 
war,  when  I  have  been  giving  most  of  my  time  to  the  Government— 
in  developing  a  system  which  ties  together  the  braking  system  and 
wayside-signal  system  of  a  railroad  to  make  rear-end  collisions  and 
head-on  collisions  impossible  in  steam-railroad  operation. 

The  CHAIRMAN.  You  said  that  you  had  been 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       755 

Mr.  SPRAGUE.  It  is  a  pretty  large  enterprise,  and  a  great  deal  of 
money,  running  into  many  hundreds  of  dollars,  has  been  spent,  but 
it  is  very  uphill  work  on  account  of  the  present  condition  of  the 
railroads  and  also  their  reluctance  to  depart  from  present  practices. 

The  CHAIRMAN.  You  stated  that  you  had  been  engaged  in  pro- 
moting and  developing  railroads  and  equipment  in  this  country  as 
well  as  in  Europe. 

Mr.  SPRAGUE.  My  activity  has  been  mostly  in  this  country. 

The  CHAIRMAN.  How  many  years  were  you  engaged  in  this  work 
in  Europe? 

Mr.  SPRAGUE.  Well,  my  work  there  has  not  been  direct;  it  has  been 
through  the  people  that  control  my  interests  there. 

The  CHAIRMAN.  Are  you  quite  familiar  with  the  electric  situa- 
tion throughout  Europe? 

Mr.  SPRAGUE.  No;  not  in  detail. 

The  CHAIRMAN.  Have  you  kept  track  of  the  results  of  operations 
during  the  period  of  the  war  over  there? 

Mr.  SPRAGUE.  No,  sir ;  I  have  not.  For  the  past  five  years  I  have 
been  too  absorbed  in  my  own  work. 

The  CHAIRMAN.  Do  you  know  whether  the  electric  lines  over  in 
Europe  are  suffering  from  the  same  financial  disease  that  they  are 
over  here  ? 

Mr.  SPRAGUE.  I  do  not  see  how  it  can  be  otherwise. 

The  CHAIRMAN.  Commissioner  Clark  presented  evidence  to  the 
House  Committee  of  Interstate  and  Foreign  Commerce  day  before 
yesterday  which  showed  that  the  steam  railroads  in  England  had 
operated  during  the  war  at  a  profit  and  without  increasing  the 
freight  rate.  I  have  not  analyzed  the  figures  nor  the  statement 

Mr.  SPRAGUE.  This  is  the  steam  railroads? 

The  CHAIRMAN.  That  is  the  steam  railroads.  Xow  if  that  has 
applied  to  the  steam  railroads  in  Europe,  why  has  not  the  same 
thing  applied  to  the  electric  lines  at  the  same  time? 

Mr.  SPRAGUE.  I  might  ask  you  why  has  it  not  applied  to  the  steam 
railroads  of  the  United  States,  which  have  been  run  at  an  extra- 
ordinarily heavy  loss  during  the  war.  I  think  the  only  fair  com- 
parison there  is  steam  railroads  against  steam  railroads. 

The  CHAIRMAN.  You  think  that  is  a  fair  comparison? 

Mr.  SPRAGUE.  Yes. 

The  CHAIRMAN.  I  was  just  wondering  though,  how  it  happens 
that  the  industry  as  a  whole,  steam  lines  as  well  as  electric  lines,  is 
in  so  much  difficulty  over  here  when  perhaps  the  same  conditions  do 
not  apply  in  Europe,  where  the  war  really  has  been  going  on. 

Mr.  SPRAGUE.  "\\  ell,  I  do  not  think  thvj  same  conditions  do  exist 
in  any  two  countries;  the  same  condition  as  to  franchises  and  taxes 
and  cost  of  labor,  methods  of  charging  fares.  Of  course  on  a  great 
many  European  roads  what  is  called  the  zone  system  of  charging 
is  in  operation.  Personally,  I  believe  it  is  the  only  fair  system.  We 
have  me  American  habit  of  thinking  we  can  get  for  a  nickel  the 
absolute  limit  of  return.  You  can  not  do  it,  unless  somebody  pays 
the  price.  I  can  see  no  i-eason  why  one  man  should  ride  two  or  three 
blocks  and  pay  a  nickel  and  another  may  ride  20  or  25  miles  and  pay 
the  same  price. 

The  CHAIRMAN.  You  have  had  a  good  deal  of  experience  in  pro- 
moting railroads  in  this  country? 


756       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  SPRAGUE.  No,  sir;  I  have  never  been  a  promoter  of  railroads 
at  all.  My  work  has  been  entirely  on  the  technical  side — that  is,  the 
promotion  of  the  idea  of  the  use  of  electricity  in  pretty  nearly  every- 
thing it  can  be  used  for,  for  power. 

The  CHAIRMAN.  The  only  road  which  vou  have  mentioned  as  being 
interested  in  is  the  Richmond  road.  llave  you  been  interested  in 
other  roads  ? 

Mr.  SPRAGUE.  Well,  I  equipped  at  least  150,  I  think,  in  the  first 
two  or  three  years. 

The  CHAIRMAN.  When  you  speak  of  equipping,  you  mean  you  sold 
equipment  to  those  roads :  do  you  ? 

Mr.  SPRAGUE.  We  supplied  the  electric  equipment. 

The  CHAIRMAN.  Did  you  own  stock  in  those  roads? 

Mr.  SPRAGUE.  Not  a  dollar. 

The  CHAIRMAN.  You  were  simply  a  selling  man  ? 

Mr.  SPRAGUE.  We  were  simply  equipping  them,  supplying  the 
lines,  and  trying  to  convert  the  public  to  the  idea  that  electric  roads 
were  the  thing  to  use. 

The  CHAIRMAN.  Have  you  been  brought  into  close  contact  with 
any  of  the  promoters  of  these  roads  ? 

Mr.  SPRAGUE.  No;  very  little. 

The  CHAIRMAN.  Do  you  know  whether  the  promotion  has  been 
successful  from  a  financial  standpoint? 

Mr.  SPRAGUE.  It  has  been  at  times,  and  at  times  it  has  been  very 
disastrous. 

The  CHAIRMAN.  Generally  speaking,  what  is  your  judgment? 

Mr.  SPRAGUE.  Well,  I  hope,  and  I  think  it  is  entirely  true,  that 
the  larger  portion  of  those  who  ventured  into  the  promotion  of  elec- 
tric railways  made  a  profit,  if  they  let  go  soon  enough. 

The  CHAIRMAN.  The  Richmond  road  was  built  31  years  ago. 
There  is  not  a  pound  of  copper  or  a  single  piece  of  equipment  left? 

Mr.  SPRAGUE.  I  do  not  think  there  is. 
i     The  CHAIRMAN.  That  shows  a  very  rapid  improvement  in  the  art. 

Mr.  SPRAGUE.  Necessarily. 

The  CHAIRMAN.  Do  you  suppose  that  we  have  reached  the  maxi- 
mum improvement  of  the  art? 

Mr.  SPRAGUE.  Pretty  nearly ;  yes. 

The  CHAIRMAN.  Pretty  nearly  ? 

Mr.  SPRAGUE.  Yes ;  looking  at  it  from  the  mechanical  construction 
point  of  view.  Motors  have  been  brought  to  a  remarkable  degree  of 
perfection.  I  think  they  are  perhaps  the  most  reliable  piece  of 
mechanism  to-day  in  operation.  There  is  very  little  possible  increase 
in  efficiency — that  is,  in  the  ratio  of  conversion  of  electric  energy  into 
power.  There  is  almost  a  negligible  margin ;  and  the  same  way  with 
generators.  Generators  for  example,  to  give  an  illustration:  At 
Richmond  I  think  we  used — well,  the  generators  were  about  possibly 
100  horsepower  as  a  maximum,  driven  by  small  steam  engines.  A 
single  unit  to-day  of  a  generating  plant  is  40,000  kilowatts  or  more. 
Now.  it  has  been  the  same  in  stationary-motor  business,  in  the  trans- 
mission of  power,  as  it  is  in  the  electric  railway.  There  has  been 
that  enormous  increase.  Now,  the  efficiency  of  those  big  generators  is 
way  up  until  there  is  not  over  2  or  3  per  cent  left  that  is  converted 
into  heat;  and  it  must  be,  otherwise  they  would  go  to  pieces.  And 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.          75  T 

as  to  mechanisms,  I  can  not  conceive  of  very  much  improvement  in 
them. 

The  CHAIRMAN.  Let  us  see.  Are  you  mindful  of  the  fact  that 
Congress  passed  a  special  bill  here  this  winter  authorizing  the  patent- 
ing of  an  electrical  device  by  which — I  can  not  describe  it  tech- 
nical^— a  small  mechanism  weighing  about  50  pounds  would  gener- 
ate 150  horsepower? 

Mr.  SPRAGUE.  Well,  a  turbine 

The  CHAIRMAN.  No ;  this  is  not  a  turbine. 

Mr.  SPRAGUE.  Of  course,  the  turbine,  the  steam  side  of- every  high- 
speed generator  set,  is  an  extraordinarily  light  equipment.  But  if  the 
claim  has  been  made  that  generators  are  built  with  any  such  ratio  of 
weight  to  output,  I  flatly  say  it  is  impossible. 

The  CHAIRMAN.  Well,  this  person  got  a  special  bill  through  upon 
the  promise  that  his  device  would  completely  revolutionize  the  elec- 
trical world ;  you  could  run  street-cars  and  run  engines  by  this  small 
mechanism. 

Mr.  SPRAGUE.  I  knb\v.     That  universal  claim  at  once  condemns  it. 

The  CHAIRMAN.  If  it  should  happen  that  such  development  could 
be  perfected,  then  there  would  be  a  very  great  improvement  in  the 
art? 

Mr.  SPRAGUE.  Then  you  could  scrap  everything  there  is. 

The  CHAIRMAN.  Yes. 

Mr.  SPRAGUE.  But  such  a  thing,  you  may  put  your  judgment  down, 
is  impossible.  This  art  is  one  of  evolution,  not  revolution. 

The  CHAIRMAN.  I  suppose  20  years  ago  you  and  I  would  have 
agreed  that  the  man  who  said  they  could  fly  across  the  Atlantic 
Ocean  in  24  or  36  hours  wyas  crazy,  but  they  are  doing  it. 

Mr.  SPRAGUE.  I  do  not  know  what  my  opinion  would  have  been  at 
that  time,  and  I  venture  that  perhaps  you  might  have  been  a  little 
hesitant  about  saying  a  thing  was  impossible.  But  the  electric  art 
for  the  past  40  years  has  followed  perfectly  clear  lines  of  develop- 
ment. 

To  give  you  an  illustration  in  another  branch  of  electric  ait,  I  am 
old  enough  to  recall  when  one  Dr.  R.  V.  Pierce  used  to  have  an  adver- 
tisement running  in  the  patent  insides  of  almost  every  country  news- 
paper, called  "  Pierce's  Golden  Medical  Discovery."  It  is  not  neces- 
sary for  me  to  explain.  Pierce  was  not  satisfied  with  the  return  he 
was  getting  from  his  patent  medicine  and  he  thought  he  would  go 
into  the  mining  business.  And  some  promoters  convinced  him  that 
there  was  a  river  called  the  Feather  River  out — I  think  in  Nevada, 
but  I  am  not  quite  sure ;  somebody  here  can  correct  me — where  there 
was  a  great  source  of  possible  wealth  if  it  could  be  drained,  because 
of  an  assured  placer  mine. 

Well,  he  and  his  associates  short-circuited  a  bed  of  that  river  by  a 
tunnel  which  drained  the  river.  This  was  really  before  the  electric- 
railway  business  got  going — I  think  it  was  about  1887.  I  made  a 
contract  with  Pierce  for  supplying  him  a  number  of  motors  which 
were  operated  from  600  to  1,000  volts  pressure  over  a  maximum  dis- 
tance of  5  or  6  miles.  I  think  the  largest  unit  was  perhaps  6  or  7 
horsepower.  When  they  got  the  bed  of  the  river  uncovered,  it  was 
so  full  of  boulders  that  it  was  simply  impossible  to  try  any  placer 
mining,  and  the  enterprise  was  a  failure. 


758       PROCEEDINGS  OF  FEDERAL  EJLECTRIC  RAILWAYS  COMMISSION1. 

That  location  now  is  the  site  of  the  great  Western  Power  Co.'s  great 
plant,  and  instead  of  a  mechanism  of  1,000  volts  they  are  transmitting 
it  at  over  100,000  volts;  instead  of  a  distance  of  5  or  6  miles  they  are 
transmitting  it  100  to  150  and  200  miles ;  instead  of  units  of  5  or  6 
horsepower  they  are  dealing  with  units  of  twenty  or  thirty  thousand 
horsepower  or  more. 

Xow,  that  jump  from  those  miniature  equipments  and  distances  and 
pressures  to  the  enormous  pressures  and  powrers  and  distances  now  in 
use  was  a  perfectly  progressive  one,  a  gradual  increase  in  size,  in- 
crease of  efficiency,  increase  in  the  method  of  manufacture ;  and  I  do 
not  think  that  there  is  any  possibility  of  any  departure  from  that 
evolutionary  process,  and  I  do  not  think  that  one  man  in  10,000  wrould 
lay  down  a  dollar  based  upon  that  possibility  which  you  suggest.  I 
know  I  would  not,  and  I  have  gone  through  a  good  deal  of  it.  There 
is  no  such  hope  to  a  man  as  an  inventor. 

The  CHAIRMAN.  Then  are  you  quite  confident  that  in  the  future 
the  item  of  obsolescence  will  be  a  very  much  less  factor  in  railroad 
development  than  it  has  been  in  the  past  ? 

Mr.  SPRAGTJE.  Yes. 

The  CHAIRMAN.  Investors  can  thus  put  their  money  into  a  plant 
with  a  certain  realization  that  the  industry  is  going  to  continue  along 
certain  well-defined  lines  and  the  property  is  not  going  to  be  scrapped! 

Mr.  SPRAGTJE.  Yes;  I  do. 

The  CHAIRMAN.  Now  ought  that  to  invite  credit  and  give  confi- 
dence to  investors? 

Mr.  SPRAGTJE.  Yes ;  and  I  will  tell  you  another  reason  why.  For  a 
long  time  there  was  a  very  unfortunate  controversy  in  this  country 
between  advocates  of  what  is  called  direct-current  and  alternating- 
current  apparatus.  There  were  those  who,  like  myself,  believed  be- 
cause of  certain  fundamental  facts,,  that  direct-current  motors  were 
the  most  satisfactory  ones  to  be  used  on  railways  anel  alternating  cur- 
rent for  the  transmission  of  the  power.  There  were  others  who  be- 
lieved that  what  is  called  single-phase  operation  of  motors  was  the 
coming  method  of  running  street  railways.  You  have  here  within 
gunshot  of  where  you  are  sitting  a  typical  example  of  that  contro- 
versy, and  its  unfortunate  results,  in  the  Washington,  Baltimore  & 
Annapolis  Railway.  There  is  an  enterprise  which  for  a  long  time 
was  considered  a  natural  electric-rail w ay  proposition  in  competition 
with  steam,  and  being  in  competition  with  steam  railroads  between 
here  and  Baltimore,  those  who  were  active  in  its  promotion  sought  to 
get  the  maximum  amount  of  economy.  I  advised  against  their  deci- 
sion. It  cost  them  a  very  large  amount  to  learn  their  lesson,  and  they 
finally  had  to  change  over  and  operate  the  road  by  direct  current.  So- 
that  particular  controversy,  so  far  as  it  applies  to  street-railway  sys- 
tems, interurban  systems,  suburban  roads,  elevated  and  underground, 
and — I  personally  think — others,  has  been  settled.  It  is  no  longer 
subject  to  dispute  or  question.  So  that  I  think  it  is  perfectly  safe  to 
say,  as  you  expressed  it,  that  the  time  has  now  come  when  the  public 
and  the  capitalists  can  rely  upon  the  reasonable  permanence  of  the 
equipment.  That  does  not  mean  there  will  not  be  improvements.  Of 
course  there  will  always  be. 

Commissioner  MEEKER.  How  about  the  primary  generators  of 
power  ?  Is  not  there  a  possibility  that  the  Diesel  engine  will  do  away 
with  the  old  steam  engine  ? 


PROCEEDINGS  OF  FEDEBAL  ELECTRIC  RAILWAYS  COMMISSION.       759 

Mr.  SPRAGUE.  No,  sir. 

Commissioner  MEEKER.  Why  not  ? 

Mr.  SPRAGUE.  Too  large  a  capital  cost  for  the  outfit.  The  Diesel 
engine,  which,  of  course,  is  an  attempt  to  get  a  higher  thermal  result, 
uses  oil  instead  of  coal  and  uses  it  directly  instead  of  through  the 
medium  of  boilers,  and  is  necessarily  a  very  heavy  engine  in  regard  to 
its  output.  I  can  see  no  possibility  from  the  standpoint  of  first  invest- 
ment, safe,  occupied,  output,  of  its  ever  rivaling  the  turbine.  We  do 
not  hear  of  the  Diesel  engine,  for  example,  on  board  ship,  except  for 
what  we  may  call  low-grade  operation — slow  steamers,  comparatively 
light  power.  But  where  you  want  great  powers,  there  is  no  thought 
of  the  Diesel  engine. 

Commissioner  MEEKER.  However,  it  is  a  new  engine  and  it  seems 
to  me  there  may  be  possibilities  of  improvement  and  development. 

Mr.  SPRAGUE.  Well,  the  Diesel  engine  has  been  in  existence  a  good 
many  years  and  it  is  a  very  excellent  engine  for  its  purposes.  But 
the  old  reciprocating  steam  engine  was  a  very  economical  and  very 
good  and  very  reliable  piece  of  mechanism,  and  the  steam  turbine, 
weight  for  weight,  enormously  outranks  it. 

The  CHAIRMAN.  Now,  Mr.  Sprague,  you  have  borne  a  very  con- 
spicuous part  in  the  development  of  this  industry  and  you  have 
naturally  given  very  close  attention  to  it.  You  have  seen  it  developed 
from  a  very  small  industry  to  perhaps  the  second  largest  in  the  country 
and  performing  a  very  great  public  service.  In  recent  years  you  have 
also  witnessed  the  tremendous  development  in  good  roads  and  in  the 
automobile  industry  and  in  the  very  recent  years  in  the  aircraft  in- 
dustry. Now,  bearing  in  mind  the  very  great  initiative  of  the 
American  people,  can  you  for  a  few  moments  present  to  us  what  you 
believe  to  be  the  future  of  the  electric-railways  industry. 

Mr.  SPRAGUE.  Well,  the  electric-railway  industry  is  going  to  face 
greater  and  greater  competition  all  the  while.  It  is  facing  it  to-day 
in  the  automobile.  The  better  your  roads,  the  better  your  pavements, 
the  cheaper  the  automobile,  the  more  people  who  can  buy  one — the 
more  the  electric  railway  has  got  to  suffer.  That  is  undoubtedly  true. 

The  CHAIRMAN.  And  will  it  stand  up  under  the  force  of  this  com- 
petition and  rapid  expansion  of  other  lines  of  activity  in  transpor- 
tation ? 

Mr.  SPRAGUE.  Well,  many  of  them,  the  aircraft  and  the  automobile, 
will  create  a  traffic  of  their  own  which  is  in  addition  to  the  traffic 
that  the  electric  railways  will  carry. 

When  the  electric  light  was  first  introduced  it  was  freely  pre- 
dicted that  the  day  of  gas  was  ended.  The  incandescent  lamp  itself 
has  been  but  little  changed  in  all  these  years.  We  have  gone,  it  is 
true,  from  a  carbon  filament  to  the  metallic  filament,  but  the  basic 
principle  is  the  same — a  high-resistance  filament  inside  of  a  vacuum, 
giving  certain  standard  pressure,  and  that  pressure  has  remained 
practically  all  these  years.  There  has  been  an  improvement  in  the 
economy  of  the  lamp.  On  the  other  hand,  those  interested  in  the  gas 
industry  have  tried  to  improve  their  product  and  widen  the  uses  of 
it,  and  I  guess  there  is  more  gas  used  to-day  despite  the  rivalry  of  the 
electric  light  than  there  ever  was  in  the  past. 

People  get  the  habit  of  riding.  They  do  not  forsake  entirely  one 
method  and  adopt  some  other.  They  simply  ride  more.  And  I  think 
the  electric  railway  has  a  field  of  its  own — meeting  competition,  of 


760       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

course,  all  the  while — but  if  it  is  well  managed,  if  it  is  well  kept 
up,  if  we  maintain  its  standard,  it  will  hold  a  traffic  of  its  own. 

The  CHAIRMAN.  Will  not  the  improvement  such  as  you  have  men- 
tioned cause  a  more  general  distribution  of  our  population  through- 
out the  country,  decentralizing  the  cities  and  spreading  them  out 
into  suburban  territory  on  small  tracts  of  land,  thus  causing  more 
travel  ? 

Mr.  SPRAGUE.  The  more  you  spread  them  out  the  more  intercom- 
munication will  exist. 

The  CHAIRMAN.  And  that  will  be  beneficial  to  the  railroad  in- 
dustry? 

Mr.  SPRAGUE.  Yes ;  I  think  so. 

The  CHAIRMAN.  Do  you  feel  hopeful  that  the  electric  railway  as 
it  now  stands  is  a  permanent  institution  ? 

Mr.  SPRAGUE.  Absolutely. 

The  CHAIRMAN.  And  such  an  institution  that  capital  can  safely 
invest  in  it  and  people  depend  on  service  from  it? 

Mr.  SPRAGUE.  They  can,  if  they  can  be  assured  of  reasonable 
treatment. 

The  CHAIRMAN.  Now  then  you  know  their  troubles.  What  is  the 
remedy  ? 

Mr.  SPRAGUE.  I  say  to  a  certain  extent  it  is  a  sociological  remedy. 
It  is  an  appreciation  by  those  who  are  in  power  in  a  community. 

The  CHAIRMAN.  Develop  that  a  little  further. 

Mr.  SPRAGUE.  To  establish  as  a  basis  for  all  dealings  with  a  public- 
service  corporation — I  care  not  whether  it  be  a  street  railway,  gas 
plant,  electric-lighting  plant  or  any  others — to  establish  a  basis  of 
fair  dealing.  They  want  efficient  operation.  They  demand  a  very 
high  character  of  service.  They  are  not  willing  that  that  service 
shall  go  backward,  shall  fall  off  in  character.  They  can  not  get  it 
if  capital  will  not  invest  the  money,  and  even  if  the  money  is  in- 
vested, they  can  not  get  it  unless  the  road  is  operated  efficiently.  It 
can  not  be  operated  efficiently,  it  can  not  be  maintained,  it  can  not 
be  extended  unless  there  is  a  reasonable  assurance  of  profit.  It  is 
simply  selling  a  service.  Many  of  the  elements  of  the  cost  of  that 
service  are  no  more  under  their  control  than  the  religion  of  this 
country  is  under  mine.  Whether  it  be  wages  or  the  cost  of  mate- 
rials, they  must  accept  it.  They  are  subject  to  taxes,  they  are  sub- 
ject to  the  possible  expiration  of  their  franchises,  they  are  subject 
to  the  demands  of  a  good  many  petty  types  of  politicians  who  seek 
to  use  the  expiration  of  a  franchise  as  a  means  of  driving  a  public- 
service  corporation  to  the  wall.  They  gain  nothing  by  it,  because  if 
one  corporation  goes  to  the  wall  no  other  will  take  its  place  except 
also  at  a  profit. 

It  seems  to  me  there  has  got  to  be  a  basis  which  means  that  on  a 
fair  capitalization  there  must  be  a  fair  return;  if  costs  go  up,  the 
cost  of  service  must  go  up.  If  those  costs  go  down,  the  cost  of  serv- 
ice should  be  reduced.  The  operation,  of  course,  has  got  to  be  under 
public  control,  and  if  it  is  under  intelligent  control,  as  it  is  in  many 
cases,  if  the  books  are  open  and  aboveboard  and  the  management 
open  and  aboveboard  and  if  the  profits  which  the  people  seek,  no 
matter  whether  they  are  promoting  an  enterprise  or  simply  invest- 
ing as  capitalists  are  only  reasonable  but  still  sufficient  to  encourage 
them,  I  believe  the  public  itself  will  accept  that  situation  and  pay 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       761 

a  reasonable  price  for  the  service.  I  do  not  see  how  it  can  be  other- 
wise. On  everything  else  that  they  buy  they  do  accept  those  con- 
ditions. They  demand  it  for  themselves. 

The  CHAIRMAN.  Then  to  summarize  your  opinion,  you  must  first 
cultivate  a  degree  of  confidence  betAveen  the  industry  and  the  public  ? 

Mr.  SPRAGUE.  That  is  the  very  first  thing  that  is  absolutely 
necessary. 

The  CHAIRMAN.  And  that  can  only  be  done  by  having  a  basis  of 
fair  dealing  between  the  industry  and  the  public  ? 

Mr.  SPRAGUE.  Yes,  sir ;  that  is  the  only  way  it  can  be  done. 

The  CHAIRMAN.  That  means  honest  performance  by  the  public 
corporation  as  well  as  by  public  officers? 

Mr.  SPRAGUE.  Yes. 

The  CHAIRMAN.  I  never  have  seen,  in  my  experience  as  a  regulat- 
ing officer,  where  the  public  seriously  criticized  the  raising  of  a  rate 
or  any  other  order  made  by  a  corporation  or  by  the  commission  whera 
they  knew  the  facts  and  honestly  believed  in  them. 

Mr.  SPRAGUE.  I  think  that  inevitable.  I  do  not  see  how  it  can  be 
otherwise.  If  people  will  put  in  office  men  in  whom  they  have  con- 
fidence, and  those  men  have  all  the  facts  before  them  and  then 
render  a  decision,  I  believe  the  public  can  not  help  but  accept  it. 

The  CHAIRMAN.  Then  your  second  proposition  is  that  after  this 
mutual  confidence  has  been  established  you  have  got  to  have  a  basis 
of  regulation  ? 

Mr.  SPRAGUE.  Yes. 

The  CHAIRMAN.  By  which  the  public  will  pay  no  more  and  no  less 
than  what  the  service  costs,  thus  assuring  to  capital  a  fair  reward, 
to  labor  a  fair  wage,  and  to  the  public  good  service  at  reasonable  cost? 

Mr.  SPRAGUE.  Yes,  sir. 

The  CHAIRMAN.  Xow,  the  problem  of  the  future  then  is  to  work 
out  that  basis? 

Mr.  SPRAGUE.  It  is.  I  am  reminded  of  a  remark  that  the  late 
President  Roosevelt  is  said  to  have  once  made.  I  think  it  was  on  an 
occasion  of  some  labor  discussion,  and  the  representative  of  that  par- 
ticular labor  element  said,  "  Well,  now,  finally  we  have  got  somebody 
to  listen  to  us."  And  President  Roosevelt  is  said  to  have  replied, 
44  Yes,  so  long  as  I  am  President  the  door  of  the  White  House  is  open 
to  labor  just  as  freely  as  to  capital,  but  no  easier." 

The  CHAIRMAN.  I  think  your  contribution  to  this  commission  has 
been  of  very  great  value,  Mr.  Sprague,  and  I  thank  you  for  it. 

Mr.  SPRAGUE.  I  am  very  glad  if  I  have  been  of  the  slightest  use  to 
you  at  all. 

The  CHAIRMAN.  There  may  be  some  other  examination  by  other 
members  of  the  commission. 

Commissioner  SWEET.  Are  you  the  inventor  of  the  Sprague  motor? 

Mr.  SPRAGUE.  Yes,  sir. 

Commissioner  SWEET.  Have  you  not  invented  other  things  besides 
the  motor? 

Mr.  SPRAGUE.  Well,  I  started,  after  resigning  from  the  naval  serv- 
ice, in  the  development  of  the  stationary  motor  for  all  sorts  of  pur- 
poses, and  then  I  took  up  the  development  of  the  trolley;  and  the 
principles  which  were  laid  down  at  Richmond  have  become  uni- 
versal— they  are  accepted  everywhere — the  motor  mounting  and  con- 
trol is  now  universal.  Then  I  took  up  what  is  called  the  multiple- 

108643°— 20 49 


762     PROCEEDINGS  or  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

unit  system  of  operation  of  trains,  but  meanwhile  I  had  developed 
the  electric  elevator,  as  distinguished  from  the  hydraulic,  and  now  I 
have  spent  the  past  five  or  six  years  on  the  development  of  train  con- 
trol for  safe  operation. 

I  want  to  say  this,  that  there  were  none  of  those  enterprises  but 
what  the  cost  of  development  has  run  into  hundreds  of  thousands  of 
dollars.  It  is  a  long  story  before  one  gets  a  return. 

Commissioner  SWEET.  A  man  who  has  had  your  long  and  interest- 
ing experience,  I  imagine,  would  hardly  be  willing  to  say  that  any- 
thing that  now  exists  in  the  world  is  perfect  ? 

Mr.  SPRAGUE.  I  have  not  found  anything  yet. 

Commissioner  SWEET.  You  would  have  no  hesitation  in  admitting 
or  stating  that  there  are  likely  to  be  improvements? 

Mr.  SPRAGUE.  That  is  absolutely  certain. 

Commissioner  SWEET.  I  think,  in  answer  to  a  question  that  was 
asked  you,  you  have  stated  that  you  thought  the  generation  of  elec- 
tricity and  its  conversion  into  power  for  the  purpose  of  moving  elec- 
tric cars  and  other  purposes  had  reached  a  very  high  point  of  ef- 
ficiency and  was  not  likely  to  be  superseded  by  any  other  system. 

Mr.  SPRAGUE.  That  is  my  belief;  yes. 

Commissioner  SWEET.  But  you  would  not  go  so  far  as  to  say  that 
improvements  of  various  kinds — minor,  perhaps,  many  of  them— are 
not  likely  to  be  made  in  the  future ;  would  you  ? 

Mr.  SPRAGUE.  Oh,  no.  Of  course  there  will  be  improvements  just 
the  same  as  there  are  improvements  in  that  fan  there,  for  example, 
which  is  on  your  desk.  There  is  an  example  of  a  pretty  reliable 
piece  of  apparatus.  You  stick  it  away  anywhere,  anybody  turns  on 
the  current  and  it  runs  along  hour  after  hour  without  any  attention 
•whatever.  Well,  it  would  be  foolish  to  say  that  its  efficiency  could 
not  be  improved  a  little. 

Commissioner  SWEET.  Certainly. 

Mr.  SPRAGUE.  And  that  it  could  not  be  made  a  little  more  noiseless, 
that  perhaps  it  could  not  be  built  possibly  a  little  cheaper.  But  those 
are  more  in  the  nature  of  refinements ;  they  are  not  radical,  they  are 
not  revolutionary.  This  incandescent  lamp  that  I  spoke  of,  which 
is  the  basis  of  the  modern  incandescent-lighting  system,  operated 
to-day  as  it  is,  has  operated  for  the  last  25  years  at  125  volts; 
it  could  be  operated  at  60  or  it  could  be  operated  at  250,  but  there 
happens  to  be  an  advantage  in  the  raising  and  lowering  of  tension 
which  makes  that  about  the  best  tension,  and  also  it  has  become  now7 
almost  universal.  But  the  lamp  itself  in  its  economy  has  been  in- 
creased, the  amount  of  power  required  to  get  a  certain  power  is  half 
or  one-third  what  it  was  some  years  ago. 

Commissioner  SWEET.  That  is  by  the  substitution  of  one  kind  of  a 
filament  for  another  ? 

Mr.  SPRAGUE.  Yes;  but  with  that  same  improvement  has  gone  a 
disadvantage.  That  is,  we  get  more  intense  light  and  getting  a 
more  intense  light  we  cut  down  the  light  so  that  the  net  result  has 
not  been  very  much  changed. 

You  take  a  great  generator,  a  thirty  or  forty  thousand  kilowatt 
machine — it  has  an  efficiency  of  97  or  98  per  cent,  not  50  or  60  or  70 
•per  cent,  as  the  earlier  and  small  machines  would  have.  There  is  only 
a  couple  of  per  cents  more  that  is  left,  so  that  all  you  can  do  is  to  re- 
fine it. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       763 

Commissioner  SWEET.  When  you  built  your  Richmond  road  the 
art  was  at  the  beginning,  practically? 

Mr.  SPRAOUE.  Oh,  yes. 

Commissioner  SWEET.  Xow,  it  was  perfectly  natural  that  changes 
should  be  made  of  a  very  radical  character  that  would  practically 
scrap  everything  that  you  had  there;  and  what  you  see  to-day  in  the 
absence  of  any  of  the  equipment  that  you  put  in  there  is  what  you 
might  naturally  expect,  is  it  not? 

Mr.  SPRAGUE.  Yes.     For  example • 

Commissioner  SWEET.  But  if  I  understand  you  right,  that  is  not 
likely  in  the  very  nature  of  things  to  be  repeated? 

Mr.  SPIIAGUE.  Oh,  nor  it  would  not. 

Commissioner  SWEET.  Yet  you  do  not  claim  for  a  minute  that 
considerable  of  the  material  that  is  used  in  present  equipment  may 
fail  to  come  up  to  either  the  demands  of  the  public  for  the  best 
points  of  economy  and  be  scrapped,  do  you  ? 

Mr.  SPRAGUE.  No;  I  would  not  claim  that  that  was  impossible,  of 
course.  For  example,  a  good  many  equipments  are  running  to-day 
with  generators  of  perhaps  a  certain  capacity.  You  may  find  it 
necessary  to  combine  this  and  that  road  under  a  common  manage- 
ment, like  the  light  and  power  supply  lines,  as  well  as  the  trolley 
lines  themselves,  and  expand  the  operation  under  one  management 
over  a  very  much  enlarged  territory,  and  it  might  easily  be  that  it 
would  pay  a  company  to  scrap  this  or  that  smaller  station  and  put 
in  a  fewer  number  of  larger  stations  of  very  much  increased  units. 

Commissioner  SWEET.  Yes. 

Mr.  SPRAGUE.  I  would  not  say  that  was  in  the  nature  of  ordinary 
scrapping  due  to  either  wearing  out  on  the  one  hand  or  failure  in  its 
purpose,  but  because,  taking  it  by  and  large,  they  could  gain  greater 
economies  in  the  operation  of  the  station,  fewer  men,  for  example. 

Commissioner  SWEET.  That  is  right.  Now,  Mr.  Sprague,  is  not 
this  whole  matter  of  obsolescence  of  very  minor  importance  in  con- 
nection with  the  problem  that  we  are  here  to  consider  ? 

Mr.  SPRAGUE.  I  think  it  is  almost  negligible. 

Commissioner  SWEET.  Yes.  Is  not  the  real  essence  of  the  thing  in 
the  fact  that  the  nickel -that  was  paid  at  the  time  you  built  that 
railroad  in  Richmond — because  I  suppose  the  fare  was  then  a  nickel, 
was  it  not? 

Mr.  SPRAGUE.  Yes. 

Commissioner  SWEET.  It  was  a  nickel  fare? 

Mr.  SPRAGUE.  Yes. 

Commissioner  SWEET.  Away  back  in  1887? 

Mr.  SPRAGUE.  Yes. 

Commissioner  SWEET.  And  it  was  an  entirely  different  nickel  from 
the  nickel  we  have  to-day,  as  far  as  purchasing  power  is  concerned? 

Mr.  SPRAGUE.  Well,  it  is  only  about  half  as  good  or  less. 

Commissioner  SWEET.  Is  it  not  a  fact  that  these  railroad  compa- 
nies are  paying  for  everything  that  they  get  and  everything  that 
thev  need  in  the  way  of  equipment  and  wages  and  everything  in  a 
nickel  or  in  a  dollar  or  on  the  basis  of  a  dollar  that  is  worth  100  cents 
and  that  their  income  is  coming  on  the  basis  of  a  dollar  that  is  worth 
about  50  cents? 

Mr.  Si'KA(iUE.  Yes. 


764       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  And  can  any  institution  live  under  those  cir- 
cumstances ? 

Mr.  SRAGUE.  I  think  that  is  a  very  modest  way  to  put  it;  and  no 
institution  can  live  under  those  conditions. 

Commissioner  SWEET.  The  only  solution  of  the  problem  then  is  to 
find  some  way  of  bringing  up  the  income  of  these  street-railroad 
companies  to  a  proper  relation  or  proportion  to  what  their  expenses 
are;  is  not  that  the  whole  question? 

Mr.  SPRAGUE.  Yes ;  because  you  can  not  compel  people  to  ride ;  and 
there  is  the  danger  in  handling  it. 

Commissioner  SWEET.  Certainly. 

Mr.  SPRAGUE.  There  are  people  who  ride  because  they  have  got  the 
habit,  or  they  ride  because  it  is  just  about  a  little  more  advantageous 
to  ride1  a  certain  distance  than  it  is  to  wralk.  If  it  cost  them  any 
material  amount  more  they  would  walk.  The  fellow  that  has  a 
longer  distance,  however,  will  still  ride ;  and  that  is  why  I  personally 
feel  that  a  more  equitable  system  of  charging  is  a  zone  system,  al- 
though it  is  rather  difficult  to  apply,  but  one  which  in  some  respects 
might  be  more  flexible.  But  there  has  to  be  an  increased  return 
somehow.  People  to-day  are*  not  paying  the  same  nominal-  nickel 
but  really  only  about  half  value  for  a  great  deal  better  service  and  a 
great  deal  longer  ride.  In  other  words,  the  ratio  of  what  they  have 
got  and  what  they  are  paying  for  has  been  increased  enormously. 

Commissioner  SWTEET.  The  same  thing  could  be  accomplished  if  it 
were  possible  to  reduce  expenses  in  some  way  so  as  to  make  the  in- 
come of  these  companies  correspond  properly  with  the  outgo,  but  as 
an  inventor  having  full  knowledge  of  electrical  equipment  and  of  the 
general  expenses  of  these  companies,  is  it  your  judgment  that  it  is 
possible  to  reduce  expenses  to  meet  the  present  emergency  ? 

Mr.  SPRAGUE.  It  is  not. 

Commissioner  SWEET.  Or  anywhere  near  it? 

Mr.  SPRAGUE.  No,  sir. 

(Witness  excused.) 

The  CHAIRMAN.  We  will  adjourn  now  to  meet  at  10  o'clock  to- 
morrow morning. 

(Whereupon,  at  10.05  p.  m.  an  adjournment  was  taken  to  Thurs- 
day, July  24,  1919,  at  10  a.  m.) 


WASHINGTON,  D.  C.,  July  24,  1919—10  a.  m. 
Present:  Parties  as  before. 
Mr.  WARREN.  Mr.  Mortimer,  will  you  take  the  stand,  please? 

STATEMENT  OF  MR.  JAMES  D.  MORTIMER. 

Mr.  WARREN.  Mr.  Mortimer,  you  are  the  president  of  the  North 
American  Co.? 

Mr.  MORTIMER.  I  am. 

Mr.  WARREN.  Which  is  interested  in  a  good  many  street  railways? 

Mr.  MORTIMEB.  It  is. 

Mr.  WARREN.  You  are  also  president  of  the  Milwaukee  Electric 
Railway  &  Lighting  Co.? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       765 

Mr.  MORTIMER.  I  am. 

Mr.  WARREN.  Of  Milwaukee. 
'Mr.  MORTIMER.  Yes,  sir. 

Mr.  WARREN.  How  many  street  railways  is  the  North  American 
Co.  interested  in? 

Mr.  MORTIMER.  Three;  the  Milwaukee  Railway  &  Lighting  Co.; 
a  railway  utility  in  the  southern  part  of  Wisconsin,  forming  a  part 
of  the  Wisconsin  Gas  &  Electric  Co.;  and  we  have  a  vanishing  in- 
terest in  the  United  Railways  Co.  of  St.  Louis,  being  a  common 
shareholder. 

Mr.  WARREN.  There  is  commission  regulation  in  Wisconsin;  is 
there  not,  Mr.  Mortimer? 

Mr.  MORTIMER.  There  has  been  commission  regulation  in  Wiscon- 
sin since  1905. 

Mr.  WARREN.  Your  company  has  been  subject  to  that  regulation 
ever  since  it  was  adopted? 

Mr.  MORTIMER.  We  have  been  the  experimental  ground  for  most 
of  the  regulation  for  street  railways  in  Wisconsin,  and  also  the  ex- 
perimental ground  for  the  most  of  the  regulation  for  street  railways 
in  the  United  States. 

Mr.  WARREN.  Will  you  give  a  brief  sketch  of  the  regulation  and 
its  effect  as  it  related  to  your  company? 

Mr.  MORTIMER.  Regulation  in  Wisconsin  first  was  attempted  in 
1896  by  the  common  council  of  the  city  of  Milwaukee,  acting  under 
its  police  powers.  It  sought,  following  a  consolidation  of  seven  de- 
tached lines  making  up  the  unified  system,  to  substitute  a  commuta- 
tion fare  of  6  tickets  for  25  cents  in  lieu  of  the  5-cent  cash  fare, 
with  universal  transfers. 

That  case  went  to  the  Federal  district  court  on  the  ground  of 
confiscation,  and  the  common-council  resolution  was  declared  to  be 
confiscatory.  No  appeal  was  ever  taken  by  the  municipality.  It  was 
one  of  the  early  cases  of  regulation  where  a  Federal  court  held  that 
street-railway  utilities  were  entitled  to  a  reasonable  retum,  and 
any  order  of  a  governmental  body  reducing  such  return  below  cur- 
rent ordinary  interest  rates  was  confiscatory,  and  therefore  in  viola- 
tion of  the  Constitution. 

In  1905,  the  legislature  passed  the  railroad-commission  law.  The 
railroad  commission  law  was  primarily  designed  to  take  care  of 
steam  railroads  and  telegraph  companies.  It  was  not  entirely  clear 
from  a  reading  of  the  statute  that  it  covered  street  railways. 

Despite  that  fact,  a  case  was  brought  by  the  city  of  Milwaukee  in 
th^  following  January  after  the  3-cent  fare  in  Cleveland,  to  have  the 
railroad  commission  ordered  to  discontinue  the  franchise  rates  of 
fare  and  install  a  fare  of  3  cents. 

The  railroad  commission  started  a  valuation  of  the  physical 
property — 

Mr.  WARREN.  Of  your  company? 

Mr.  MORTIMER.  Of  the  Milwaukee  Electric  Railway  &  Light- 
ing Co. 

The  Milwaukee  Electric  Railway  &  Lighting  Co.  at  that  time 
was  serving  the  city  fare  area.  It  was  closely  related  to  a  company 
that  was  serving  the  suburban  and  interurban  area,  known  as  the 
Milwaukee  Light,  Heat  &  Traction  Co.;  and  when,  hereafter,  I 
refer  to  the  Milwaukee  Electric  Railway  &  Lighting  Co.  I  refer  to 


766       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

the  city  company,  and  when  I  refer  to  the  Milwaukee  Light,  Heat  & 
Traction  Company,  I  refer  to  the  interurban  company. 

Commissioner  GADSDEN.  Why  not  refer  to  them  as  the  city  com- 
pany and  the  interurban  company. 

Mr.  MORTIMER.  I  think  I  can  refer  to  them  more  conveniently  as 
the  city  company  and  the  interurban  company. 

Commissioner  GADSDEN.  Yes. 

Mr.  MORTIMER.  These  two  properties  were  operated  jointly,  owned 
by  the  same  interests,  and  had  the  same  operating  organizations. 
The  physical  property  of  one  began  where  the  other  ended,  and  all 
the  physical  property  was  used  interchangeably. 

The  company  relied  upon  the  rate  of  fare  prescribed  in  the  fran- 
chise, and  did  not  take  at  all  seriously  the  attempt  to  reduce  the  rate 
of  fare,  and,  accordingly,  paid  comparatively  little  attention  to  the 
valuation  of  the  physical  property.  In  fact,  there  was  some  effort 
to  show  how  cheaply  material  was  purchased,  the  idea  being  to  keep 
the  valuation  down  because  of  its  possible  influence  upon  taxation. 

The  3-cent-fare  case  was  reinstituted  again  in  1907,  following  the 
enactment  of  an  amendment  to  the  railroad-commission  law,  which 
clearly  put  the  street  railways  under  the  jurisdiction  of  the  rail- 
road commission.  The  case  wras  finally  decided  by  the  railroad  com- 
mission in  August,  1912.  The  details  of  the  testimony — the  con- 
clusions, the  analyses,  and  related  matters — are  clearly  set  forth  in 
Mr.  Doolittle's  book  on  the  cost  of  passenger  transportation  service. 
That  book  I  am  going  to  offer  to  the  commission  for  the  detailed 
information.  The  book  carries  data  down  to  1912.  The  com- 
mission's order  required  that  the  company  discontinue  the  sale  of 
25  tickets  for  $1,  and  substitute  in  lieu  thereof  the  sale  of  13  tickets 
for  50  cents,  retaining  a  5-cent  cash  fare  and  6  tickets  for  25  cents. 

It  also  ordered  the  extension  of  the  single-fare  limits — the  city 
fare  limits,  the  5-cent  limits — out  a  distance  outward  from  the 
center  of  a  mile  to  a  mile  and  a  half,  thereby  increasing  the  length 
of  the  ride.  Nineteen  hundred  and  thirteen  was  a  year  of  compar- 
atively poor  business.  In  1914,  the  jitney  competition  sprang  up. 
Operating  expenses  per  car-mile  increased,  and  operating  revenues 
per  car-mile  decreased.  The  same  conditions  were  maintained  dur- 
ing the  year  1915,  and  in  November  of  the  last-mentioned  year  the 
two  companies  filed  a  joint  petition  writh  the  railroad  commission, 
asking  for  an  adjustment  in  fares.  We  had,  in  the  interval,  pro- 
cured the  installation  of  the  modified  zone  system,  whereby  we 
abandoned  the  5-cent  zone  on  the  suburban  lines,  and  substituted  in 
lieu  thereof  increment  zones  of  2  cents  per  mile. 

The  commission,  after  this  hearing,  putting  in  these  cash  zones  of 
2  cents  per  mile,  ordered  the  sale  of  commutation  zone  tickets  of 
30  for  50  cents,  in  response  to  considerable  complaint  and  political 
pressure. 

Prior  to  the  time  of  our  filing  the  November,  1915,  petition,  a  re- 
valuation of  the  ph}-sical  property  had  been  started. 

Mr.  WARREN.  There  had  already  been  one? 

Mr.  MORTIMER.  There  had  already  been  one  valuation.  The  com- 
pany was  dissatisfied  with  that  valuation,  because  it  was  evident 
from  their  checking  of  it  that  a  good  deal  of  property  had  not  been 
disclosed.  There  were  substantial  quantities  of  property  that  had 
been  treated  as  nonoperating  that  were  either  at  the  time  actually 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       767 

operating  or  had  since  been  converted  into  actually  operating  utility 
property,  and,  moreover,  there  had  been  an  increase  in  the  quantity 
of  the  physical  property  by  approximately  50  per  cent.  The  revalua- 
tion of  the  physical  property  disclosed  an  increase  of  something  over 
$2,000,000,  when  contrasted  with  the  physical  property  as  of  the 
same  date  of  the  prior  valuation. 

The  problem  of  making  rates  in  our  system  is  rather  complicated 
because  of  the  fact  that  it  is  a  joint  railway,  electric,  and  steam-heat- 
ing corporation;  in  other  words,  we  have  three  utilities,  much  of 
certain  classes  of  the  property  of  which  is  common  to  all  three 
utilities. 

The  CHAIRMAN.  Do  they  have  a  separate  system  of  accounting  for 
each  company? 

Mr.  MORTIMER.  They  have  a  separate  system  of  accounting  for 
capital  expenditures,  operating  revenues,  and  operating  expenses; 
but  when  a  piece  of  land  is  purchased  for  a  power  situation  or  for  an 
office  building,  the  value  of  that  real  estate  must  necessarily  be  ap- 
portioned between  the  three  utilities  in  accordance  with  the  use  by 
each  class  of  the  business  growing  much  more  rapidly  than  another 
class. 

For  example,  if  the  light  and  power  business  is  increasing  three 
times  as  fast  as  the  railroad  business  both  in  capital  expenditures 
and  in  revenues,  there  will  be  a  changing  basis  of  apportionment  of 
the  common  property. 

The  railroad  commission  in  its  decision  of  August,  1912,  estimated 
that  the  rate  of  depreciation — that  is,  the  allowance  which  should 
be  made  to  cover  the  cost  pf  replacements  over  and  above  the  expendi- 
tures for  ordinary  maintenance — should  be  4.46  per  cent  per  annum. 
The  city  attorney  had  previously  computed  it  at  2.394632  per  cent. 

Mr.  WARREN.  A  sort  of  squaring  of  the  circle? 

Mr.  MORTIMER.  In  our  petition  of  November,  1915,  we  used  the 
railroad  commission's  valuation  of  the  railway's  property  as  of 
August,  1912,  and  made  it  up  to  date  by  our  capital  expenditures, 
using  the  railroad  commission's  estimate  of  the  rate  of  accruing 
depreciation,  and  thereby  showed  that  we  were  earning  between  4 
and  5  per  cent  per  annum  upon  the  appraised  value  of  the  utility 
capital. 

No  action  was  had  upon  the  petition  of  November,  1915,  for  a  long 
time. 

In  the  latter  part  of  1916,  the  company  filed  an  emergency  petition 
with  the  railroad  commission,  asking  for  emergency  relief,  because 
of  the  necessity  of  making  large  increases  in  wages  to  attract  the 
labor  necessary  to  operate  the  railway  system  and  also  to  permit  it 
to  make  an  8-hour  day  effective  throughout  the  railway  department. 

That  petition  was  denied  on  the  ground  that  the  emergency  was 
not  such  as  to  justify  the  granting  of  emergency  relief  as  contem- 
plated within  the  statute,  and  the  commission  at  that  time  indicated 
that  even  a  threatened  receivership  would  not  be  sufficient  to  con- 
stitute an  emergency  within  the  meaning  of  the  statute.  The  officers 
of  the  company  pushed  for  a  determination  on  the  petition  of  No- 
vember, 1915. 

The  valuation  had  dragged  rather  slowly — the  revaluation  had 
dragged  slowly — and  was  finally  completed  in  August,  1917. 


768       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  cost  of  living  began  to  very  rapidly  increase,  and  it  became 
necessary  for  the  company  to  consider  making  substantial  increases 
in  wages;  first,  to  keep  the  men  on  the  cars;  and  second,  to  keep  the 
service  going — that  is,  to  keep  a  sufficient  number  of  trainmen  to 
operate  the  cars. 

The  matter  finally  came  to  a  head  in  a  demand  made  in  the  latter 
part  of  April,  1918,  by  the  employees  for  an  increase  of  15  cents 
an  hour  and  for  an  8-hour  day.  The  company  told  the  men  that 
they  had  no  dispute  with  them  on  the  matter  of  wages,  but  since 
wages  were  so  intimately  related  to  fares  that  the  proper  place  to 
make  the  application  was  at  the  office  of  the  railroad  commission 
in  Madison.  The  committee  w^ent  there  and  received  very  "atten- 
tive treatment  and  were  assured  that  by  the  1st  of  May  there  would 
be  an  order  granting  an  increase  in  fares. 

Based  upon  the  assurance  given  by  all  three  members  of  the  rail- 
road commission  to  the  committee,  I  entered  into  a  contract  Avhere- 
by  the  wages  of  the  men  were  increased  10  cents  per  hour,  or  ap- 
proximately $1  per  day.  A  strike  had  been  threatened.  The  cessa- 
tion of  service  had  been  threatened,  and  this  assured  the  continuity 
of  service  for  the  time  being.  The  Railroad  Commission  of  Wiscon- 
sin told  the  committee  that  an  order  would  be  forthcoming  from  the 
15th  of  May,  and  not  later  than  the  19th.  The  15th  came  by,  and 
there  was  no  order,  and  the  19th  came  by  and  there  was  no  order ;  and 
the  employees  naturally  wanted  to  know  when  the  case  was  going  to 
be  determined.  I  found  it  necessary  to  tell  the  committee  that  if  there 
was  no  order  forthcoming  by  the  time  the  pay  roll  for  the  last  half  of 
the  month  of  May,  1918,  was  made  up,  we  would  be  unable  to  pay 
the  increase  in  wages  for  the  last  half  of  the  month  of  May,  because 
the  increase  had  been  predicated  upon  the  granting  of  relief  by  the 
railroad  commission. 

The  employees  communicated  these  facts  to  the  railroad  commis- 
sion, and  on  the  1st  of  June,  before  all  the  time  slips  had  been  as- 
sembled, the  railroad  commission  handed  dow7n  an  order,  order- 
ing the  company  to  discontinue  the  sale  of  25  tickets  for  a  dollar 
and  6  for  25  cents,  and  to  substitute  in  lieu  thereof  a  5-cent  cash 
fare ;  and  that  is  the  fare  that  we  are  collecting  to-day. 

In  August,  1918— 

The  CHAIRMAN.  You  say  there  was  an  understanding  between  yoti^ 
the  railroad  commission  and  the  employees,  that  an  order  would  .be 
made  increasing  rates? 

Mr.  MORTIMER.  The  understanding 

The  CHAIRMAN.  Now,  what  were  they  going  to  increase  the  rates 
to? 

Mr.  .MORTIMER.  There  was  an  understanding  between  the  com- 
mission and  the  men,  and  then  between  the  men  and  the  company, 
that  there  Avould  be  an  adjustment  of  rates.  There  was  no  under- 
standing as  to  the  magnitude  of  that  adjustment,  so  far  as  I  know, 
At  least,  the  company  had  no  knowledge  of  it. 

The  CHAIRMAN.  It  was  one  of  those  open  covenants  openly  ar- 
rived at  which  did  not  materialize? 

Mr.  MORTIMER.  Well,  we  got  an  increase.  So  that,  so  far  as  that 
part  of  it  is  concerned,  the  commission  carried  out  its  word  tech- 
nically with  the  employees. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       769 

The  results  of  the  increase  in  rates  were  not  sufficient  to  com- 
pensate for  the  increase  in  expenses  and  produce  a  reasonable  return 
upon  any  measure  of  utility  capital.  So  the  company,  in  August, 
1018,  filed  an  additional  petition  asking  the  commission  to  investi- 
gate the  matter.  The  commission  had  retained  jurisdiction,  as  they 
usually  do  in  cases  of  that  kind,  so  that  the  results  could  be  watched, 
and  we  were  filing  frequent  statements  with  the  commission  showing 
the  results  of  the  order  and  the  tendencies  of  operating  expenses. 
The  commission  appeared  to  be  very  much  peeved  because  we  had 
filed  an  additional  petition  so  shortly  after  we  had  been  granted  an 
increase  to  5  cents  from  the  1st  of  June.  No  time  was  set  for  the 
hearing  until  the  latter  part  of  October.  The  hearings  were  neces- 
sarily of  relatively  short  duration,  because  all  the  essential  facts 
up  to  April,  1918,  had  been  presented  to  the  commission,  and  it  was 
only  necessary  to  supplement  them  by  more  recent  data  of  the  ex- 
penses and  actual  expenditures.  The  hearings  were  supposed  to  be 
closed  on  the  27th  of  November,  1918. 

The  employees  had  begun  to  push  for  further  increases  in  wages. 
Their  wages,  following  the  May  1  adjustment,  while  embracing  a  very 
large  increase  in  the  hourly  rate,  were  not  then  comparable  with  the 
awards  that  were  being  made  by  the  National  War  Labor  Board, 
the  first  of  which  were  made  along  in  the  early  part  of  July,'  1918. 

When  the  employees  asked  for  further  adjustments  in  order  to 
bring 'their  scales  into  line  with  what  they  called  the  Government 
wage,  we  told  the  employees  that  it  was  a  question  of  revenues,  and 
that  it  was  up  to  them  to  get  an  increase  in  revenues,  and  that  we- 
would  cooperate  to  whatever  extent  we  could,  that  we  had  already 
had  this  petition  filed. 

The  employees  employed  an  accountant  to  make  an  examination 
of  our  books  of  account  to  ascertain  whether  or  not  we  were  telling 
them  the  facts,  and  the  accountants  reported  to  them  that  the  facts 
were  substantially  in  accordance  with  what  the  company  had  stated. 
Based  upon  this  examination,  the  employees  again  presented  them- 
selves to  the  railroad  commission  and  asked  if  the  information  con- 
tained in  the  Hagenah  and  Erickson  report  was  not  correct.  The 
commission  replied  that,  so  far  as  their  cursory  examination  indi- 
cated, the  report  was  substantially  correct  and  did  not  differ  ma- 
terially from  their  own  figures. 

Then  the  situation  began  to  become  more  active.  The  company 
indicated  its  helplessness.  It  showed  that  the  earnings  on  the  rail- 
way property  were  only  3  per  cent  per  annum  on  the  appraised 
value  of  the  physical  property,  stripped  of  all  considerations  of 
stocks  and  bonds  and  bond  discounts,  and  with  only  very  modest 
allowances  for  overhead,  engineering  overhead. 

The  employees  made  a  number  of  trips  to  the  railroad  commission,, 
and  they  finally  went  to  the  governor  of  the  State.  It  thus  became 
more  or  less  of  a  political  issue.  Then  the  employees  finally  decided 
that  they  would  have  to  cease  service  on  the  1st  of  January,  1918,  after 
serving  notice  upon  the  public. 

Commissioner  MKKKKK.  1918? 

Mr.  MOKTIMKK.  1919,  the  end  of  the  year  1918.  And  service  waa 
ceased  for  one  day. 


770       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  service  was  resumed  on  the  night  of  January  1,  upon  the  agree- 
ment of  the  company  to  pay  to  the  employees  an  increase  in  wages  of 
approximately  ±$  cents  an  hour,  predicated  upon  the  organization's 
using  its  influence  to  get  out  of  the  railroad  commission  a  prompt 
decision  upon  the  company's  application  of  August,  1918. 

The  fact  that  the  company  was  not  fighting  with  the  men,  that  they 
appeared  to  be  on  friendly  terms,  had  caused  the  city  attorney  of  Mil- 
waukee to  claim  that  a  conspiracy  existed  and  had  resulted  in  the 
first  attempt  on  the  part  of  the  railroad  commission  to  investigate  the 
cause  of  the  strike,  but  later  there  was  an  appointment  of  a  legisla- 
tive investigating  committee  made  up  of  members  from  both  houses. 

That  legislative  investigating  committee  held  hearings  during  a 
number  of  weeks,  took  testimony  of  over  1,800  pages,  and,  finally, 
about  the  middle  of  April,  it  handed  down  its  findings. 

Now,  the  findings  are  of  interest;  and  I  beg  the  privilege  of  the 
commission  to  read  certain  extracts. 

Commissioner  MEEKER.  Will  not  the  whole  report,  if  it  is  contained 
in  that  brief  pamphlet,  be  of  interest  to  the  commission? 

Mr.  MORTIMER.  I  intend  to  file  it. 

Commissioner  MEEKER.  Yes. 

Mr.  MORTIMER.  There  are  certain  matters  connected  with  it  that  I 
want  to  develop. 

The  CHAIRMAN.  Proceed. 

Mr.  MORTIMER.  I  believe  it  was  said  at  some  prior  hearing  that  the 
street-railway  companies  never  presented  their  facts  to  the  public, 
and  it  was  also  said  that  the  street-railway  companies  would  have  less 
trouble  if  they  fought  back;  and  I  want  to  disclose  some  of  our  ad- 
vertisements. 

This  is  a  part  of  the  findings  of  the  legislative  investigating 
committee : 

The  railroad  commission  in  the  negotiations  with  the  men  always  took  the 
position  that  the  company  should  first  raise  the  wages  of  the  men  and  that  the 
commission  would  consider  such  raise  as  an  operating  expense  in  its  decision. 
It  was  on  this  basis  that  the  raise  of  May  1  was  granted,  but  it  was  claimed 
on  the  part  of  the  company  that  the  railroad  commission  did  not  at  that  time 
give  sufficient  consideration  to  the  increase  in  wage  cost.  The  company,  there- 
fore, took  the  position  that  no  further  raise  should  be  made  until  the  commis- 
sion first  acted  on  the  proposed  increased  wage  and  provided  revenues  therefor. 
There  is  a  sharp  difference  of  opinion  between  the  company  and  the  railroad 
commission  as  to  the  power  and  duties  of  the  railroad  commission  with  refer- 
ence to  wages.  The  company  contends  that  the  commission  has  the  power  and 
duty  to  pass  on  the  question  of  wages  as  a  factor  in  the  administration-  of  the 
railroad  commission  law,  and  that,  where  the  increased  wage  is  determined 
upon  by  the  commission,  it  is  its  duty,  as  a  condition  precedent  to  the  payment 
thereof,  to  furnish  in  revenues  lawfully  required  for  that  purpose.  The  com- 
mission contends  that  it  has  no  power  and  no  duties  in  regard  to  wages,  ex- 
cept to  consider  them  when  paid  as  an  operating  expense.  It  is  the  opinion  of 
the  committee  that  the  railroad  commission  takes  too  narrow  construction  of 
the  law  and  that  it  has  the  power  to  consider  wages  the  same  as  It  has  the 
power  to  consider  any  other  factor  in  ordering  service,  and  if  this  power  is 
hot  sufficiently  specific  in  the  statutes  as  now  provided,  the  commission  should 
be  given  that  power.  In  other  words,  the  commission  should  have  full  and 
comprehensive  administrative  jurisdiction  to  keep  the  wheels  going  and  prevent 
cessation  of  service. 

The  company  expressed  its  dissatisfaction  with  the  delay  of  the  commission 
In  its  decision  on  the  case  pending  from  November,  1915,  to  June,  1918,  and 
seemed  determined  not  again  to  take  any  chances  on  a  delay  of  that  character 
by  advancing  wages  and  waiting  for  a  subsequent  recognition  of  the  outlay. 
It  not  only  sought  to  bring  pressure  on  the  commission  to  decide  the  pending 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       771 

application  of  August,  1918,  by  encouraging  the  men  to  bring  pressure  upon 
the  commission  to  act,  but  it  sought  to  influence  public  sentiment  against  the 
commission  and  in  its  favor  by  various  means.  This  was  partly  done  through 
publications  which  it  issued  fi'om  the  Public  Service  Building  and  had  dis- 
tributed to  the  patrons  of  the  road  by  its  employees,  and  it  was  done  by  paid 
advertisements  in  the  public  press.  On  December  28  the  following  paid  ad- 
vertisement was  run  in  a  Milwaukee  newspaper : 

"  The  Electric  Co.  has  no  dispute  with  its  employees  over  wages,  hours,  or 
working  conditions.  Our  relations  have  been  and  are  most  friendly.  The  com- 
pany deeply  appreciates,  and  we  believe  the  community  does,  the  fact  that 
Milwaukee  Street  Railway  employees  have  shown  a  high  degree  of  loyalty  and 
forbearance  in  keeping  the  cars  moving  during  the  war  year  notwithstanding 
the  wage  was  less  than  that  established  by  the  National  War  Labor  Board  for 
cities  of  Milwaukee's  class.  *  *  * 

"  The  railroad  commission  well  knows  and  our  men,  through  their  own  ac- 
countants' investigation,  learned  that  the  street-railway  systems  of  these  com- 
panies entered  the  year  1918  earning  much  less  than  the  reasonable  return  assured 
them  by  State  law.  *  *  *  It  is  in  view  of  the  foregoing  facts  that  our 
men  demanded  of  the  railroad  commission  par  revenue  increases  which  as  they 
know  are  the  only  means  of  giving  them  adequate  wages.  They  share  the 
company's  belief  that  the  people  of  Milwaukee  are  able  and  willing  to  pay  the 
fair  going  price  for  the  services  they  render  and  that  the  commission  will  fear- 
lessly execute  the  plain  intent  of  the  State  utility  regulation." 

And  on  December  29  the  following  paid  advertisement  was  run  in  a  Milwaukee 
newspaper : 

"  Punishing  Milwaukee.  *  *  *  Wisconsin  Railroad  Commission's  refusal 
to  maintain  the  State's  good  faith  by  executing  the  plain  intent  of  the  utility- 
regulation  law  robs  street-railway  employees  and  investors  and  injures  the 
whole  community. 

"  Milwaukee  and  surrounding  cities  are  threatened  with  a  strike's  stopping 
street  railway  and  electric  service  on  January  1,  because  the  railroad  commis- 
sion for  over  two  years  has  failed  and  refused  to  allow  the  Milwaukee  Electric 
Railway  &  Light  Co.  and  the  Milwaukee  Light,  Heat  &  Traction  Co.  earnings 
enough  to  pay  living  wages.  *  *  *  It  is  because  our  men  through  their  own 
accountants'  investigation  know  the  above  facts  that  they  address  their  de- 
mands for  higher  wages  primarily  to  the  railroad  commission  rather  than  to 
the  companies. 

"  As  a  direct  and  unavoidable  result  of  this  gross  violation  of  the  State's 
go"d  faith,  the  employees  of  these  utilities  have  been  underpaid ;  the  owners 
will  be  robbed  of  a  large  share  of  return  on  the  investment  which  they  should 
have  received  for  the  year  1918 ;  the  companies  are  being  compelled  to  pay  a 
higher  price  for  new  capital  urgently  needed  to  finance  plant  growth,  and 
service  betterments  desired  by  the  public  could  not  be  provided." 

The  CHAIRMAN.  Who  paid  for  those  advertisements? 

Mr.  MORTIMER.  We  paid  for  them. 

Commissioner  SWEET.  The  company  did? 

Mr.  MORTIMER.  The  company  did. 

Commissioner  GADSDEX.  It  was  put  out  over  the  name  of  the  com- 
pany? 

Mr.  MORTIMER.  Oh.  yes;  over  the  najne  of  the  company,  of  the 
Milwaukee  Railway  &  Electric  Lighting  Co. 

"  These  companies  and  their  employees  do  not  for  a  minute  doubt  the  good 
frith  of  the  people  of  Wisconsin  nor  of  the  State  nf  Wisconsin.  We  feel  sure 
that  when  the  facts  are  known  public  opinion  will  compel  action  by  the 
governor  and  the  railroad  commission  to  maintain  the  State's  good  faith  and 
do  justice  to  this  community  and  to  the  employees  of  and  investors  in  Milwau- 
kee's electric  service. 

"  For  more  than  two  years  past  these  companies  have  been  quietly  pleading 
with  the  railroad  commission  to  do  its  plain  duty  under  the  State  law.  The 
commission,  in  possession  of  all  the  facts,  has  failed  and  refused  to  do  its  duty. 

"As  a  result  our  employees  are  now  prejwired  to  tie  up  the  system  unless 
the  companies  give  thorn  wuuc  !HCJ-<M>OS.  which  they  need  and  should  get,  but 
which  can  not  bo  gi\vu  them  without  nibbing  our  creditora 


772       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

"  There  is  just  one  way  out.  That  is  for  the  railroad  commission  to  fix 
fares  that  will  let  the  companies  pay  the  wages  demanded  and  pay  their  in- 
vestors a  fair  yearly  return,  which  the  State  assured  them  when  it  assumed 
control  of  their  rates,  services,  finances,  and  accounting." 

Then,  following  the  discussion  of  the  causes  and  the  faet  that  the 
causes  had  not  been  removed,  the  legislative  investigating  committee 
says : 

As  there  is  no  change  of  venue  from  the  commission,  and  the  company  must 
continue  to  submit  its  matters  of  service  and  regulation  to  the  commission, 
this,  in  itself,  presents  a  serious  question.  Provisions  are  made  in  the  court 
practice  for  a  change  of  venue  for  prejudice  of  the  judge,  but  there  is  no  such 
provision  in  the  case  of  the  commission. 

The  beginning  of  the  trouble  probably  came  from  lack  of  prompt  decision 
on  the  part  of  the  commission.  That  condition  has  existed  for  a  long  time. 
Decisions  have  been  delayed  seemingly  for  unreasonable  periods.  There  can 
be  little  justification  in  a  hearing  pending  from  November,  1915,  to  June,  1918. 
But  other  decisions  have  been  delayed  much  longer. 

The  commission  has  the  power  and  jurisdiction  to  require  books  to  be  kept 
by  the  companies  in  the  manner  and  form  required  by  it  and  to  require  reports 
from  the  companies  in  the  manner  and  form  and  at  the  time  demanded  by  it. 
By  a  careful  checking  of  these  reports,  as  filed,  and  prompt  correction  of  errors, 
there  would  seem  to  be  no  reason  why  the  commission  should  not  be  fully 
advised  of  the  financial  conditions  of  the  companies  at  all  times.  Such  a  sys- 
tem in  itself  furnishes  a  valuable  check  on  the  management  and  service  of  such 
companies. 

The  commission  has  frequently  held,  and  so  have  the  courts,  that  a  rate  from 
7  or  8  per  cent  on  invested  capital  is  reasonable.  In  a  decision  by  the  circuit 
court  of  Dane  County,  Judge  Stevens  presiding,  the  court  held  that  the  com- 
pany had  an  "income  on  the  city  railway  property  in  1912  of  5.61  per  cent; 
in  1913,  3.48  per  cent ;  in  1914,  5.49  per  cent,"  and  he  concludes  "  that  the 
average  being  5£  per  cent  or  thereabouts " — under  5£  per  cent — "  any  order 
which  reduces  returns  on  investment  to  so  low  a  cost  as  5£  per  cent  is  unrea- 
,  eonable."  In  that  decision  Judge  Stevens  used  the  commission  valuation. 
I  This  rate  is  susceptible  of  fluctuation  as  the  interest  on  money  fluctuates,  and 
r  the  rate  of  return  need  not  be  uniform  throughout  the  year  or  even  over  a  term 
of  years.  If  the  general  level  of  rate  upon  investments  is  in  conformity  to  the 
lawful  rate,  the  rates  may  vary  considerably  from  time  to  time.  By  a  full 
accounting  system,  the  commission  should  have  no  serious  difficulty  in  deter- 
mining the  general  level  of  returns  on  invested  capital  from  month  to  month 
and  to  maintain  that  level  by  adjustment  of  rates  and  service.  Hasty  and 
ill-considered  action  should  never  be  required,  but  reasonably  prompt  decisions 
are  necessary  to  any  system  for  administering  justice. . 

It  would  be  well  to  guard  against  unwarranted  delay  in  the  future  in  decid- 
ing cases  by  the  commission  by  providing  in  the  law  that  whenever  any  party 
deems  its  case  to  be  unwarrantably  delayed,  it  may  obtain  in  the  circuit  court 
'-    for  Dane  County,  an  order  to  show  cause  against  the  commission  why  the  com- 
I    mission  should  not  be  ordered  to  render  a  decision  within  a  reasonable  time 
'    to  be  fixed  by  the  court. 

The  committee  finds  that  the  cessation  of  service  on  the  street-car  lines  in 
the  city  of  Milwaukee  on  the  1st  day  of  January,  1919,  was  the  result  of  the 
company's  failure  to  meet  the  just  wage  demands  of  the  trainmen  on  the  one 
hand,  and  the  failure  of  the  railroad  commission  to  expeditiously  function,  on 
the  other  hand. 

The  commission  is  subject  to  reasonable  criticisms  through  the  press  or 
otherwise,  but  in  no  case  should  it  be  coerced  into  a  decision  by  a  party  liti- 
gant. 

Mr.  WARREN.  There  is  no  time  limit  in  your  statute,  the  Wisconsin 
statute,  on  the  decisions  of  the  commission  ? 

Mr.  MORTIMER.  No;  there  is  no  time  limit  on  the  decisions  of  the 
commission. 

Mr.  WARREN.  Do  your  tariffs  have  to  be  approved  by  the  com- 
mission before  they  become  effective,  or  does  the  commission  sus- 
pend them  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       773 

Mr.  MORTIMER.  In  practically  all  cases,  under  both  the  railroad 
commission  law  and  the  so-called  public-utility  law,  increases  are 
procured  by  filing  petitions,  rather  than  by  the  filing  of  tariffs.  In 
other  worcls,  the  Wisconsin  law  differs  materially  in  that  respect 
from  the  laws  of  many  other  States  by  permitting  the  filing  of  the 
tariffs  and  rate  schedules,  with  the  authority  of  the  commission  to 
suspend  for  limited  periods  of  time. 

Mr.  WARREN.  So  that  your  increase  can  not  take  effect  at  all  until 
affirmative  action  by  the  commission? 

Mr.  MORTIMER.  Our  increases  can  not  take  effect  until  there  is 
affirmative  action  by  the  commission.  We  can  have  no  increase  in 
rates  until  there  has  been  affirmative  action  by  the  commission. 

Commissioner  SWEET.  After  this  legislative  committee  made  its 
report,  were  any  bills  introduced  into  the  State  legislature  seeking 
to  amend  the  law,  so  as  to  compel  the  commission  to  take  prompt 
action  ? 

Mr.  MORTIMER.  There  were  a  number  of  bills  introduced  in  the 
legislature  at  that  time  following  the  filing  of  this  report  relating 
to  the  abolition  of  the  commission. 

Commissioner  SWEET.  Still  more  drastic  than  compelling  them  to 
act  promptly? 

Mr.  MORTIMER.  Yes. 

Commissioner  SWEET.  But  was  there  ever  any  legislation  enacted 
or  any  laws  passed  by  the  State  legislature  on  the  subject  ? 

Mr.  MORTIMER.  There  was  no  action  taken  on  this  report.  There 
has  been  some  legislation  not  directly  connected  with  this  report, 
but  having  a  bearing  on  it,  that  was  enacted,  and  that  legislation  I 
would  like  to  refer  to  in  a  separate  discussion  of  recent  legislation. 

The  CHAIRMAN.  What  action  was  taken  on  the  bills  introduced  to 
abolish  the  commission? 

Mr.  MORTIMER.  They  died  their  natural  and  usual  death. 

The  CHAIRMAN.  Was  there  any  real  support  for  those  bills? 

Mr.  MORTIMER.  It  was  isolated  and  not  organized. 

The  CHAIRMAN.  Were  the  utilities  for  or  against  those  bills? 

Mr.  MORTIMER.  Some  of  the  utilities  openly  opposed  them,  and 
other  companies  took  the  position  that  it  did  not  make  any  difference, 
that  it  could  not  be  any  worse  if  they  had  no  commission. 

Mr.  WARREN.  Are  you  a. believer  or  not  in  the  theory  of  commission 
regulation,  State  regulation  through  commissions? 

Mr.  MORTIMER.  I  am  a  believer  in  the  theory  of  regulation  by  com- 
mission, and  believe  it  is  the  most  satisfactory  way  of  taking  care  of 
the  many  complicated  relationships  that  exist  between  the  public 
utility  and  the  community  served,  the  State,  and  the  employees. 

Commissioner  SWEET.  But  you  think  there  should  be  coupled  with 
it  a  requirement  for  prompt  action? 

Mr.  MORTIMER.  Yes.  I  would  even  go  further  than  that  and  sug- 
gest that  the  laws  be  materially  changed,  so  that  there  should  be  no 
shifting  bases  for  commission  regulation.  That  is  one  of  the  hazards 
of  commission  regulation. 

Commissioner  SWEET.  What  do  you  mean  by  "shifting  bases?" 

Mr.  MORTIMER.  A  commission  may  shift  its  basis  on  three  princi- 
pal things:  First,  the  item  of  valuation.  One  commission  may  have 
one  viewpoint  as  to  what  elements  of  value  are  to  be  considered, 
and  another  commission,  a  subsequent  commission,  appointed  under 


774       PROCEEDINGS  OP  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

the  same  law,  may  have  an  entirely  different  opinion.  It  is  im- 
portant that  that  hazard  of  shifting  valuation  be  eliminated;  first, 
so  that  the  utility  may  know  where  it  stands  with  respect  to  earning; 
and  second,  so  that  the  investors  may  be  assured  when  capital  is  put 
into  the  property,  when  the  property  is  sold  or  subsequently  regu- 
lated for  rate-making  purposes,  it  will  be  considered  at  the  par  value 
of  its  original  investment. 

Commissioner  SWEET.  Well,  you  did  not  have  two  commissions, 
did  you  ?  There  was  only  one  State  commission  ? 

Mr.  MORTIMER.  Yes;  there  was  only  one  State  commission,  but 
the  personnel — 

Commissioner  SWEET.  Oh,  yes. 

Mr.  MORTIMER.  There  had  been  a  rather  rapid  turnover  in  the 
commission  ? 

Commissioner  SWEET.  I  see. 

Mr.  MORTIMER.  In  the  period  between  the  August,  1912,  decision, 
and  the  decision  of  June,  1918. 

Commissioner  SWEET.  So  that  the  commission  at  different  times 
with  different  personnel  might  adopt  a  different  plan  of  valuation? 

Mr.  MORTIMER.  Yes.  Then  the  second  element  is  the  amount  to 
be  allowed  to  insure  future  replacements. 

The  commission  that  had  the  job  in  August,  1912,  wrhen  it  ordered 
a  discontinuance  of  25  tickets  for  a  dollar  and  13  tickets  for  50 
cents,  used  a  depreciation  allowance  of  4.46  per  cent. 
The  commission,  in  June,  1918,  with  a  different  personnel,  used  an 
allowance  of  2.82  per  cent,  a  difference  of  1|  per  cent.  One  and  a 
half  per  cent  on  the  valuation  of  $20,000,000  runs  into  a  substantial 
sum  each  year. 

Commissioner  SWEET.  Oh,  yes.  How  large  a  commission  do  you 
have  in  Wisconsin? 

Mr.  MORTIMER.  There  are  three  members-^the  chairman  and  two 
other  commissioners. 

Commissioner  SWEET.  Appointed  by  the  governor? 

Mr.  MORTIMER.  Appointed  by  the  governor  and  confirmed  by  the 
senate.  Each  gets  paid  $5,000  a  year. 

Commissioner  MEEKER.  What  was  the  third  point  that  you  just 
started  to  elucidate? 

Mr.  MORTIMER.  The  third  point  is  some  definite  determination 
with  respect  to  permanency  of  return. 

The  commission,  in  its  decision  of  August,  1912,  held  that  the 
railway  utility  was  entitled  to  a  reasonable  return  upon  the  fair 
measure  of  the  utility  capital,  that  that  reasonable  return  was  7| 
per  cent  per  annum,  and,  based  upon  that  assurance,  I  authorized 
the  expenditure  in  our  Wisconsin  properties  during  the  succeeding 
years  of,  roughly,  $15,000,000.  I  feel  quite  sure  that  we  have  never 
earned  any  7i  per  cent  return  in  the  railway  business  during  the  in- 
tervening period  of  time,  and  the  railroad  commission,  in  its  deci- 
sion of  April  4,  1919,  in  response  to  our  petition  of  August,  1918, 
held  that  the  commission  had  never  said  that  the  companies  were 
to  get  a  reasonable  return  during  good  times  and  bad  times. 

Now,  if  a  reasonable  return  limited  to  7£  per  cent  means 
anything,  it  means  that  you  are  going  to  get  it  both  in  good 
times  and  bad  times.  Otherwise,  there  is  no  justification  for  limit- 
ing the  return  to  a  figure  as  low  as  7£  per  cent.  The  theory  of  the 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       775 

computation  of  7-|  per  cent  is  that  there  shall  be  an  allowance  for 
interest  of  approximately  6  per  cent,  plus  a  profit  on  that  for  tho 
compensation  of  the  enterprise  of  H  per  cent. 

Commissioner  MEEKER*  Do  you  mind  suggesting  how  you  think 
these  shifting  things  can  be  avoided? 

Mr.  MORTIMER.  Yes;  I  would  like  to  do  that,  Mr.  Commissioner, 
and  I  want  to  discuss  that  in  touching  on  the  relationship  between 
State  regulation  and  so-called  cost-of-service  franchises. 

Mr.  WARREN.  Do  you  want  first  to  describe  the  recent  legislation? 

Mr.  MORTIMER.  There  is  one  intervening  thing,  because  I  want  to 
lead  up  to  the  April  4, 1919,  decision. 

During  the  time  that  the  legislative  investigating  committee  was 
holding  sessions,  just  shortly  prior  to  the  time  that  it  arived  at  its 
decision  and  filed  its  report — 

Mr.  WARREN.  Was  that  report  unanimous  ? 

Mr.  MORTIMER.  That  was  the  unanimous  report.  There  was  a  sup- 
plementary report  that  dealt  more  with  the  labor  aspects  of  the  sit- 
uation. That  supplementary  report  was  signed  by,  I  think,  three  of 
the  members,  ancl  it  attempted  to  show  the  great  hazard  that  existed 
for  the  public  and  for  the  employees  where  there  existed  a  labor  or- 
ganization such  as  ours. 

Commissioner  GADSDEN.  Was  it  Amalgamated? 

Mr.  MORTIMER.  No. 

Mr.  WARREN.  It  is  an  organization  of  your  own  men? 

Mr.  MORTIMER.  Well,  there  is  an  organization  that  has  exclusive 
labor  contracts  with  several  of  our  companies,  with  all  of  our  com- 
panies, the  Milwaukee  Electric  Railway  &  Lighting  Co.,  the  Wiscon- 
sin (ias  &  Electric  Co.,  the  North  Milwaukee  Light  &  Power  Co.,  and 
the  Wells  Power  Co. 

The  chairman  of  the  commission  during  this  time  was  up  for  reap- 
pointment.  There  was  considerable  opposition  to  his  reappointment 
from  the  Social  Democrat  members  in  the  legislature,  in  the  Senate. 
We  also  ascertained  subsequently  that  there  was  a  good  deal  of  pres- 
sure brought  to  bear  upon  the  commission  not  to  permit  any  advance 
in  fares  while  the  legislature  was  in  session. 

So  the  railroad  commission,  in  its  decision  of  April  4,  1919,  in  re- 
sponse to  our  petition  of  August,  1918,  estimated  the  increase  in  rev- 
enues during  the  year  1919,  which  they  thought  the  company  ought  to 
enjoy.  They  made  certain  allowances  for  maintenance  of  way  and 
structures  and  for  the  maintenance  of  equipment,  and  estimated  what 
the  net  operating  revenues  would  be  applicable  to  the  payment  of  a 
return  upon  the  utility  capital. 

In  this  process  of  making  these  estimates,  it  very  largely  reduced 
the  allowances  which  we  had  incurred  during  the  last  two  years — 18 
months,  rather — for  the  maintenance  of  way  and  structures,  and  for 
the  maintenance  of  equipment,  and  substituted  its  own  allowances. 
They  also,  in  the  process  of  the  computation  allowances,  dropped 
$100,000  of  our  expenditures  for  the  maintenance  of  way  and  struc- 
tures, and  then  forgot  to  pick  it  up  again. 

So  that  on  its  own  computations,  we  were  $100,000  short  of  earning 
this  reasonable  return.  They  estimated  that  we  would  earn  during 
the  year  1919,  7.5  per  cent  return. 

if  ere  are  the  results : 

For  the  Milwaukee  city  and  suburban-railway  utility,  comprising 
about  220  miles  of  track  and  involving  a  capital  investment  in  tka 


776       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

railway  business  alone,  exclusive  of  power-plant  facilities,  of  $15,- 
910,000,  the  rate  of  return  earned  during  the  month  of  May  was  3.92 
per  cent  per  annum,  or  about  0.25  of  1  per  cent  per  month. 

Mr.  WARREN.  May  of  what  year,  Mr.  Mortimer? 

Mr.  MORTIMER.  May,  1919.  I  want  to  correct  that.  That  is  in  the 
single  fare  area  alone,  comprising  167  mitas  of  track. 

Mr.  WARREN.  What  was  that  $15,000,000?  Was  that  the  result  of 
the  valuation  made  by  the  commission? 

Mr.  MORTIMER.  This  determination  of  $15.900,000  is  the  appraisal 
of  the  physical  property  by  the  railroad  commission  as  of  January 
1,  1914,  to  which  have  been  added  the  capital  expenditures  as  shown 
by  the  books  and  as  audited  by  the  railway-commission  accounting 
staff. 

The  figures  that  are — I  was  in  error.  The  return  during  the 
month  of  May  for  the  single  fare  area  was  0.45  of  1  per  cent  per 
month,  a  net  operating  revenue  of  $71,557  out  of  a  gross  revenue  of 
$533,045.  There  was  a  loss  shown  on  the  suburban  system,  not  in- 
cluding the  interurban,  of  0.6  of  1  per  cent,  and  the  combined  return 
for  the  two  systems  for  the  month  of  May  was  0.36  of  1  per  cent. 
For  the  five  months  ended  May,  1919,  we  earned  1.92  per  cent  under 
the  5-cent  fare  in  the  single-fare  area,  lost  3.39  per  cent  on  the 
suburban  system,  and  on  the  two  systems  taken  together  showed  a 
net  of  1.5  per  cent  for  five  months. 

Commissioner  MEEKER.  Will  you  allow  me  to  suggest  that  these 
percentages  that  you  have  given  should  be  in  equivalent  percentages 
per  annum,  so  that  no  confusion  may  arise?  I  do  not  ask  that  you 
do  that  now,  but  will  you  have  that  in  the  record  ? 

Mr.  MORTIMER.  Yes.  I  now  have  the  figures  on  the  annual  basis. 
For  twelve  months  ended  May,  1919,  the  Milwaukee  single  fare 
area  shows  a  return  of  3.92  per  cent.  That  is  a  cumulative  percent- 
age for  12  months  and  is,  of  course,  at  that  rate  per  annum. 

The  suburban  system  showed  a  loss  of  6.27  per  cent  upon  a  utility 
capital  of  $1,353,000,  and  upon  the  combined  system  a  return  of 
3.12  per  cent  upon  a  utility  capital  invested  exclusively  in  railway 
facilities  of  $17,264,751. 

Commissioner  MEEKER.  You  said  $17.000,000  now  and  over  $15,- 
000,000  a  moment  ago. 

Mr.  MORTIMER.  Yes;  the  $15.910,909  relates  to  the  capital  in  the 
single-fare  area. 

Commissioner  SWEET.  The  city  property? 

Mr.  MORTIMER.  Yes;  the  city  property. 

Now,  we  are  required  to  file  these  statements  monthly  with  the 
railroad  commission,  showing  these  analyses,  and  we  also  hand 
them  to  the  press,  so  that  the  public  who  are  interested  will  be  in- 
formed. We  also  filed  with  the  commission,  for  the  information 
of  the  commission,  a  comparison  between  our  actual  results  and  the 
commission's  estimates. 

For  the  five  months  of  the  calendar  year,  the  commission  under- 
estimated the  operating  revenues  by  $18,084.  It  underestimated 
operating  expenses  by  $297,793,  or  something  above  12  per  cent 

Commissioner  MEEKER.  Do  you  still  have  faith  in  the  commission 
principle  of  regulation? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       777 


Mr.  MORTIMER.  If  they  would  let  me  fix  the  law,  I  would  have 
fi.ith  in  it. 

Commissioner  SWEET.  You  would  not  fix  the  commission? 

Mr.  MORTIMER.  Well,  the  commission  thinks  we  did.  During  the 
five  months,  according  to  the  commission's  computation,  we  should 
have  earned  an  actual  return  of  3.11  per  cent — actual  for  the  five 
months,  cumulative  for  five  months — and  we  have  earned  1.5  per 
cent,  as  previously  indicated,  upon  a  utility  capital  of  $17,335,134. 
That  is  our  most  recent  experience  with  the  regulation  by  the  com- 
mission. 

The  statements  thus  referred  to  by  Mr.  Mortimer  are  as  follows : 

Utility  income  accounts  of  the  Mihcaukee  Etevtric  Railway  &  Light  Co.  and 
Milwaukee  City  &  Suburban  Railway  utilities. 

FIVE  MONTHS  1919  ACTUAL  COMPARED  WITH  ESTIMATE  IN  WISCONSIN  RAILROAD 
COMMISSION   ORDER  OF  APR.  4. 


Five  months 
operation  based 
on  Wisconsin 
Railroad  Com- 
mission order  of 
Apr.  4,  1919. 

Utility  income 
account  for  five 
months  ended 
May  31,  1919. 

Differences. 

Operating  revenues             

$2,698,442.85 

$2,716,526.92 

$18,084.07 

Passenger  revenues  

2,695,846.12 

20,  680.  80 

Operating  expenses  

2,158,580.30 

2,456,373.39 

297,793.09 

Way  and  structures  

124,055.10 

189,486.71 

65,431.61 

Equipment    

182,271.75 

295,431.07 

113,159.32 

Power         

382,777.05 

377,761.41 

5,015.64 

Traffic  and  transportation  

1,014,708.00 

1,  046,  860.  58 

32,  152.  58 

General  and  undistributed  

164,399.65 

238,157.37 

73,757.72 

Taxes                                

106,179.50 

112,333.20 

6,153.70 

Depreciation  

184,  189.  25 

197,343.05 

13,153.80 

Net  operating  revenue  

539.862.55 

260,153.53 

fl9,  709.02 

Per  cent  return  (five  months)  

3.11 

1.50 

Cost  of  reproduction  

'$16,812,003.00 

*  $16.  795,  134.  00 

542,500.00 

540,000.00 

Total  utility  capital  

17,354,503.00 

17,335,134.00 

i  Jan.  1, 1919. 
1GOG430— 20 50 


*  Average. 


778       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 


Utility  income  accounts  of  the  Milwaukee  Electric  Railiray  .<&  Light  Co.  and 
Milwaukee  City  <€  Suburban  Railway  utilities. — Continued. 

TWELVE  MONTHS  ENDED  MAY  31,  1919. 


Milwaukee  City 
Railway  (single- 
fare  area). 

Milwaukee  Su- 
burban Rail- 
way. 

Milwaukee  City 
and  Suburban 
system. 

Operatin"  revenues          .  .                       

85,871,354.95 

$298,057.86 

$6  169  412  81 

Passenger  revenues       .                    ..  .  --- 

5.  823.  505.  38 

286,967.50 

6  110  472  88 

47,849  57 

11  090  36 

58  930  "'! 

5,217,022.70 

383  024  80 

5  630  047  50 

Way  and  structures          

399,  682.  43 

65  513  25 

465  225  68 

Equipment      

622,677.37 

44  586  13 

687*  263  50 

Power  

892,084.13 

45,  852.  50 

937,936  63 

Traffic  and  transportation      

2,213,011.68 

133  580  SO 

2  316  592  4H 

General  and  undistributed  

475,  358.  46 

38,  345.  79 

511,704  25 

Taxes        ...      .                   

211  620  98 

18  065  96 

223  6S6  94 

Depreciation  

434,587.65 

37  050.37 

471,638  02 

Net  operating  revenue    

624  332.  25 

84  966  94 

539  365  31 

Per  cent  return  earned,  per  year  

3.92 

6.%7 

3  12 

Cost  of  reproduction   average  

$15  410  909  00 

$1  313  842  00 

$16  724  751  00 

Materials  and  supplies  

500  000.00 

'  40  000  00 

540  000  00 

Total  utility  capital        

15,910  909.00 

1  353  842  00 

17  264  751  00 

MONTH  OF  MAY,"  1919. 


$533,  045.  70 

$26  755  55 

$559  801  25 

529  559.20 

26  008  06 

555  567  26 

3,  486.  50 

747.  49 

4  233  Q9 

Operating  expenses    .  .  

461,487.74 

34  923.  63 

496  411  37 

Way  and  structures  

45,334.  08 

5,909.82 

51.243.90 

Equipment       .  .  

55,  529.  60 

5,151.09 

60  680  69 

Power  

64,395.02 

3,  244.  88 

67  639  90 

Traffic  and  transportation      

195  600  41 

12  387  51 

207  987  92 

General  and  undistributed  

43,  389.  50 

3,346.36 

46  715  S6 

Taxes             .            

20  699.53 

1,767  11 

22  466  64 

Depreciation       

36,  559.  60 

3,  116.  86 

39  676.  46 

Net  operating  revenue  

71.557.96 

8,168.08 

63  389  S8 

Per  cent  return  earned  one  month       

45 

.60 

36 

Cost  of  reproduction,  first  of  month  

$15,  557,  275.  00 

$1,326,323.00 

$16,  883,  598.  00 

Materials  and  supplies    

500  000.00 

40  000.00 

540  000  00 

Total  utility  capital        .  

16,057  275  00 

1  366  323  00 

17  423  598  00 

FIVE  MONTHS  ENDED  MAY  31,  1919. 


Operating  revenues  

$2,596,458.43 

$120,068.49 

$2  716  526  92 

Passenger  revenues  

2,  579,  379.  00 

116,467.12 

2  695  846  12 

Other  revenues          

17,  079.  43 

3,601.37 

20  6X0  SO 

Operating  expenses       

2,  290,  407.  70 

165  965  69 

2  456  373  39 

Way  and  structures         

163  535  73 

25  950  98 

189  486  71 

Equipment      

274,  430.  23 

20,  000.  84 

295  431  07 

Power  

359,  723.  S3 

18,  037.  58 

377,761.41 

Traffic  and  transportation    

986  688.47 

60.172  11 

1  046  860  58 

General  and  undistributed  

220.  691.  38 

17,  465.  99 

238  157.37 

Taxes          

103  497.65 

8  835  55 

112  333  20 

Depreciation  

181,840.41 

15,  502.  64 

197,343.05 

Net  operating  revenue  

306,050.73 

45,  897.  SO 

260  153.53 

Per  cent  return  (5  months)           

1  92 

3  39 

1  50 

Cost  of  reproduction,  average      

$15  475  779.00 

$1  319,355.00 

$16  795  134  00 

Materials  and  supplies  

500,  000.  00 

40,  000.  00 

540,  000.  00 

Total  utility  capital  

15,975,779.00 

1,359,355.00 

17,335  134.00 

PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION".       779 


Utility  income  accounts  of  the  Milwaukee  Electric  Railway  d  Light  Co.  and 
Milwaukee  City  &  Suburban  Railway  utilities. — Continued. 

MONTH  OF  MAY,  1919,  COMPARED  WITH  WISCONSIN  RAILROAD  COMMISSION  ORDER 

OF  APR.  4. 


Average  month 
based  on  Wis- 
consin Railroad 
Commission  order 
of  Apr.  4,  1919. 
and  Exhibit  4, 
Apr.  24,  1919. 

Utility  income 
account  for 
month  of  May. 
1919.    • 

Differences. 

Operating  revenues  

$539,686.57 

$559,  801.  25 

$20  112.68 

Passenger  revenues  

555,  567.  26 

Other  revenues  

4,  233.  99 

Operating  expenses  — 

431,716.06 

496,411.37 

64,  695.  31 

Way  and  structures  

24,811.02 

51,234.90 

26  432.  S3 

Equipment  

36,  454.  35 

60  680.69 

24  22f>  34 

Power  

76,555.41 

67,  639.  90 

8  .916.  at 

Traffic  and  transport  ation  

202,941.60 

207,  987.  92 

5,046.32 

General  and  undistributed  . 

32,  879.  93 

46,  715.  86 

13  835  93 

Taxes  

21,255.90 

22,  466.  64 

1  230  74 

Depreciation.  

36,  837.  85 

39,  676.  46 

2  83S  61 

Net  operating  revenue  

107,972.51 

63,389.88 

44,  582-  OS 

Percent  return: 
Per  month  

.62 

..36 

Per  year.  .           

7.47 

4.37 

Cost  of  reproduction  

1*16,812.003.00 

2  $16,  883,  598.  00 

Materials  and  supplies  

642',  500.  00 

540,000.00 

Total  utility  capital  .  .  . 

17,364,503.00 

17.423.598.00 

1  Jan.  1,  1919. 


May  1, 1919. 


Utility  income  accounts  of  the  Milwaukee  Electric  Railway  &  Liffht  Co.  and 
Racine  City  Railway  utility. 

YEAR  ENDED  MAY  31,  1919;  FIVE  MONTHS  ENDED  MAY  31,  1919;  AND  MONTH  OF   MAY 

1919. 


Year  ended  May 
31,  1919. 

Five  months 
ended  May  31, 
1919. 

Month  of  May. 
1919. 

Operating  revenues  

$427,  426.  71 

$205,097.13 

$40,  935.  97 

Passenger  mvpim*"8  

420,093.65 

203,400.21 

40,  610.  72 

Other  revenues  

7,333.06 

1,696.92 

S'.'.V  25 

Operating  expenses  

436,522.13 

199,232.28 

40,  989.  43 

Way  and  structures  

59,  409.  33 

24,372.81 

5,  5S2.  06 

Equipment  

50,913.37 

23,  698.  44 

6,17").  32 

Power  

52,016.25 

21,344.78 

3,  8SIO.  OS 

Traffic  and  transportation  

191,017.01 

90,  719.  37 

17,  973.  94 

General  and  undistributed  

44,  194.  04 

21,887.91 

3,914.01) 

Taxes  

12,  770.  78 

6,245.80 

1,249.16 

Depreciation  

26,201.35 

10,963.17 

2,204.18 

Net  operating  ro  venue  

9,G9o.4t 

5,864.85 

53.46 

Percent  return  earned  

>.0« 

«.ei 

».006 

Cost  of  reproduction                

.  <  .  ••,   ;  •_,.  IK) 

«  $938.  037.  00 

'$937,951  00 

Materials  and  supplies        

30,000.00 

30,000.00 

30,  000.  00 

Total  utility  capital  

999,126.00 

963,037.00 

967  951.00 

1 12  months. 


1 4  months. 


•  1  mouth. 


'Average. 


»  May  1,  llil'J. 


780       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  MORTIMER.  Now,  regulation  by  the  Wisconsin  Commission  is 
presumed  to  embrace  the  theory  of  cost  of  service.  The  rates  of  fare 
are  intended  to  produce  sufficient  revenues  which  will  provide  all 
current  ordinary  operating  expenses,  taxes,  and  an  allowance  to 
insure  the  future  replacement  of  physical  property  and  a  reasonable 
return,  and  in  our  railway  utility  the  commission  has  held  that  a 
7.5  per  cent  return  is  a  reasonable  return,  and  that  has  been  adjudi- 
cated by  the,  supreme  court  of  the  State  as  fair  and  proper.  At 
no  time  during  the  last  two  years  have  we  earned  any  such  return. 

The  year  1916  was  our  best  year,  because  our  expenditures  for  main- 
tenance were  rather  low,  but  even  then  the  commission  held  that, 
during  1916,  after  making  adjustments  and  operating  expenses, 
charging  to  depreciation  reserve  the  things  that  this  commission 
thought  should  be  charged,  and  things  that  the  previous  commission 
thought  should  be  charged  to  operating  expenses,  they  found  that 
our  return  never  exceeded  7.6  per  cent. 

Now,  our  experience  with  the  investment  of  capital  in  a  railway 
business  is  such  that  I  would  feel  no  justification  in  recommending 
to  investors  that  they  put  any  additional  money  into  the  railway 
business  in  Wisconsin.  I  have  frequently  told  the  commission  that, 
and  it  is  pretty  well  understood  that  some  important  change  has  to 
take  place.  The  railroad  commission  has  information  at  all  times 
respecting  the  utility  capital,  provided  there  is  no  dispute  on  what 
the  valuation  is.  By  the  arrangement  for  the  filing  of  frequent 
reports,  it  is  also  in  a  position  to  watch  the  tendencies  in  operating 
expenses,  and  it  is  my  opinion  that  the  railroad  commission  should 
provide,  by  order,  for  a  scheme  of  automatic  regulation,  so  that  the 
net  operating  revenues  would  at  all  times  be  kept  in  approximate 
accordance  with  the  amount  determined  as  the  proper  annual  return 
by  the  commission.  There  may  be  some  technical  objection  from  the 
standpoint  of  law  that  the  commission  can  not  enter  such  an  order, 
but  having  been  apprised  of  the  facts  in  advance  of  the  last  session 
of  the  legislature,  it  was  the  duty  of  the  commission  to  have  asked 
for  the  enactment  of  such  legislation  as  would  have  permitted  it  to 
have  entered  such  an  order. 

Now,  that  brings  up  the  relation  of  cost  of  service  and  con- 
tractual relations  of  municipalities.  Commission  regulation,  as 
I  said  before,  contemplates  cost  of  service,  but  it  does  not  work  out 
that  way  in  practice,  because,  first,  of  the  shifting  bases  of  subsequent 
commissions,  and,  second,  because  of  the  long  period  of  time  required 
by  the  commission  to  act  upon  applications  of  utilities  for  adjust- 
ments in  rates.  There  may  even  be  a  valuation  required,  or  a 
revaluation,  or  accountants  may  have  to  have  an  examination. 
There  can  be  any  number  of  things  developed  as  reasons  for  delay 
if  the  commission  desires  to  cause  delay. 

Some  of  these  cost-of-service  franchises  are  defective  in  two  im- 
portant respects.  First,  there  is  no  guarantee  of  the  integrity  of  the 
capital.  The  franchises  on  their  faces  provide  for  a  diminishing 
capital  account.  In  other  words,  they  make  no  adequate  provision 
for  the  accumulation  of  reserves  against  the  future  replacements  of 
the  physical  property.  They  require  usually  the  creation  of  re- 
serves only  in  sufficient  amount  to  take  care  of  current  replace- 
ments, and  in  the  Cleveland  so-called  cost-of-service  franchise,  if  they 
encounter  an  extraordinary  replacement,  that  is  carried  as  a  sus- 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       781 

penclecl  asset  and  written  off  over  some  agreed  period  of  time.  In 
other  words,  there  has  been  a  number  of  years  in  which  the  Cleve- 
land Electric  Railway  was  financially  insolvent  and  an  examination 
of  the  balance  sheet  would  have  disclosed  that.  That  is  touched  on 
in  considerable  length  in  Doolittle's  book  on  a  study  of  the  Cleve- 
land problem. 

The  second  defect  in  these  cost-of-service  franchises  lies  in  the  fact 
that  the  cost  of  capital  is  continually  changing,  and  there  is  no  pro- 
vision made  for  the  determination  at  the  time  of  the  return  that  is 
to  be  allowed  upon  additions  to  capital  account. 

A  proper  State  utility  law  would  provide  something  to  this  ef- 
fect :  That  all  utilities  shall  be  valued,  and  the  utility  capital  shall 
be  determined  by  the  commission;  that  before  there  are  any  capital 
expenditures  made,  the  utility  shall  apply  to  the  commission  for 
authorization  to  make  the  expenditures,  and  the  commission  shall,  at 
the  same  time,  fix  the  return  to  be  allowed  upon  the  capital  ex- 
penditure. If  the  commission  fixes  too  low  a  return,  the  company 
can  say,  "  You  get  the  money,  Mr.  Commissioner."  If  the  commis- 
sion fixes  too  high  a  return,  that  fact  can  be  corrected  in  the  next  ap- 
plication of  the  utility.  Authorizations  of  capital  expenditures  shall 
be  cumulative.  Authorizations  of  annual  return  shall  likewise  be 
cumulative,  and  neither  shall  be  changed,  except,  in  the  first  case, 
when  property  is  removed,  taken  out  of  service,  and  abandoned,  and 
then  it  shall  be  taken  out  of  capital  account,  and  the  amount  of 
annual  return  that  is  fixed  in  this  manner  shall  not  be  changed  ex- 
cept in  the  event  of  refinancing,  which  may  cause  some  subsequent 
change  in  the  cost  of  money. 

Some  such  arrangement  as  that  would  be  fair  to  both  parties. 
There  is  only  one  defect  in  it  and  that  is  the  defect  of  all  cost-of- 
service  franchises,  and  that  is  you  may  not  be  able  to  collect  suffi- 
cient revenues  to  pay  the  annual  return.  Operating  expenses  are 
rising  so  rapidly,  the  demands  of  labor  in  all  lines  of  industry  are 
increasing  so  fast  that  the  electric-railway  business  is  fast  going 
into  the  position  of  the  British  coal  mines,  and  it  is  not  at  all  sure 
that  we  are  going  to  be  able  to  collect  sufficient  revenues  out  of  the 
railway  business  to  keep  it  going.  We  already  have  situations,  as  I 
will  instance,  where  I  am  unable  to  see,,  with  substantial  improve- 
ments to  the  railway  system  and  the  addition  of  a  large  amount  of 
rolling  stock  for  the  size  of  the  community,  that  we  could,  under 
any  system  of  fares  which  we  can  devise,  collect  sufficient  revenues 
to  pay  the  operating  expenses  and  pay  a  reasonable  return  upon  the 
utility  capital. 

That  situation  to  which  I  refer  is  in  the  city  of  Kenosha.  The  city 
of  Kenosha  has  had  a  remarkable  experience  with  its  railway  busi- 
ness. In  1914,  the  little  street  railway  down  there,  embracing  about 
7£  miles  of  track,  had  very  severe  jitney  competition.  Distances 
were  very  short.  We  undertook  the  operation  of  one-man  cars. 
That  produced  a  very  unfavorable  public  reaction.  The  town  was 
not  well  situated  for  the  operation  of  one-man  cars,  because  there  are 
25  railroad  crossings  in  our  1\  miles  of  track,  and  one  of  the  principal 
functions  of  the  conductor  is  to  flag  the  railroad  crossings.  At 
least,  that  was  the  principal  function  during  the  time  when  the  jit- 
neys were  so  active. 


782       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

The  employees,  in  May,  1918,  operating  the  cars  in  Kenosha  fol- 
lowing the  increased  wage  of  10  cents  an  hour  in  Milwaukee,  asked 
for  a  like  increase  in  wages.  Our  reply  to  them  was,  "  We  have  not 
the  heart  to  deny  it,  but  we  have  not  the  money  from  the  Kenosha 
Railway."  Then  they  said  they  would  strike,  and  we  told  them  that 
that  was  probably  the  best  thing  for  them  to  do  under  the  circum- 
stances and  that  there  were  lots  of  other  means  of  employment  in 
Kenosha  that  were  more  remunerative,  and  all  but  two  men  struck. 
Two  old  men  that  could  not  understand  what  that  meant.  And  it 
was  necessary  to  put  them  on  other  work,  trimming  lamps,  as  we  did 
not  want  two  cars  running  around  the  .streets.  Street-railway  serv- 
ice was  entirely  stopped  for  a  period  of  five  weeks. 

While  there  had  been  much  complaint  about  single-truck  cars  and 
the  fact  that  they  would  like  double-truck  cars  down  there,  opinion 
gradually  changed,  and  on  numerous  occasions  the  editorial  writers 
in  the  local  press  wished  the  company  would  take  a  car  out  of  the 
station  and  let  it  stand  down  in  Market  Square,  so  that  they  could  see 
what  a  street-car  looked  like. 

Things  developed  that  way  for  five  weeks,  until  the  railroad  com- 
mission ordered  the  jitneys  off  the  street,  and  ordered  the  company 
to  resume  service.  We  resumed  service  at  a  5-cent  fare,  and  with 
largely  increased  revenues.  WTe  are  now  operating  that  short  sys- 
tem with  the  smallest  average-sized  cars  and  the  largest  earnings 
per  car-mile  that  we  have  in  the  State  of  Wisconsin. 

Kenosha  is  a  large  manufacturing  city 

Mr.  WARREN.  What  is  the  population  ? 

Mr.  MORTIMER.  About  37,000. 

The  housing  problem  is  very  serious,  and  a  housing  corporation 
has  been  formed,  but  the  promoters  are  naturally  unwilling  to  go 
ahead  with  it  until  they  are  provided  with  additional  railway  facili- 
ties. 

The  Wisconsin  Gas  &  Electric  Co.  had  indicated  that  it  was  unable 
to  provide  any  additional  facilities  under  the  revenues  and  under  the 
t}^pe  of  regulation  which  it  had  been  experiencing. 

Local  discussion  arose  as  to  the  desirability  of  purchasing  the  elec- 
tric railway.  We  never  indicated  any  opposition  to  that,  because  we 
thought  that  would  be  a  very  good  disposition  of  it.  They  called  me 
to  Kenosha  to  give  them  a  price  on  it.  I  told  them,  in  substance, 
that  we  had  no  objection  to  their  buying  it  and  thought  it  would  be 
a  good  thing,  and  then  went  on  to  try  to  sell  it  to  them,  but  my  ef- 
forts at  salesmanship  were  very  poor,  because  the  more  I  talked  in 
favor  of  the  advantages  of  their  buying  it,  the  less  they  seemed  to 
want  it.  The  result  was  that  they  asked  if  there  was  not  any  kind  of 
a  proposition  that  we  could  make  that  would  permit  us  to  provide 
additional  railway  facilities  in  Kenosha  by  the  investment  of  private 
capital. 

We  then  outlined  the  necessity  of  a  municipal  guaranty,  and  that 
led  to  the  enactment  in  the  closing  days  of  the  legislature  of  a  mu- 
nicipal guaranty  law,  whereby  municipalities  can  contract  with  utili- 
ties for  extensions,  for  the  loaning  of  municipal  capital  to  provide 
utility  corporations,  or  for  the  guaranty  of  return,  and  profit  shar- 
ing. 

I  had  indicated  that,  as  a  starter,  we  would  require  a  guaranty 
of  6  per  cent  annual  return  upon  the  then  investment  of  approxi- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       783 

mately  $500,000,  plus  the  additional  investment  of  $500,000,  roughly ; 
that  any  returns  earned  in  excess  of  6  per  cent  should  be  divided 
40  per  cent  to  the  municipality,  10  per  cent  to  the  employees,  and  50 
per  cent  to  the  company ;  that  all  restrictions  with  respect  to  the  rates 
of  fare  should  be  eliminated;  that  the  property  should  be  operated 
to  produce  the  maximum  return  by  whatever  scheme  of  fares  was 
deemed  to  be  advisable,  and  that  the  compan}^  should  have  the  right 
to  initiate  the  fares.  The  fundamental  ideas  were  accepted.  The 
original  bill  as  drafted  contemplated  that  this  law  should  be  ap- 
plicable to  all  the  cities  of  the  State,  which  would  have  included 
Milwaukee;  but  the  governor  limited  it  to  cities  of  the  third  class, 
which  included  Kenosha  and  one  other  of  our  municipalities,  Racine. 

Mr.  WARREN.  What  is  the  division  point  of  population  between  a 
city  of  the  third  class  and  a  city  of  the  second  class  ? 

Mr.  MORTIMER.  The  cities  of  the  third  class  embrace  a  population 
of  10,000  to  40,000,  by  the  last  preceding  Federal  census.  The  cities 
of  the  second  class  are  in  excess  of  that  amount  and  up  to  100,000. 
So  that  there  are  only  two  cities  in  the  State  that  are  not  in  the  third 
class — I  mean  larger  cities. 

Mr.  WARREN.  That  is  Milwaukee  and  what  other  city? 

Mr.  MORTLMER.  The  city  of  Superior.  Racine  will  pass  out  of  that 
class  in  1920. 

The  1900  franchise,  under  which  the  Milwaukee  Railway  &  Light 
Co.  operated,  contained  a  provision  that  the  company  should  extend 
its  tracks  over  any  street  that  might  be  designated  by  resolution  of 
the  common  council  whenever  public  necessity  and  convenience  re- 
quired the  same.  That  resulted  in  the  ordering  of  track  extensions 
over  a  substantial  number  of  streets  whenever  they  wanted  to  pave 
the  balance  of  the  street,  because  the  costs  of  the  permanent  paying 
in  the  track  zone  are  imposed  by  ordinance  upon  the  street-railway 
utility.  It  became  necessary  to  correct  that.  There  may  have  been 
other  franchises  in  other  municipalities  of  the  State  that  contained 
a  similar  provision.  So,  in  one  of  the  sessions  of  the  legislature 
somebody  got  a  law  on  the  books  that  provided  that  the  railroad  com- 
mission should  order  extensions  whenever  public  necessity  and  con- 
venience required  the  same,  provided  that  the  cost  of  operating  such 
extensions  should  not  prevent  the  utility  from  earning  a  reasonable 
return  upon  the  utility  capital;  and  since  that  law  went  on  the  books 
there  have  not  been  any  street-railway  extensions. 

In  connection  with  the  labor  problem  there  was  introduced  into 
the  legislature  a  bill  making  the  railroad  commissioner  arbiter  of 
wage  disputes  between  the  public-utility  employees  and  the  em- 
ployer. Comparatively  little  progress  was  made  with  the  bill  be- 
cause there  was  another  measure  advocated  by  the  administration 
known  as  the  conciliation  bill.  The  conciliation  bill  provides  that 
in  the  event  of  dispute  l>etween  employer  and  employee  on  a  matter 
of  wages,  hours,  or  working  conditions,  the  matter  shall  be  referred 
to  the  board  of  conciliation  appointed  by  the  governor,  which  shall 
mediate  and  make  recommendations. 

Mr.  WARREX.  Is  that  confined  to  the  utilities,  or  to  all  industry? 

Mr.  MORTIMER.  The  board  of  conciliation  measure,  up  to  the  ex- 
tent that  I  have  described  it,  applies  to  all  industries.  It  has  no 
mandatory  powers  and  relies  upon  public  opinion  to  enforce  its 
recommendations. 


784       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

In  addition,  the  bill  contains  provisions  which,  in  the  event  of 
disputes  between  a  public  utility  and  the  employees,  the  matter 
shall  be  referred  for  determination  of  the  facts  to  the  railroad  com- 
mission, should  the  employer  set  up  the  defense  that  it  has  in- 
sufficient revenues  with  which  to  pay  the  increased  wages  demanded, 
and  that  the  determination  shall  be  made  promptly  by  the  railroad 
commission,  it  thus  being  the  outgrowth  of  the  recommendations  of 
the  special  legislative  investigating  committee. 

Now,  as  I  have  watched  the  operation  of  our  railway  system  in 
Wisconsin,  there  have  been  two  very  notable  influences  that  have 
caused  the  increase  in  cost  of  carrying  passengers.  One  of  these  has 
been  the  general  rise  in  wage  level  and  commodity  prices,  and  the 
other  has  been  of  an  entirely  different  character. 

Mr.  WARREN.  Before  you  go  to  that,  have  you  described  all  of  the 
legislation  that  you  want  to  call  the  attention  of  the  commission  to  ? 

Mr.  MORTIMER.  Yes ;  I  think  so.  I  think  that  is  all  that  is  impor- 
tant. . 

A  part  of  this  additional  investment  of  $15,000,000  in  our  Wis- 
consin utilities  to  which  I  have  referred  has  been  caused  by  extend- 
ing our  railway  lines  into  unprofitable  territory,  having  expenses,  in 
the  way  of  unremunerative  car  mileage,  car  hours,  track  mainte- 
nance, maintenance  of  equipment,  and,  in  part,  by  the  gradual  in- 
crease in  length  of  haul  over  which  passengers  .ride. 

The  determination  was  made  of  the  average  length  of  haul  in 
1911,  in  the  city  of  Milwaukee,  and  it  approximated  2.6  miles. 
Subsequent  estimates  have  indicated  that  that  average  length  of  haul 
had  increased  in  about  five  years  an  additional  half  mile,  showing 
the  gradual  movement  of  population  outward. 

Mr.  WARREN.  What  is  that  due  to  ?  Is  that  due  to  the  street  rail- 
ways in  any  way? 

Mr.  MORTIMER.  I  would  not  say  that  the  street  railway  was  in  any 
way  responsible  for  it.  It  is  due  to  the  growth  of  the  residential 
and  manufacturing  territory  gradually  outward,  from  the  center  of 
the  city. 

Mr.  WARREN.  Is  it  mostly  within  your  flat-fare  territory  ? 

Mr.  MORTIMER.  Oh,  yes ;  the  average  length  of  haul  lies  well  wyithin 
the  flat-rate-of-fare  area,  the  single-fare  area.  In  other  words,  pas- 
sengers are  riding  further  and  further. 

Now,  of  course,  its  fundamental  trouble  is  that  its  revenues  are  too 
low  and  its  operating  expenses  are  too  high,  but  the  fact  that  its 
revenues  are  too  low  may  be  due  to  either  one  or  two  causes — either 
that  the  fare  is  too  low,  or  we  are  hauling  them  too  far  for  the  fare 
we  are  collecting.  We  have  a  fair  demonstration  of  that  in  the  case 
of  the  Kenosha  situation.  The  Kenosha  railway  utility  is  showing 
a  larger  amount  available  for  depreciation  and  return  than  is  the 
Milwaukee  utility,  although  it  is  operating  with  smaller  cars  and 
has  a  higher  platform  wage  per  car-mile.  The  scheduled  speed  is 
lower.  That  is  due  to  the  fact  that  the  distance  passengers  are  hauled 
is  comparatively  small. 

There  has  been,  during  the  last  ten  years,  an  incessant  demand  for 
increased  frequency  of  service,  particularly  during  the  nonrush  hours. 
That  demand  has  been  insistent,  irrespective  of  the  nature  of  line  or 
territory  served,  and  there  have  been  commission  orders  that  have 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       785- 

required  that  the  minimum  frequency  inside  given  areas  shall  be  not 
greater  than  ten  minutes.  That  has  added  to  the  cost  of  producing- 
the  service,  but  it  is  probably  not  an  unmixed  evil,  because  the  added 
service  may,  in  a  number  of  cases,  have  paid  for  itself  through  in- 
creased travel.  Our  facts  respecting  that  are  comparatively  few, 
and  what  I  give  is  merely  an  expression  of  opinion. 

In  all  of  our  applications  to  the  Railroad  Commission  of  Wiscon- 
sin, which  we  believe  we  had  timed  so  that  if  properly  acted  on  they 
would  have  provided  us  with  the  necessary  increase  in  revenue  and 
would  have  kept  the  railroad  utility  wholly  solvent  and  produced  a 
reasonable  return,  we  have  never  asked  for  an  increase  in  fare  above* 
5  cents. 

In  1914  we  limited  the  length  to  which  passengers  might  ride  for  a 
certain  fare  by  installing  the  small  increment  zone  system  outside 
the  single-fare  area.  That  in  itself  lay  somewhat  outside  the  city 
limits. 

We  have  been  desirous  of  retaining  as  much  of  the  short-haul  busi- 
ness as  is  possible,  but  the  delay  in  commissions  in  acting  upon  our 
petitions  has  made  the  situation  more  urgent,  and  what  would  have 
been  adequate  relief  for  us  in  1910  and  1917  and  afterwards  would 
not  now  be  adequate  relief,  because  the  tendencies  of  increasing  costs 
are  on  an  increasing  rate  of  increase. 

We  have  not  found  that  the  increase  in  rates  into  suburban  terri- 
tory has  in  any  way  influenced  the  growth  of  the  communities.  We 
have  tried,  so  far  as  we  can,  to  make  the  outer  ends  of  the  lines  self- 
supporting.  That  has  been  absolutely  impossible,  and  I  do  not  be- 
lieve it  is  possible  on  any  street  railway  at  the  present  time,  but  the 
central  area  will  have  to  make  some  substantial  contribution  to  the 
cost  of  carrying  service  in  outlying  territory. 

Mr.  WARREN.  Before  you  go  to  that,  Mr.  Mortimer — You  spoke 
of  extensions  as  increasing  the  haul,  and  then  you  spoke  of  the  in- 
creased haul  which  is  independent  of  the  extensions,  but  which  is 
simply  the  tendency  of  the  population  to  live  further  out  beyond  the 
existing  lines,  as  both  contributing  to  a  higher  cost. 

Mr.  MORTIMER.  Yes. 

Mr.  WARREN.  Was  there  any  substantial  increase  of  line  going- 
back  to  the  electrification  of  this  system,  in  mileage? 

Mr.  MORTIMER.  No;  in  this  system  there  has  been  no  substantial 
increase  in  mileage  within  the  city  limits,  because  the  company  was 
built  up  of  seven  separate  systems,  many  of  which  closely  paralleled 
one  another,  and  in  a  process  of  gradual  rehabilitation,  the  lines  that 
have  been  too  close  together  have  been  removed ;  so  that  while,  say  at 
the  end  of  the  year  1910,  there  was  less  actual  track  mileage  in  the- 
city  of  Milwaukee  than  there  was  in  1890,  it  reached  farther  out  into- 
the  residential  and  manufacturing  districts  and  was  much  better 
distributed  to  serve  the  population. 

Mr.  WARREN.  So  that  there  were  extensions  ? 

Mr.  MORTIMER.  Oh,  there  were  extensions. 

Mr.  WARREN.  But  you  have  eliminated  some  unnecessary  mileage? 

Mr.  MORTIMER.  Yes;  we  have  eliminated  some  unnecessary  mileage. 

Mr.  WARREN.  Were  those  different  lines  merged  into  one  company, 
or  were  they  all  in  one  company  before  that? 


786       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  MORTIMER.  The  Milwaukee  Electric  Railway  &  Light  Co.  is 
a  reorganization  of  the  Milwaukee  Street  E-ailway  Co.,  and  all  lines 
were  merged  in  the  Milwaukee  Street  Railway  Co. 

Mr.  WARREN.  After  or  before  electrification? 

Mr.  MORTIMER.  The  process  extended  over  a  period  of  about 
three  years,  electrification  and  merger  simultaneously. 

Mr.  WARREN.  Prior  to  merger,  were  those  companies  entirely 
separate,  so  far  as  fares  were  concerned? 

Mr.  MORTIMER.  Yes.  There  were  no  free  transfers  between  the 
different  lines;  so  many  lines  serving  the  south  side  of  the  town, 
running  over  to  the  river;  other  lines  serving  the  north  side;  and 
still  other  lines  serving  the  west  side,  and  possibly  one  or  two  of 
the  seven  lines  serving  two  sides,  the  north  and  the  west  sides. 

Mr.  WARREN.  So  that  in  connection  with  the  electrification  the 
lines  were  merged,  and  in  connection  with  the  merger  the  double 
fares  were  eliminated? 

Mr.  MORTIMER.  The  double  fares  were  eliminated  and  the  transfer 
system  instituted. 

Mr.  WARREN.  For  the  benefit  of  all  lines? 

Mr.  MORTIMER.  Yes. 

Mr.  WARREN.  That  amounted  to  a  very  large  extension  of  the 
riding  privilege  in  connection  with  electrification;  did  it  not? 

Mr.  MORTIMER.  Oh,  without  a  doubt,  it  was  a  very  substantial 
improvement  in  facilities. 

Mr.  WARREN.  And  from  your  knowledge  of  street  railways  gen- 
erally over  the  country,  would  you  say  that  was  a  general  practice? 
Do  you  happen  to  know,  in  Boston,  for  instance,  whether  that  was 
done  or  not  ? 

Mr.  MORTIMER.  No;  I  am  not  familiar  with  the  Boston  situation. 
I  know  about  it  in  St.  Louis.  I  know  that  it  was  a  fact  in  St.  Louis. 

The  CHAIRMAN.  You  may  proceed,  Mr.  Mortimer. 

Mr.  MORTIMER.  Aside  from  the  problem  of  increased  revenues, 
one  of  the  most  pressing  problems  confronting  the  railway  is  that 
of  labor.  It  has  been  the  experience  in  the  last  few  years  that  the 
strikes  on  electric  railways  have  been  frequent  and  of  varying  dura- 
tion. Their  causes  have  been  numerous.  During  the  last  four 
or  five  months  it  has  been  increasingly  difficult  for  the  inter- 
national officers  of  the  unions  to  control  the  local  unions,  and  there 
have  been  a  number  of  street  railways  that  have  had  sporadic  strikes 
and  outbreaks  and  threats  from  the  national  officers  to  rule  the 
locals  out  of  the  national  unions  because  of  failure  to  adhere  to 
their  labor  contracts.  That  spirit  or  feeling  is  fairly  general  through- 
out labor,  prompted  partly  by  the  increase  in  the  cost  of  living 
and  partly  by  some  of  the  spirit  of  unrest  that  has  apparently  been 
wafted  across  the  ocean.  The  rises  in  hourly  rates  for  the  same 
number  of  hours  per  day  worked,  resulting  from  some  of  these 
recent  wage  awards,  have  been  larger  than  the  cost  of  living  ex- 
perienced since  the  aw^ard  of  the  National  War  Labor  Board.  Some 
of  these  hourly  increased  rates  of  wages  may  be  justified  on  the 
shorter  number  of  hours  worked  a  day  and  the  fewer  clays  per 
month,  but  as  a  general  proposition  I  think  most  students  of  the 
labor  problem  will  indicate  that  something  different  from  the  present 
clay  scheme  of  arbitration  will  have  to  be  developed.  And  I  know 
in  the  electric-railway  business  that  we  need  a  much  keener  re- 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       7S7 

sponsibility  on  the  part  of  the  workmen  in  their  duties  to  the  em- 
ployer and  in  their  dirties  to  the  public,  to  the  end  that  service  may  be 
maintained  at  a  minimum  cost  and  that  it  may  be  operated  with 
minimum  interruptions,  that  the  convenience  of  the  public  may  not 
be  disturbed. 

It  is  also  desirable  as  far  as  possible  to  incorporate  the  element  of 
productiA'it}'  as  a  basis  of  wages.  That  looks  as  though  it  might  be 
difficult  in  the  railway  business,  but  it  is  not  as  difficult  as  it  might 
appear  at  first  glance.  The  trainmen  forming  a  part  of  the  em- 
ployees making  up  the  principal  -group  have  primary  control  over 
the  regularity  of  speed  and  the  ability  to  maintain  fast  schedules 
and  thus  influence  the  cost  of  platform  labor  per  car-mile.  Usually 
they  are  paid  on  the  basis  of  hours — that  is,  a  rate  per  hour — and 
the  faster  the  cars  are  operated  the  less  will  be  the  expense  of  pro- 
ducing the  service.  They  also  have  control  over  the  power  con- 
duction through  care  in  operating  the  car,  care  in  braking,  care  in 
starting,  and  care  in  shutting  off  power  when  the  same  is  not  re- 
quired in  order  to  make  its  schedule.  It  is  conceivable  that  the 
schedule  makers  could  design  a  time  schedule  that  would  appre- 
ciably reduce  the  cost  of  platform  labor  per  car-mile  but  would 
require  the  cars  to  operate  so  fast  that  they  would  not  have  time  to 
stop  for  passengers.  That  that  is  not  an  exaggeration  is  disclosed 
by  the  experience  of  the  old  St.  Louis  Transit  Co.,  under  the  opera- 
tion of  the  late  Mr.  A.  B.  Du  Pont.  He  was  pressed  because  of  his 
increase  in  operating  expenses  by  the  management,  and  he  con- 
cluded, of  course,  that  the  way  to  reduce  operating  expenses  for 
giving  the  same  car  mileage  was  to  run  the  cars  faster.  So  he  ran 
the  cars  so  fast  that  they  did  not  have  time  to  pick  up  any  pas- 
sengers, and  the  result  was  that  the  passengers  usually  went  to  the 
street  intersection  with  a  brick  in  their  hand,  and  if  the  car  did  not 
stop  for  them  they  threw  the  brick  at  the  car.  The  damage  to 
equipment  was  considerable,  and  it  finally  resulted  in  the  imposi- 
tion of  a  license  tax  on  the  system,  a  gross-receipts  tax  of  2  per  cent. 
It  was  thought  that  by  imposing  that  tax  it  would  require  tlie  cars 
to  stop  and  it  also  would  placate  somewhat  public  opinion  at  the 
outrages  that  had  been  committed  on  them. 

Another  element  in  which  the  trainmen  are  primarily  interested 
is  the  revenues  per  car-mile.  So  a  productivity  system  of  wages 
can  be  arranged  whereby  an  agreed  hourly  rate,  graduated,  if  you 
please,  can  be  provided  as  a  minimum,  and  in  addition  thereto  a 
system  of  participation  in  the  savings  which  the  employee  may  ef- 
fect, first  by  reason  of  decrease  in  injuries  and  damages;  second, 
by  the  saving  in  power  consumption ;  third,  by  increasing  the 
schedule  speed;  fourth,  by  the  maintenance  of  equipment  over  which 
the  trainmen  have  control:  and  fifth,  through  increased  revenues  per 
car-mile.  Such  a  system  when  extended  can  be  made  to  develop  one 
for  the  administration  of  discipline.  An  employee  may  start  out 
at  the  beginning  of  the  month  with  1,000  points  to  his  credit,  and 
for  each  infraction  of  rules  or  justified  complaints  on  the  part  of 
the  public  deductions  can  be  arranged  so  that  his  participation  in 
the  aggregate  profits  for  the  month,  profits  resulting  from  the  sav- 
ings under  these  standards,  will  bo  reduced,  but  his  saving — that  is, 
the  money  that  is  taken  from  him — should  goto  the  other  employees 


788       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

of  the  group,  so  that  it  can  not  be  said  that  the  employer  is  disciplin- 
ing the  men  for  the  purpose  of  increasing  his  net  earnings. 

It  is  also  possible  to  put  all  accounting  work  on  a  productivity 
basis,  and  there  are  some  psychological  aspects  to  that.  Fundamen- 
tally and  individually  workmen,  be  they  male  or  female,  are  desirous 
of  being  placed  on  an  individual  basis  of  •compensation.  Now,  that 
is  strongly  urged  against  by  certain  classes  of  organized  labor.  But 
it  has  been  our  experience  that  where  there  has  been  this  gain-sharing 
plan  in  certain  departments  that  "we  have  had  demands  from  other 
departments — from  the  employees  of  those  departments — that  they 
be  installed.  In  other  words,  my  actual  experience  with  operations 
of  that  kind  is  different  from  the  general  published  results. 

I  am  not  suggesting  that  this  will  fundamentally  take  care  of  in- 
creases in  wages,  because  there  are  no  economies  which  employees 
can  effect,  at  least  in  sufficient  magnitude,  to  compensate  them  for 
the  increased  cost  of  living,  either  actual  or  imagined.  But  they  are 
small  elements  which  tend  to  develop  care  on  the  part  of  workmen 
and  which  in  turn  have  their  influence  in  adding  to  the  life  of  the 
physical  property  under  their  jurisdiction  and  tend  to  develop  a  cer- 
tain amount  of  individual  pride  and  individuality. 

Co'mmisioner  SWEET.  That  would  stabilize  the  labor  market  to  a 
certain  extent,  or  have  a  tendency  in  that  direction  ? 

Mr.  MORTIMER.  Yes ;  it  does  tend  to  stabilize  the  market.  It  holds 
out  to  employees  first  a  certain  return  for  the  month  in  the  way  of 
wage  compensation  and  in  addition  it  offers  to  them  a  speculation, 
and  desire  to  speculate  is  inherent — 

Commissioner  SWEET.  A  reward  for  extra  good  conduct? 

Mr.  MORTIMER.  Well,  it  is  a  reAvard  for  extra  good  conduct,  but 
it  is  that  same — it  originates  from  that  same  brain  cell  that  causes 
men  to  go  into  the  desert  for  the  discovery  of  gold  mines.  There  is 
an  intense  curiosity  invariably  displayed  as  to  what  the  results  of  the 
earnings  from  the  gain-sharing  plans  are  going  to  be  for  that  par- 
ticular month;  and  it  has  the  further  advantage  that  through  the 
operation  of  the  plan  you  can  disclose  some  of  the  most  intimate  de- 
tails of  operation  to  the  employees  and  show  to  them  the  influence  of 
changes  in  conditions  and  of  their  own  conduct  upon  the  results  for 
the  month. 

Commissioner  MEEKER.  Would  you  extend  the  sharing  plan  to  a 
share  in  the  management  of  the  industry  ? 

Mr.  MORTIMER.  Yes.  We  have  done  that  in  most  of  our  companies. 
We  have  provided  for  the  election  of  a  representative  of  labor  to  the 
board  of  directors.  In  fact 

Commissioner  MEEKER.  Will  you  elucidate  that  plan  briefly  ? 

Mr.  MORTIMER.  The  last  thing  I  mentioned  ? 

Mr.  WARREN.  Yes;  the  representation  on  the  board  of  directors. 

Mr.  MORTIMER.  Yes.  We  first  provided  in  our  group  for  the  elec- 
tion by  the  Employees'  Mutual  Benefit  Association  of  a  representa- 
tive to  the  board  of  directors  of  the  Union  Electric  Light  &  Power 
Co.,  the  electric  utility  in  St.  Louis.  The  by-laws  provide  for  seven 
directors.  One  of  those  directors  is  now  a  direct  representative  of 
the  Employees'  Mutual  Benefit  Association.  The  Employees'  Mutual 
Benefit  Association  first  asked  for  representation  upon  the  board  of 
directors  and  we  acceded  to  that  request. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       789 

Commissioner  MEEKER.  How  long  has  that  plan  been  in  operation? 

Mr.  MORTIMER.  That  election  took  place,  I  think,  in  March  of  the 
current  calendar  year.  The  emyloyee  was  chosen  by  a  process  of 
primary  nominations  at  which  two  were  selected  to  run  for  the  elec- 
tion ;  and  then  an  election  was  had  to  eliminate  one  or  the  other,  and 
the  man  chosen  to  represent  the  Employees'  Mutual  Benefit  Associa- 
tion on  the  board  of  directors  is  one  of  the  watch  engineers  in  the 
Ashley  Street  power  station,  and  he  sits  in  at  each  of  the  monthly 
board  meetings.  The  same  thing  is  now  in  process  of  working  out  in 
the  Wisconsin  Gas  &  Electric  Co. 

Commisioner  MEEKER.  Does  this  employees'  representative  have 
the  same  power  as  other  directors? 

Mr.  MORTIMER.  Absolutely.  He  has  absolutely  the  same  powers — • 
the  right  of  vote  and  the  right  to  discuss  questions  of  all  kinds. 

Commissioner  MEEKER.  Does  he  have  to  have  a  share  in  the 
capital  of  the  industry,  or 

Mr.  MORTIMER.  Yes,  the  law  requires  that  the  directors  be  share- 
holders in  the  States  in  which  we  operate.  That  is  not  true  of  all 
States.  And  in  this  case  he  was  qualified  by  the  company's  trans- 
ferring one  share  of  stock  to  his  name,  so  that  he  is  legally  entitled 
to  sit  as  a  member  of  the  board  of  directors.  It  is  all  being  worked 
out  in  the  case  of  the  Wisconsin  Gas  &  Electric  Co.,  and  in  the  case 
of  the  Milwaukee  Electric  Light  Co.  certain  changes  of  our 
articles  of  incorporation  will  have  to  be  made,  but  that  will  be  done, 
I  hope. 

Commissioner  MEEKER.  This  employees'  representative  was  chosen 
by  the  Employees'  Mutual  Benefit  Association? 

Mr.  MORTIMER.  Chosen  by  the  members  of  the  Employees'  Mutual 
Benefit  Association,  which  embraces  all  of  the  employees  of  the 
company. 

Commissioner  MEEKER.  All  employees? 

Mr.  MORTIMER.  All  employees. 

Commissioner  MEEKER.  Is  that  an  organization  that  stands  on  its 
own  feet  or  is  it  subsidized  by  the  company  ? 

Mr.  MORTIMER.  It  is  an  organization  that  has  two  principal  pur- 
poses in  life:  One  is  to  administer  sick  benefits  and  death  benefits, 
provide  medical  and  surgical  attendance  for  the  employees,  and  also 
to  provide  additional  insurance  of  both  life  and  sickness  and  acci- 
dents, off-duty  types.  In  respect  to  certain  of  its  insurance  bene- 
fits where  the  rate  is  flat  and  that  business  does  not  carry  itself,  the 
premiums  are  not  sufficiently  high,  it  is  necessary  for  the  company 
to  make  contributions.  Its  other  principal  function  is  that  of  col- 
lective bargaining,  and  in  that  respect  of  course  it  needs  no  contri- 
butions by  the  company. 

Commissioner  MEEKER.  By  collective  bargaining,  you  mean  set- 
tling upon  the  wage  and  hours? 

Mr.  MORTIMER.  And  conditions  of  labor,  yes. 

Commissioner  MEEKER.  And  conditions  of  labor  within  the  com- 
pany? 

Air.  MORTIMER.    Yes;  within  the  company. 

Commissioner  SWEET.  Do  you  like  that  plan  of  representation  on 
the  part  of  employees? 

Mr.  MORTIMER.  On  the  board  of  directors? 


790       PROCEEDINGS  OF  FEDERAL  ELECTRIC 'BAIL  WAYS  COMMISSION. 

Commissioner  SWEET.  Yes. 

Mr.  MORTIMER.  Yes:;  we  have  no  objection  to  it  at  all.  I  think  it 
is  a  perfectly  satisfactory  thing ;  in  fact,  we  would  have  no  objection 
to  giving  them  a  larger  representation. 

Commissioner  MEEKER.  Did  the  plan  originate  with  the  men? 

Mr.  MORTIMER.  Yes. 

Commissioner  MEEKER.  And  you  acceded  to  it? 

Mr.  MORTIMER.  Yes.  4". 

Commissioner  MEEKER.  It  was  not  your  proposal? 

Mr.  MORTIMER.  No ;  it  was  not  our  proposal. 

Commissioner  MEEKER.  Before  you  leave  the  question  of  labor  re- 
lations, I  would  like  to  ask  a  little  bit  further  about  this  gain-shar- 
ing plan  that  you  have.  Do  the  employees  actually  have  an  appreci- 
able control  over  accident  prevention^ 

Mr.  MORTIMER.  They  do. 

Commissioner  MEEKER.  Do  you  think  you  have  statistical  demon- 
stration of  that? 

Mr.  MORTIMER.  Yes ;  we  think  we  have. 

Commissioner  MEEKER.  Your  actual  rate  has  been  cut  down  since 
this  plan  was  put  into  operation? 

Mr.  MORTIMER.  Our  actual  disbursements  for  injuries  and  dam- 
ages have  been  materially  less  since  this  plan  was  effected. 

Commissioner  MEEKER.  How  long  has  this  plan  been  effective? 

Mr.  MORTIMER.  This  plan  applicable  to  transportation  in  conjunc- 
tion with  our  employees  has  been  applicable  since  June,  1915 — a 
period  of  four  years. 

Commissioner  MEEKER.  Have  you  statistics  which  .would  bear 
upon  this  subject?  Of  course,  other  causes  have  been  operating  to 
cut  down  the  accident  rates;  the  general  safety  movement  and  the 
workmen's  compensation  movement,  and  other  movements.  Do  you 
think  your  experience  is  better  than  the  experience  of  other  com- 
panies in  a  similar  line  of  business? 

Mr.  MORTIMER.  I  know  in  many  cases  the  electric  railways  have 
experienced  an  increase  in  the  cost  of  injury  and  damage  settlements. 

Commissioner  MEEKER.  However,  that  verges  on  quite  another 
question,  the  competence  of  administration  of  compensation  laws 
and  increases  in  rates,  which  have  been  quite  general  in  all  the  com- 
pensation States,  and  various  other  matters. 

Mr.  MORTIMER.  But,  Mr.  Commissioner,  the  injuries  and  damages 
to  which  I  refer  and  upon  which  these  calculations  are  based  relate 
to  injuries  and  damages  to  the  public  and  have  no  relation  to  work- 
men's industrial  injury  compensation. 

The  CHAIRMAN.  Mr.  Mortimer,  yesterday  afternoon  the  commis- 
sion assigned  the  hour  of  12  o'clock  to  hear  Gov.  Foss. 

Mr.  MORTIMER.  Yes,  I  remember  that. 

The  CHAIRMAN.  I  understand  that  he  is  here  now,  and  you  may 
resume  at  the  conclusion  of  his  testimony. 

(Witness  excused.) 

The  CHAIRMAN.  Gov.  Foss,  we  are  ready  to  hear  from  you. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       791 

STATEMENT  OF  MR.  EUGENE  N.  FOSS. 

Mr.  Foss.  Gentlemen,  you  will  understand  that  I  am  here  in  a 
private  capacity.  I  do  not  represent  any  corporation.  But  I  have 
been  and  am  still  a  large  holder  of  street  railroads  and  quasi-public 
corporation  stock.  I  have  been  a  great  believer  in  quasi-public  cor- 
porations. I  have  been  a  director  in  many  street-railroad  corpora- 
tions in  Massachusetts  and  also  in  New  York — in  the  two  leading 
systems  of  New  York,  the  Brooklyn  Rapid  Transit  and  the  Manhat- 
tan Elevated ;  and  I  have  been  more  or  less  acquainted  with  this  class 
of  investment  and  have  followed  it  for  a  good  many  years. 

I  have  come  to  the  conclusion,  somewhat  reluctantly  I  admit,  that 
public  ownership  is  the  only  true  solution  of  this  railroad  question, 
whether  it  be  the  railroads  or  the  electric  railways.  Of  course, 
private  ownership  is  out  of  the  question.  Private  ownership  with 
public  regulation  has  fallen  down.  There  is  nothing  else  left,  in  my 
judgment,  except  public  ownership  and  operation  or  else  public 
ownership  with  private  operation.  Public  or  private  ownership  and 
public  regulation  is  wrong  in  principle.  You  never  can  make  it 
work  successfully.  The  man  who  owns  these  properties  has  got  to 
run  them. 

Now  I  am  interested  in  this  proposition  primarily  because  it 
means  a  better  democracy,  and  we  have  got  to  democratize  our  trans- 
portation system  in  this  country.  That,  is  the  first  thing  we  have 
got  to  do.  And  then  we  have  got  to  democratize  our  industries  to  a 
greater  extent  than  they  have  been,  otherwise  we  are  going  to  be  in 
the  condition  that  they  are  abroad  in  some  places.  So  I  say,  pri- 
marily I  am  for  this  thing  because  it  means  a  better  democracy. 

There  are  a  great  many  reasons.  Of  course,  it  has  been  stated — 
you  read  the  public  press  and  you  would  think  that  we  had  public 
ownership  in  this  country  of  the  railroads.  We  have  not  public 
ownership  in  this  country.  We  do  not  know  anything  about  public 
ownership  in  this  country.  We  have  not  tried  it.  What  we  have 
in  this  country  is  a  lease  by  the  Federal  Government  of  the  railroads 
of  the  country.  But  when  was  that  lease  made?  That  was  made 
under  the  stress  of  the  war,  when  the  railroads  fell  down  and  could 
not  function.  And  what  was  that  lease?  That  lease  was  forced 
upon  the  Government  at  a  rental  of  $980,000,000  a  year,  which  is 
from  $130,000,000  to  $150.000,000  more  than  the  Government  ought 
to  pay  as  a  fair  return.  The  Delaware,  Lackawanna  &  Western  get 
under  this  thing  something  like  32  per  cent  on  their  stock,  I  think; 
the  Pennsylvania  Railroad  gets  about  12  per  cent.  Some  of  the 
weaker  roads  do  not  get  as  much.  Now  this  deficit  of  $200,000,000 
in  1918  was  not  properly  chargeable  to  inefficiency  on  the  part  of  the 
Government.  Practically  the  same  people  are  operating  these  rail- 
roads under  the  Government  that  there  were  prior  to  the  Govern- 
ment taking  hold  of  this  question.  It  was  chargeable  directly  to  the 
war,  just  as  much  as  the  billion  dollars  we  lost  in  making  aeroplanes 
is  chargeable  directly  to  the  war. 

Now  a  proposition  as  large  as  this,  as  Director  General  McAdoo 
says,  takes  five  years  to  work  it  out  and  effect  the  economies  that 
could  be  effected  under  Government  ownership;  no  question  about  it. 
It  takes  time.  Director  General  Hines  says  give  us  time  and  we 
can  show  you  wonderful  economy.  Talk  about  efficiency.  You  can 


792       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

get  just  as  good  efficiency — I  will  not  concede  for  a  single  moment 
that  you  can  not  get  just  as  good  efficiency  under  Government  owner- 
ship as  you  can  under  private  ownership — just  exactly  as  good. 

We  have  had  cases  in  Massachusetts — for  instance,  our  metropoli- 
tan water  system  if  you  please,  created  25  years  ago,  in  which  a  com- 
mission, a  nonpartisan  commission,  appointed  by  the  governor  has 
spent  $40,000,000  on  a  water  system  for  Boston,  one  of  the  best  in 
the  country.  It  gives  us  the  cheapest  water.  That  commission  paid 
off  $20,000,000  indebtedness  to-day,  and  we  will  have  it  all  paid  off, 
and  there  has  not  been  a  word  of  scandal  about  the  management,  no 
graft  or  anything  of  that  sort.  I  had  no  trouble  when  I  was  governor 
of  Massachusetts  for  three  terms  to  find  the  best  patriotic  men  in 
the  State  to  take  these  Government  positions.  It  fell  to  my  lot 
to  rebuild  the  court  of  Massachusetts,  both  branches,  and  I  did  not 
have  any  trouble  about  getting  the  best  men  in  the  State  at  the  very 
moderate  salaries  paid  by  the  State  of  Massachusetts  to  its  judiciary; 
no  trouble  about  it  at  ail. 

It  is  a  reflection  upon  our  intelligence  and  upon  our  business 
capacity.  I  am  not  willing  to  admit  that  the  Post  Office  is  not  well 
handled,  economically  and  efficiently  handled.  I  know  you  can  put 
a  package  in  the  mail  in  Boston  and  get  it  here  to  Washington 
quicker  than  you  can  by  express.  I  am  not  going  to  stand  for  that 
sort  of  thing.  We  can  do  just  as  efficient  work  under  Government 
ownership  as  we  can  any  other  way;  no  doubt  about  it  at  all. 

And  there  is  the  question,  gentlemen,  of  the  capital.  How  are 
we  going  to  get  capital  for  this  purpose,  for  these  railroads?  You 
can  not  turn  them  back;  it  is  utterly  impossible.  If  you  gentlemen 
will  read  the  indictment  of  the  Interstate  Commerce  Commission  of 
the  New  Haven  Railroad  and  Mr.  Mellen,  I  do  not  believe  there  is 
a  man  in  this  room  who  ever  read  it  who  can  stand  up  and  say  he  is 
in  favor  of  turning  these  railroads  back  to  the  crowd  that  wrecked 
them.  We  never  will  do  it  in  the  world.  In  the  first  place  they  can 
not  take  them  back,  and  they  ought  not  to  take  them  back.  Banker 
management  has  got  to  cease  from  all  of  these  railroads  and  public- 
service  corporations.  It  is  a  failure.  Why?  Because  the  tempta- 
tion to  wreck  these  roads  and  reorganize  them  is  too  great.  They  do 
it  every  10  years  or  thereabouts;  that  is  what  happens.  Do  these 
railroad  presidents  and  these  railroad  managers,  who  own  very  little 
of  the  stock  of  the  companies  you  will  find — do  they  ever  consult 
their  directors  or  stockholders  in  reference  to  any  measure?  No; 
they  go  right  down  to  Wall  Street  and  talk  with  the  banker  who  is 
running  the  proposition.  That  is  the  man  who  appointed  them — the 
banker,  not  the  directors.  Mr.  Mellen  did  not  use  to  know  his  di- 
rectors when  he  met  them  on  the  street ;  he  never  knew  them.  Some 
of  the  directors  have  told  me  that  they  did  not  speak  to  him.  Where 
did  he  go?  He  went  down  to  Morgan's  office.  When  Mr.  Morgan 
said  that  so  and  so  was  all  right,  he  went  right  ahead.  That  is  what 
happened.  They  have  got  to  take  their  hands  off.  The  country  is 
going  to  demand  it  and  say  we  are  going  to  democratize  these  things. 
Labor  and  these  other  forces  are  going  to  have  more  to  say. 

Again,  we  tried  in  Massachusetts  everything.  We  were  the  first 
State  in  the  Union  to  have  a  public-service  commission,  or  a  rail- 
road commission — right  there  in  Massachusetts.  And  our  railroad 
stocks,  you  know,  for  years  have  been  sold  there  by  the  companies 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       793 

at  a  price  fixed  by  the  railroad  commission,  and  our  investors  have 
bought  those  securities.  Widows  and  orphans  and  trustees  have  put 
their  money  in  these  railroad  securities  and  quasi-public  corpora- 
tion securities  in  Massachusetts,  because  they  thought  they  were  the 
next  thing  to  Government  bonds,  because  they  considered  that  noth- 
ing could  happen  to  them,  since  the  State  fixed  the  price  at  which 
the  stock  should  be  put  out  and  also  fixed  the  tariffs  on  the  railroads. 
But  we  saw  New  York,  New  Haven  &  Hartford  stock  go  from  250 
to  25,  while  the  commission  could  say  the  New  Haven  stock  should 
not  be  put  out  at  less  than  $200  a  share,  which  it  was  worth,  and 
Boston  Elevated,  selling  at  155,  some  of  it — and  .really  $135  to-day 
represents  every  dollar  put  in  the  property — still  this  stock  sold 
down  to  27  or  28.  Thousands  of  people  were  ruined.  I  know  of 
women  in  Massachusetts  who  are  working  to-day  who  had  a  small 
competence  put  away  in  these  stocks  which  has  all  been  wiped  out. 

Now,  this  thing  has  got  to  stop.  The  State  is  morally  responsible 
for  that  condition  to-day  and  ought  to  be  responsible  in  equity,  and 
the  people  are  going  to  see  to  it  that  they  are.  These  quasi-public 
corporation  stocks  have  got  to  cease  being  speculative  footballs. 
That  is  my  judgment  about  it.. 

Now  this  question  of  labor:  It  is  a  very  big  question,  as  we  all 
know.  Who  can  settle  it  better  than  the  Government?  Who  can 
handle  this  labor  proposition  in  an  equitable,  fair,  and  just  way  to 
all  concerned  more  than  the  Government?  We  have  got  to  appeal 
to  the  Government.  Did  not  the  railroads  come  to  the  Government 
and  appeal  to  the  President  to  settle  the  railroad  strike  prior  to 
the  war  ?  It  is  the  same  thing ;  they  can  not  do  it  otherwise.  Labor 
is  going  to  make  these  demands,  and  whether  they  be  just  or  whether 
they  be  unjust,  let  the  Government  settle  it.  It  is  a  Government 
proposition.  Let  them  settle  it. 

Now  I  say  we  tried  almost  everything  in  Massachusetts.  We  have 
a  scheme  there  on  the  street-railroad  question  and  the  whole  State 
it  stirred  up  about  it,  of  a  service-at-cost  plan.  It  was  created  a 
year  ago,  in  1918,  by  an  act  of  the  legislature,  by  which  the  governor 
appointed  five  trustees  to  run  the  Boston  Elevated  Railroad,  which 
is  the  entire  street-railway  system,  both  the  surface,  subway,  and 
elevated  lines,  of  the  whole  city  of  Boston  and  its  suburbs.  They 
have  been  running  the  roads,  they  have  advanced  the  fares  steadily 
until  they  are  now  10  cents.  They  were  put  at  the  10-cent  rate  about 
a  week  ago  or  thereabouts.  A  strike  by  the  employees  immediately 
followed  which  has  been  adjusted  after  the  railroad  was  closed  up 
for  four  days  and  the  public  suffered  a  great  inconvenience.  But 
what  has  been  the  result?  The  result  has  been  this — that  25  per 
cent  less  people  patronized  the  railroad  because  the  fare  was  10  cents. 
Now  that  railroad  is  not  serving  the  people  as  it  ought  to,  if  25  per 
cent  of  them  can  not  ride  on  account  of  the  price.  The  revenue  has 
fallen  off  about  $4,000  a  day.  That  act  is  abortive;  it  is  a  make- 
shift; it  is  doomed  to  failure.  It  is  neither  satisfying  the  riding 
public  nor  will  it  result  in  increased  revenue. 

I  want  to  ask  you  this  question :  P^verybody  is  taxed  to  make  this 
street  out  here  safe  for  the  autcmobile.  The  Supreme  Court  said 
that  a  railroad  is  a  part  of  the  highway.  Why  should  not  every- 
body be  taxed  to  make  the  people's  automobile,  the  electric  car,  safe? 
Answer  that  question  for  me,  if  you  can.  If  that  is  socialism,  then  I 

1C(XJ430— 20 51 


784       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

am  a  socialist.  That  is  what  we  have  got  to  come  to  in  this  country, 
and  it  is  right  that  we  should  come  to  it,  too. 

The  street  railroad  is  a  necessity,  it  is  a  part  of  our  social  and 
industrial  life.  Now  I  am  the  head  of  a  manufacturing  establish- 
ment employing  2,000  operatives  in  the  suburbs  of  Boston.  It  is 
not  possible  for  those  operatives  all  to  live  within  walking  distance 
of  that  plant,  neither  is  it  possible  for  their  children  to  be  within 
walking  distance  of  those  schools  that  they  must  attend.  We  have 
got  to  have  that  means  of  conveyance  and  we  have  to  make  that 
means  of  conveyance  as  cheap  and  reasonable  as  possible,  I  say,  in 
the  interest  of  a  better  democracy. 

We  used  to  have  post  roads  in  this  country.  We  used  to  have 
toll  bridges.  They  have  all  been  wiped  out.  Now  that  thing  is  all 
covered  by  general  taxation,  and  we  have  got  to  cover  a  great  deal 
of  the  operation  and  the  construction,  if  you  please,  of  these  street 
railroads  by  taxation — no  doubt  about  it  in  my  judgment;  you  can 
not  get  around  it.  These  street  railroads  in  Massachusetts  have 
abandoned,  within  the  last  few  years,  miles  of  these  tracks  in  the 
suburbs.  People  have  built  houses  along  these  tracks  supposing  that 
these  tracks  were  laid  there  under  the  direction  'id  approval  of  the 
public-service  commission  as  a  public  necessity.  Are  these  people 
now  to  be  cut  off  from  all  forms  of  transportation?  Is  the  State 
liable?  I  say  they  are;  they  ought  to  be  liable.  That  construction 
ought  never  to  have  been  permitted  if  it  is  not  going  to  be  maintained. 

Now,  we  are  going  to  have  a  campaign  in  Massachusetts  this  fall 
and  determine  some  of  these  questions.  It  is  right  on  now,  in  fact  it 
has  reached  such  a  crisis  that  the  governor  of  the  State  sent  a  special 
message  to  the  legislature  yesterday  in  which  he  asked  to  be  per- 
mitted to  appoint  a  commission  of  seven  to  make  an  investigation 
of  the  street-railroad  question,  and  have  a  special  session  of  the  legis- 
lature from  the  loth  of  November  to  consider  the  question  and  that 
question  alone.  We  are  going  to  do  something  there  in  Massachu- 
setts, and  I  predict  that  we  are  going  to  come  to  government  owner- 
ship as  the  only  thing.  I  know  that  I  could  work  out  a  plan,  and  I 
could  find  a  body  of  men  in  Massachusetts  or  any  other  State  in  the 
Union  honest  and  patriotic  enough  to  conduct  these  street  railroads 
just  as  honestly  and  just  as  fairly  and  just  as  economically  for  the 
State  as  they  could  for  the  Standard  Oil  Co.  or  any  other  organiza- 
tion there  is  in  the  country.  There  is  no  reason  why  our  young 
men  and  boys  should  not  work  for  the  State  and  Government  just  as 
efficiently  and  just  as  honestly  as  they  would  for  any  other  corpora- 
tion. And  it  is  a  great  mistake  not  to  admit  it.  I  will  not  admit  for 
a  single  moment  but  what,  when  we  get  Government  ownership  in 
this  country — as  w-e  are  going  to  get,  in  my  judgment,  and  we  ought 
to  have  it,  as  applying  to  all  these  railroads — you  are  going  to  see 
marked  and  wonderful  economies  in  all  respects.  The  public  can  not 
get  a  square  deal  through  a  private  corporation,  even  if  it  is  pub- 
licly regulated.  It  can  not  do  it ;  it  is  utterly  impossible.  And  I  do 
not  see,  as  I  say,  any  other  solution. 

The  people  say,  "  Oh,  we  must  keep  these  railroads  out  of  politics." 
Good  heavens,  have  they  not  been  in  politics  ?  Are  they  not  in  poli- 
tics? They  have  been  in  politics  for  50  years.  What  did  I  find  on 
Beacon  Hill  in  Boston?  I  found  out  that  the  greatest  lobby  of  the 
State  was  maintained  by  the  quasi-public  corporations.  The  king  of 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       795 

the  lobby  who  was  employed  by  the  Boston  Elevated  Railroad 
received  a  salary  of  $25,000  a  year.  One  corporation  paid  that 
amount  for  one  man,  and  he  had  a  train  of  followers.  And  it  is  the 
quasi-public  corporations  who  have  done  more  than  any  other  force 
in  this  country  to  debauch  legislatures.  They  have  made  legislatures 
and  unmade  legislatures  and  unmade  men.  They  have  created  the 
legislatures.  Now  what  we  have  to  do  is  to  take  these  street  railroads 
over  and  keep  them  out  of  politics.  That  is  what  we  have  to  do.  We 
have  got  to  take  them  over  to  keep  them  out.  That  is  the  proposition 
as  I  see  it. 

I  should  be  very  glad  indeed,  Mr.  Chairman,  to  answer  any  ques- 
tions that  I  can.  I  do  not  pretend  to  be  an  expert,  but  any  questions 
you  should  like  to  ask  I  should  be  very  glad  indeed  to  answer  in  the 
best  way  I  can. 

The  CHAIRMAN.  Mr.  Warren,  do  you  wish  to  ask  the  governor  any 
questions  ? 

Mr.  WARREN.  I  do  not  think  I  dp.  I  think  the  governor  has  de- 
scribed the  street  railway  situation  in  Massachusetts  about  right. 

Commissioner  SWEET.  You  have  expressed  your  opinion  very 
clearly  and  I  think  we  all  understand  what  your  view  is  on  this  sub- 
ject, but  there  are  a  few  points  that  I  would  like  to  ask  some  ques- 
tions on  with  regard  to  government  ownership.  In  the  first  place, 
have  you  any  figures  or  data  or  statistics  upon  which  you  base  your 
opinion,  or  is  it  rather  evolved  from  your  own  consciousness  as  to 
what  you  think  is  right? 

Mr.  Foss.  I  have  no  figures,  neither  have  I  attempted  to  make  any. 
My  opinion  is  entirely  from  my  own  experience  in  the  last  25  years 
as  on  boards  of  directors  and  as  owner  of  street-railroad  securities 
and  railroad  securities  generally. 

Commissioner  SWEET.  Would  you  apply  the  same  reasoning  to  all 
public  utilities  that  you  apply  to  street  railroads? 

Mr.  Foss.  Yes,  I  would.  The  gas  companies,  electric  companies, 
water  companies — water  companies  are  almost  wholly  taken  over 
now.  I  think  we  have  to  take  over  all  the  gas  and  electric-light  com- 
panies. 

Commissioner  SWEET.  And  steam  railroads  ? 

Mr.  Foss.  And  steam  railroads — the  whole  business. 

Commissioner  SWEET.  And  the  telegraph  and  telephone? 

Mr.  Foss.  Yes,  the  telegraph  and  telephone. 

Commissioner  SWEET.  I  suppose  you  have  given  consideration  to 
the  fact  that  that  would  mean  a  tremendous  number  of  people  under 
Government  employ  ? 

Mr.  Foss.  Yes,  I.  do. 

Commissioner  SWEET.  And  I  presume  you  would  admit  that  that 
miffht  have  some  disadvantages  and  perhaps  some  advantages) 

Mr.  Foss.  I  do  not  see  any  menace  in  that  proposition  at  all.  You 
take  your  postal  authorities  to-day ;  I  can  not  tell  you  how  many  we 
have,  but  ti*ey  are  no  menace  as  I  see  it.  Some  of  them  are  Republi- 
cans, some  of  them  Democrats,  some  Prohibitionists,  some  Socialists 
and  what  not. 

Commissioner  SWEET.  The  postmasters  are  almost  invariably  of 
the  same  party  as  the  appointing  power. 

Mr.  Foss.  Yes,  of  course.  Our  civil  service  is  very  properly  ex- 
tending its  duties  and  service  and  I  think  will  do  more  so  as  our 


796       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Government  gets  better  and  stronger,  as  we  get  to  be  a  better 
democracy.  As  I  say,  I  am  talking  about  a  better  democracy. 

Commissioner  SWEET.  You  think  a  properly  enforced  civil-service 
system  would  obviate  the  objections  which  might  be  raised? 

Mr.  Foss.  Entirely.  When  the  changes  of  administration  come  we 
are  not  going  to  change  the  managers  of  any  of  these  railroads;  no 
president,  no  general  manager,  no  engineer  is  going  to  change  his 
position  at  all.  He  does  not  change  with  the  administration. 

Commissioner  SWEET.  Has  it  not  been  your  experience,  Governor, 
in  public  life,  that  governmental  officials  are  usually  very  poorly 
paid  ? 

Mr.  Foss.  Yes,  that  is  true,  they  are  poorly  paid. 

Commissioner  SWEET.  Don't  you  think  the  public  will  require  con- 
siderable education  before  it  will  consent  to  pay  for  the  kind  of  serv- 
ice which  it  ought  to  have  to  run  these  utilities? 

Mr.  Foss.  No,  sir;  I  do  not.  I  will  tell  you,  I  have  dealt  with  the 
public  a  good  deal  all  my  life.  I  have  been  close  to  the  public.  I 
have  been  a  large  employer  of  labor  all  my  life.  I  have  been  close 
to  that  labor.  I  have  not  had  labor  troubles.  And  I  think  I  know 
something  about  the  public.  My  theory  is  this,  that  when  you  tell 
the  public  the  whole  truth  you  never  have  any  trouble.  They  are  the 
most  reasonable  thing  to  deal  with  that  there  is  on  earth,  the  great 
public,  when  you  just  tell  them  all  the  truth.  But  when  you  tell  them 
only  half  of  it  or  a  part  of  it  or  cover  something  up,  then  the 
devil  is  to  pay,  and  properly  so,  too.  But  when  you  tell  them  all  the 
truth  they  do  not  object  to  a  large  salary.  Let  them  understand  they 
can  come  right  up  from  the  ranks  the  same  as  they  can  in  our  Gov- 
ernment, and  if  they  have  the  qualities  to  become  general  managers 
and  presidents  of  these  railroad  corporations  that  position  shall  be- 
long to  them  and  to  nobody  else.  How  are  these  presidents  created 
to-day  ?  How  are  these  general  managers  created  to-day  ?  They,  are 
created  by  the  bankers  that  control  these  roads.  A  great  many  of 
them  are  inefficient  and  have  been  for  years.  Perhaps  we  are  getting 
more  efficiency  to-day  than  we  have  got  before,  but  I  tell  you  you  will 
not  have  any  trouble  if  you  tell  the  public  the  whole  truth.  But  the 
trouble  is  we  lie  to  the  public  and  deceive  the  public  and  only  tell 
them  part  of  it ;  and  you  can  not  get  along  that  way. 

Commissioner  SWEET.  In  Massachusetts  while  you  were  governor, 
did  you  think  public  officers  were  properly  compensated  for  the  work 
they  did  and  the  brains  they  put  into  the  work  ? 

Mr.  Foss.  No. 

Commissioner  SWEET.  Why  did  you  not  explain  that  to  the  public 
and  get  the  change  made? 

Mr.  Foss.  I  did  so  far  as  I  could. 

Commissioner  SWEET.  But  you  could  not  do  it;  could  you? 

Mr.  Foss.  I  got  the  State  to  advance  the  salaries  of  all  the  judges. 
We  have  an  appointive  system  of  judges  in  Massachusetts,  and  I  got 
the  State  to  increase  their  salaries. 

Commissioner  SWEET.  Are  you  familiar  with  the  situation  in  the 
smaller  cities  of  the  country  with  regard  to  public  employees? 

Mr.  Foss.  I  think  I  am  to  some  extent,  but  I  am  particularly  in 
Massachusetts.  I  do  not  know  so  much  about  the  other  States. 

Commissioner  SWEET.  Let  me  state  to  you  an  experience  which  I 
think  is  typical  of  a  great  many  of  our  cities  of  the  smaller  size.  I 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION".       797 

was  connected  with  the  city  government  of  a  city  of  a  little  over 
100.000  inhabitants.  We  employed  a  general  manager  of  our  board 
of  public  works  and,  under  the  city  charter,  the  maximum  price  we 
could  pay  him  was  $4,000  a  year.  That  man  was  a  very  public-spir- 
ited man  and  a  very  competent  one,  and  he  made  an  excellent  show- 
ing in  the  way  of  saving  for  the  city  in  economies  of  various  kinds 
and  in  efficiency.  A  private  corporation  offered  him  six  or  seven 
thousand  dollars  a  year.  There  was  no  way  in  which  the  city  could 
pay  him  more,  although  he  was  admitted  by  all  intelligent  people  of 
the  city  to  be  worth  more,  and  finally  against  his  own  wishes — for  he 
would  have  preferred  to  stay  with  the  city  government — his  financial 
situation  practically  demanded  that  he  resign  his  public  employment 
and  accept  the  private  employment.  Now  then,  I  believe,  Governor, 
that  that  is  the  situation  that  you  will  find  in  a  great  many  of  our 
cities  of  moderate  size  and  that  the  public,  at  the  present  time  at  least, 
is  not  willing  to  properly  compensate  for  real  first-class  service. 

Mr.  Foss.  Oh,  I  will  admit  that  is  so  to  some  extent,  but  I  will 
tell  you  that  if  the  public  believed  that  they  were  getting  a  square 
deal  you  would  not  have  any  trouble  about  advancing  that  fellow's 
salary. 

Commissioner  SWEET.  Now,  to  come  to  the  street-railway  situation, 
is  it  not  a  fact  that  labor — that  is,  wages  and  the  cost  of  material 
and  everything  that  street-railway  companies  have  to  buy — has  ma- 
terially advanced  in  price? 

Mr. 'Foss.  Oh,  doubled. 

Commissioner  SWEET.  And  can  you  name  a  single  industry  in  the 
United  States  that  could  stand  that  without  an  increase  in  income  ? 

Mr.  Foss.  Of  course  not;  certainly  not. 

Commissioner  SWEET.  Then  this  situation  as  it  exists  to-day  with 
the  street  electric  railways  is  one  which  any  intelligent  man  would 
expect  it  to  be ;  is  it  not  ? 

Mr.  Foss.  Surely. 

Commissioner  SWEET.  It  could  not  be  otherwise. 

Mr.  Foss.  No,  it  could  not  be  otherwise.  But  I  want  to  tell  you 
why  it  is  due  to  that  fact.  You  see,  these  public-service  commis- 
sions in  the  States  and  in  the  Nation  have  not  got  courage  enough  to 
advance  these  fares.  They  are  honest  men.  I  appointed  some  of 
them 

Commissioner  SWEET.  Are  they  not  prevented  by  law  in  many 
cases  ? 

Mr.  Foss.  They  may  be  to  some  extent,  but  they  are  not  in  Massa- 
chusetts, I  appointed  the  railroad  commission  in  Massachusetts, 
most  of  them  who  are  serving  to-day;  five  splendid  men,  who  have 
not  courage  enough  to  do  it.  Why  haven't  they  courage  enough  to 
do  it?  Because  the  railroads  have  grafted  and  they  have  stolen 
and  have  wrecked  their  properties  and  have  lost- the  confidence  of 
the  public  to  that  extent  that  there  is  no  railroad  commission  that 
can  stand  up  for  a  single  moment  against  the  public  and  do  what 
they  ought  to  do  and  what  they  know  they  ought  to  do.  You  talk 
with  any  one  of  these  public-service  commissioners  in  that  State  or 
in  the  Nation  and  they  will  tell  you  these  fares  ought  to  be  doubled; 
if  these  roads  go  back  to  private  ownership  the  rates  have  to  go  up, 
not  25  per  cent,  but  50  per  cent. 


798       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Commissioner  SWEET.  Are  you  not  aware  in  most  States  the  right 
to  raise  fares  is  under  the  control  of  the  State  commissions? 

Mr.  FOBS,  Certainly. 

Commissioner  SWEET.  Are  they  not  under  governmental  orders? 

Mr.  FOBS.  Certainly. 

Commissioner  SWEET.  Are  they  not  under  governmental  officials? 

Mr.  Foss.  Yes. 

Commissioner  SWEET.  Just  the  same  as  they  would  be  if  the  whole 
thing  was  under  the  control  and  operation  of  the  Government? 

Mr.  FOBS.  Yes. 

Commissioner  SWEET.  Are  not  the  companies  as  a  rule  anxious  to 
raise  fares  and  are  they  not  in  many  cases  obstructed  by  these  pub- 
lic service  commissions? 

Mr.  FOBS.  I  think  the  public-service  commissions  are  ready  if  they 
felt  that  public  sentiment  was  behind  them,  but  the  public  will  not 
stand  for  it,  because  they  feel  that  they  do  not  know  the  whole  truth, 
they  have  not  been  treated  right.  That  is  the  condition  in  Massa- 
chusetts. I  have  talked  with  the  public-service  commissioners  and 
they  openly  say  so. 

Commissioner  SWEET.  Is  not  this  condition  of  not  having  been 
treated  right  rather  a  tradition  from  years  ago  rather  than  a  condi- 
tion that  exists  at  the  present  time  ? 

Mr.  Foss.  Well,  I  think  that  is  true.  I  think  the  condition  in  the 
country  to-day  is  better  than  it  ever  has  been  as  to  integrity  and 
honesty. 

Commissioner  SWEET.  Then  you  think  if  the  public  fully  under- 
stood the  situation  as  it  is  to-day  and  realized  the  fact  that  these 
companies  can  not  do  business  unless  they  can  increase  their  income 
and  that  they  are  at  the  present  time  being  for  the  most  part  honestly 
and  capably  managed,  do  you  think  if  the  public  were  convinced 
of  the  truth  as  it  stands  that  it  would  readily  acquiesce  in  an  in- 
crease of  fares  and  would  pay  them  without  demur? 

Mr.  Foss.  Xo;  I  do  not  put  it  so  broadly  as  you  put  it.  They 
would  to  some  extent,  but  the  public  have  got  the  idea  which  I  have 
advanced  here,  and  very  properly  in  my  judgment  and  the  right 
idea  too,  that  a  portion — not  all,  but  a  portion — of  this  expense  must 
go  into  general  taxation. 

Now  we  are  making  the  car  rider  pay  the  whole  bill.  I  will  illus- 
trate. In  my  own  family  there  are  10  adults  and  we  have  8  grand- 
children, the  oldest  one  only  6  years  old.  We  have  9  automobiles 
to  carry  those  10  people  around.  I  am  the  .only  fellow  who  ever 
uses  the  electric  car.  Every  one  of  my  sons  and  daughters  and  my 
wife  never  step  into  one.  I  do  not  believe  they  have  been  in  an 
electric  car  for  five  years.  When  they  want  to  go  any  place,  the 
automobile  is  standing  at  the  door  and  they  go  in  that.  When  we 
get  around  the  dinner  table  at  night,  as  we  do  once  in  a  while,  the 
first  thing  they  will  do  is  to  kind  of  touch  the  old  man  up  about 
prohibition  and  then  they  will  start  to  talk  about  the  roads.  One 
of  the  boys  has  been  out  here  and  he  struck  the  damnedest  roads  he 
ever  saw  in  his  life,  and  he  begins  to  score  the  State  commission  and 
the  selectmen  of  the  town  and  everybody  all  down  the  line  because 
we  have  such  poor  roads.  Should  not  he  be  taxed  as  everj^body  is 
taxed?  The  poor  man  in  my  factory  is  taxed  to  make  that  road 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       799 

safe  so  that  fellow  can  ride  on  it.  Should  not  the  rest  of  them  be  taxed 
so  as  to  make  these  street  railroads  safe?  It  is  part  of  the  high- 
way. There  is  no  reason  why  that  track  down  there  should  not  be 
"laid  and  maintained  and  supported  by  the  taxpayers  or  why  another 
corporation  should  not  own  the  equipment  and  operate  it  under 
Government  ownership.  We  do  not  necessarily  have  to  have  Govern- 
ment operation.  You  may  have  private  operation  if  you  please, 
but  that  is  the  way  this  thing  has  to  be  divided. 

We  have  a  system  of  subways  in  Boston  which  is  equivalent  to 
streets.  All  of  Washington  Street  and  Xremont  Street  and  under 
the  common  is  made  into  an  underground  street,  and  we  enter  the 
stores  in  the  basement  from  these  subways,  and  that  is  all  taxed 
upon  the  car  rider  and  the  car  rider  is  decreasing  all  the  time  because 
the  number  of  automobiles  is  increasing  and  the  people  buy  those 
whether  they  can  afford  a  house  or  not.  They  buy  an  automobile 
and  ride  in  it.  Now  they  are  putting  all  that  burden  on  them  and 
it  should  not  be  on  them  at  all.  It  all  belongs  to  the  public — every 
bit  of  it.  You  have  to  recognize  it.  It  is  foolish  for  us  to  stand  up 
and  not  recognize  these  things  in  the  interest  of  a  better  democracy, 
as  I  say. 

Commissioner  SWEET.  Is  it  not  possible  to  make  a  great  many 
changes  and  improvements  in  our  taxation  system  and  various  other 
matters  without  going  to  the  full  extent  of  public  ownership  and 
operation  of  these  railroads? 

Mr.  Foss.  I  do  not  believe  you  can  do  it. 

Commissioner  SWEET.  Is  it  wrong,  in  your  judgment,  that  the 
street  railroad  companies  should  be  required  to  pave  between  the 
tracks  ? 

Mr.  Foss.  Yes;  it  is.     I  think 

Commissioner  SWEET.  Very  well.  Could  not  that  be  changed  by 
legislation,  by  the  public? 

Mr.  Foss.  You  may  do  that.     That  is  right. 

Commissioner  SWEET.  Is  it  wrong,  in  your  judgment,  for  the 
public  to  expect  twice  as  many  miles  for  a  nickel  as  they  got  15 
years  ago? 

Mr.  Foss.  No;  it  is  not  right. 

Commissioner  SWEET.  They  ought  not  to  expect  it? 

Mr.  Foss.  Oh,  no.  They  ought  to  expect  higher  rates.  I  agree 
with  you.  Somebody  has  to  pay  it. 

Commissioner  SWEET.  They  ought  to  expect  to  pay  in  proportion 
to  their  use  of  it? 

Mr.  Foss.  Somebody  has  to  pay  it;  yes. 

Commissioner  SWEET.  They  ought  to  expect  to  pay  in  proportion 
to  the  service  they  receive. 

Mr.  FOKS.  Yes;  some  one  has  to  pay  it. 

Commissioner  SWEET.  Are  they  doing  it  to-day? 

Mr.  Foss.  Xo;  they  are  not. 

Commissioner  SWEET.  Then  it  is  not  a  fact  that  the  street-railway 
companies  are  attempting  to  give  the  people  too  much  for  what 
they  receive  in  compensation? 

Mr.  Fosa.  They  are.  of  course;  no  doubt  about  that.  They  are 
giving  them  too  much.  They  are  bankrupt — the  whole  thing  is 
bankrupt. 


800       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Commissioner  SWEET.  If  you  had  Government  ownership  and 
operation  your  idea  would  be,  I  take  it,  to  adjust  that  upon  just  as 
equitable  a  basis  as  could  be? 

Mr.  Foss.  That  is  right. 

Commissioner  SWEET.  Ought  not  the  same  thing  to  be  done  under 
private  ownership  and  operation? 

Mr.  Foss.  I  do  not  think  3^011  can  do  so. 

Commissioner  SWEET.  Whether  you  can  or  not,  ought  it  not  to  bo 
that  way? 

Mr.  Foss.  Yes.  « 

Commissioner  SWEET.  And  if  they  are  to  remain  under  private 
ownership  then  the  public  ought  to  be  educated  up  to  the  point  of 
willingness  to  do  what  is  fair  and  square  and  compensate  the  rail- 
road companies  properly  for  what  they  receive;  is  not  that  true? 

Mr.  Foss.  We  have  been  trying  to  do  that  all  this  time,  under  pri- 
vate ownership  with  public  regulation;  and  I  say  it  has  fallen  down 
and  gone  to  pieces  and  you  can  not  revive  it. 

Commissioner  SWEET.  You  believe  it  is  hopeless  ? 

Mr.  Foss.  Hopeless,  perfectly  so ;  -because  it  is  wrong  in  principle. 
If  you  own  a  piece  of  property,  are  you  going  to  let  John  Jones 
come  in  and  tell  you  how  you  shall  run  it  ?  Not  on  your  life.  You 
will  run  it  as  you  want  to;  it  is  your  property.  Now  these  stock- 
holders own  these  street  railroads  and  the  railroads  of  the  country. 
Now  they  ought  to  run  them.  I  believe  the  Government  had  better 
turn  them  back  without  any  strings  on  them  if  you  are  going  to 
have  private  owners  and  let  them  live  like  any  other  private  cor- 
poration— let  the  survival  of  the  fittest  exist,  if  you  please.  We  did 
that  in  the  early  days.  What  did  it  result  in  ?  In  paralleling  a  lot 
of  lines  and  bankruptcy  and  everything  of  that  sort.  A  street 
railway  is  not  a  thing  of  competition;  it  is  a  monopoly,  just  remem- 
ber that.  You  can  not  do  it  that  way. 

Now  that  has  fallen  down  and  we  have  got  to  come  right  back  to 
the  thing  that  the  Supreme  Court  said — that  these  railroads  afe 
highways  and  that  no  profit  should  come  from  them  other  than  a 
fair  return  upon  actual  money  invested.  Anything  above  that 
should  go  to  the  people,  either  in  reduced  fares  or  in  some  other  way, 
in  building  up  the  property.  Some  of  these  railroads  have  only  paid 
out  a  portion  of  their  earnings.  They  are  strong  and  they  have  ac- 
cumulated tremendous  surpluses  to-day.  As  I  say,  the  Delaware, 
Lackawanna  &  Western  are  getting  312  per  cent  allowed  them  by  the 
Government  because  they  have  piled  up  this  great  surplus  and 
charged  these  rates,  and  which  ought  to  have  gone  by  all  justice  and 
right  to  the  people. 

WTe  have  got  to  reverse  our  policy — we  have  to  reverse  this  thing, 
as  I  see  it,  in  the  interest  of  the  Nation  and  in  the  interest  of  a 
happier  Government.  We  have  got  to  do  it. 

Commissioner  SWEET.  I  do  not  want  you  to  infer  from  the  ques- 
tions I  have  asked  you  that  I  am  altogether  at  variance  with  your 
views. 

Mr.  Foss.  No. 

Commissioner  SWEET.  But  whether  I  am  or  not,  I  thought  perhaps 
some  of  the  points  I  have  asked  you  about  ought  to  be  elucidated  a 
little  further. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       801 

Mr.  Foss.  Yes. 

COMMISSIONER  SWEET.  So  far  as  I  am  concerned,  I  have  no  further 
questions  to  ask. 

The  CHAIRMAN.  Governor,  this  commission  has  been  appointed  to 
make  a  study  of  the  street-railway  situation,  because  it  is  -assumed  to 
be  in  a  very  critical  situation.  You  offer  as  a  remedy  public  owner- 
ship. Is  it  not  true  that  it  would  take  a  long  time  to  bring  the  coun- 
try to  the  point  where  it  will  take  over  these  utilities  and  operate 
them  as  public  institutions? 

Mr.  Foss.  I  think  we  are  right  ready  for  it  this  minute.  I  think 
we  shall  do  it  in  Massachusetts  before  the  snow  flies,  almost — we  can 
not  do  it  as  fast  as  that,  but  we  are  going  to  do  it  in  Massachusetts 
right  away.  We  have  reached  a  crisis  in  Massachusetts;  we  are 
in  the  worst  condition.  I  got  in  the  car  here  to  come  from  the  sta- 
tion, and  they  only  taxed  me  5  cents.  In  Boston  if  you  ride  two 
blocks  they  tax  you  10  cents.  They  are  up  in  arms. 

The  CHAIRMAN.  Are  there  not  some  States  where  the  constitution 
would  have  to  be  changed  before  you  took  over  these  properties? 

Mr.  Foss.  That  may  be;  I  do  not  know  about  that,  but  I  think  we 
can  do  it  in  Massachusetts,  and  we  are  going  to.  We  have  tried  out 
everything  else,  service  at  cost  and  everything  we  can  think  of,  and 
we  have  got  to  come  to  it. 

The  CHAIRMAN.  In  the  States  where  the  constitution  forbids  it, 
your  remedy  would  be  rather  hopeless,  would  it  not? 

Mr.  Foss.  Certainly.  We  have  a  constitutional  convention  in 
Massachusetts  which  has  been  working  the  last  year,  and  they  come 
into  session  immediately  when  the  legislature  adjourns  next  week; 
and  that  proposition  is  going  to  be  put  right  up  to  them. 

The  CHAIRMAN.  Are  there  not  also  a  great  many  municipalities  in 
the  country  that  are  bonded  now  to  the  limit  of  their  capacity  and 
it  might  be  very  difficult  for  them  to  take  over  these  properties? 

Mr.  Foss.  Well,  I  will  tell  you  I  do  not  agree  with  you  on  that. 
It  is  surprising — when  the  war  broke  out  we  did  not  know  we  had 
so  much  money.  We  did  not  know  we  could  raise  $30.000,000,000 
in  this  country^  and  loan  $10,000.000,000  to  other  countries.  Nobody 
knows  where  it  came  from,  but  there  is  more  money  in  the  savings 
banks  than  before  the  war;  and  we  have  loaned  all  this  money  and 
I  guess  we  are  so  rich  it  would  not  make  a  particle  of  difference. 

The  CHAIRMAN.  Well,  it  is  true,  is  it  not,  that  where  those  condi- 
tions exist  you  would  have  to  have  new  legislation? 

Mr.  Foss.  Undoubtedly. 

The  CHAIRMAN.  And  is  it  not  also  true  that  before  any  of  these 
municipalities  could  take  over  these  properties  there  would  have  to 
be  new  legislation  by  the  State? 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  That  all  speaks  for  time;  does  it  not? 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  During  the  working  out  of  this  scheme  of  public 
ownership  what  is  to  be  (lone  with  these  utilities,  assuming  that  they 
are  in  a  desperate  condition? 

Mr.  Fos.s.  I  say,  go  to  it  immediately. 

The  CHAIRMAN.  Well,  what? 


802       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  Foss.  Well,  go  to  it  right  off.  We  are  going  to  get  it  in  Massa- 
chusetts, we  are  going  to  take  it  up  there.  We  are  not  going  to 
wait  for  the  Nation  to  act. 

The  CHAIRMAN.  Your  solution,  then,  is  Government  ownership? 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  That  is  the  only  thing  you  have  to  offer? 

Mr.  Foss.  That  is  the  only  thing  I  have  to  offer;  or  Government 
ownership  and  Government  operation  or  Government  ownership  and 
private  operation,  but  Government  ownership  first. 

The  CHAIRMAN.  Then  do  you  believe  that  the  one  function  of  this 
commission  which  has  been  appointed  by  the  President  is  to  make 
a  recommendation  to  the  country  in  favor  of  Government  owner- 
ship of  these  utilities? 

Mr.  Foss.  I  think  that  would  be  the  greatest  report  you  could 
make.  It  would  mean  more  to  the  people  of  this  country  than  any 
report  that  has  been  made  in  my  memory,  because  this  is  the  greatest 
question  in  the  country.  It  affects  the  food  question.  Transporta- 
tion is  a  great  question  which  enters  into  the  cost  of  everything,  and 
into  the  cost  of  food  to-day.  Now,  you  are  talking  about  these  pack- 
ers and  the  conditions  existing  now.  It  is  on  the  public  mind.  You 
ride  on  these  street-cars  and  see  what  people  are  talking  about. 
Transportation  plays  a  very  important  part,  and  these  rates  have 
to  be  very  materially  advanced  right  away,  whether  the  Government 
holds  the  ropes  or  not. 

The  CHAIRMAN.  You  have  spoken  about  the  Massachusetts  situa- 
tion. 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  You  say  they  are  going  to  take  some  action  in 
November  ? 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  In  your  judgment  will  the  State  decide  in  favor 
of  State  ownership  of  those  utilities  or  municipal  ownership  ? 

Mr.  Foss.  In  Massachusetts,  you  see,  Boston — within  10  miles  from 
Boston — is  half  the  population  of  the  State.  We  have  a  population 
in  Massachusetts  of  about  3,500,000  and  about  1,500,000  are  within 
10  miles  of  the  State  House.  We  do  a  great  many  things  by  the 
State  in  Massachusetts  that  are  done  by  municipalities  in  other  com- 
munities, because  our  metropolitan  center  of  Boston  with  its  suburbs 
is  such  a  large  part  of  the  State.  But  I  think — as  I  sa.y — when  I 
say  public  ownership  I  mean  municipalities  or  States. 

The  CHAIRMAN.  But  in  most  cases  it  would  mean  by  the  State? 

Mr.  Foss.  Well,  it  would  be  in  a  great  many  instances.  Probably 
in  cities  like  Springfield  and  Worcester  and  Boston  it  would  be  the 
municipality.  In  the  smaller  towns — you  see  we  have  a  great  chain 
of  suburban  roads  all  through  the  State  and  a  good  many  miles  of 
them  have  been  abandoned  because  they  can  not  pay  under  this 
present  condition,  and  the  State  has  to  do  something  about  them. 
They  can  not  abandon  these  roads  that  are  a  public  necessity. 

The  CHAIRMAN.  Let  us  assume  the  State  took  over  all  those  utili- 
ties, what  fare  would  you  charge  for  the  service? 

Mr.  Foss.  I  do  not  know.  That  has  to  be  worked  out.  My  judg- 
ment is  here  that  the  5-ceiit  unit  fare  in  our  large  cities  has  got  to 
stand. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION".       803 

Tho  CHAIRMAN.  Then  you  believe  the  State  should  operate  these 
companies  and  charge  a  5-cent  fare  and  make  up  the  deficit  from  an 
appropriation  ? 

Mr.  Foss.  Not  in  all  cases;  do  not  misunderstand  me.  It  has  to  be 
worked  out  in  separate  cases.  I  say  in  all  our  large  centers  like  Bos- 
ton, New  York,  Washington,  they  have  to  hold  to  the  5-cent  fare  be- 
cause that  is  the  unit  that  we  have  been  accustomed  to,  and  I  think 
that  is  what  will  satisfy  the  public,  but  it  would  not  apply  over  a 
road  running  from  here  to  Georgetown  or  Richmond.  That  is  an- 
other kind  of  service. 

The  CHAIRMAN.  But  under  the  present  standard  of  wages  and 
operating  costs  those  companies  could  not  afford  to  operate  on  a 
5-cent  fare. 

Mr.  Foss.  Oh,  no. 

The  CHAIRMAN.  Then  there  would  be  a  large  debt  which  would 
have  to  be  taken  care  of  by  taxation? 

Mr.  Foss.  Surely. 

The  CHAIRMAN.  And  now  do  you  think  it  is  just  to  the  property 
owner  and  citizen  living  remote  from  the  city  of  Boston  that  he  be 
taxed  to  pay  for  service  which  is  given  to  the  people  who  ride  upon 
the  streets  in  the  city  of  Boston  ? 

Mr.  Foss.  Yes,  I  do. 

The  CHAIRMAN.  Upon  what  theory  do  you  say  that? 

Mr.  Foss.  Upon  the  theory  that  the  street  railroad  is  a  necessity,  an 
absolute  necessity  to  o«lr  social  and  industrial  life,  and  as  such  he 
should  be  taxed  to  maintain  that  necessity  just  as  much  as  he  is  taxed 
to  maintain  that  highway  without  the  street  railroad  on  it. 

The  CHAIRMAN.  Would  you  apply  the  same  principle  in  the  opera- 
tion of  a  lighting  company? 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  Or  a  water  company? 

Mr.  Foss.  Yes, 

The  CHAIRMAN.  Or  a  gas  company  ? 

Mr.  Foss.  Yes;  the  same  thing. 

The  CHAIRMAN.  So  then  you  would  wish  the  city  generally  to 
maintain  a  service  which  is  of  a  peculiar  benefit  to  the  citizens  of  a 
city  ? 

Mr.  Foss.  Yes,  that  is  right  where  these  quasi-public  corporations 
have  got  to  be. 

The  CHAIRMAN.  What  is  the  length  and  breadth  of  Massachusetts? 

Mr.  Foss.  Well,  it  is  about  225  miles  long,  I  think,  and  about • 

Mr.  WARREN.  Fifty  miles  wide,  is  it  not? 

Mr.  Foss.  Fifty  miles  wide? 

The  CHAIRMAN.  Apply  that  same  principle  to  the  State  of  Min- 
nesota, where  I  come  from,  where  the  State  is  over  400  miles  long 
and  over  200  miles  wide. 

Mr.  Foss.  As  big  as  all  New  England. 

The  CHAIRMAN.  Yes.  We  have  counties  in  our  State  that  are 
larger  than  some  of  your  Eastern  States. 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  Now  in  that  State  the  street-cars  are  operated  in 
Minneapolis,  St.  Paul,  and  in  Duluth.  It  so  happens  that  the  Twin 
Cities  are  located,  and  Duluth  also,  all  the  way  from  200  to  800 
miles  from  some  of  the  largest  agricultural  and  mining  communi- 


8C4       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

ties  in  our  State.  Large  numbers  of  people  never  ride  upon  those 
street-cars.  Is  it  fair  to  ask  the  farmer  of  Minnesota  and  the  miner 
up  in  northern  Minnesota  and  the  stock  raisers  generally  all  over 
that  country  for  a  service  that  is  a  peculiar  benefit  to  the  citizens 
of  St.  Paul,  Minneapolis,  and  Duluth? 

Mr.  Foss.  I  am  not  going  to  say — I  do  not  understand  your  whole 
system  of  taxation,  but  if  your  system  of  maintaining  highways  is 
that  you  tax  the  whole  people  of  the  State  to  maintain  them — for 
instance,  you  tax  the  people  of  Minneapolis  and  St.  Paul  to  main- 
tain the  highways  in  the  southern  part  of  Minnesota — why  should 
not  the  people  be  taxed 

The  CHAIRMAN.  We  have  what  we  call  a  1-mill  tax.  The  State 
raises  1  mill  by  general  taxation  and  that  is  distributed  upon  some 
ratable  basis  to  all  of  the  counties  in  the  State. 

Mr.  Foss.  Well,  we  are  trying  to  get  that  same  system  in  Massa- 
chusetts, which  is  a  very  good  system,  I  think.  Now,  I  honestly 
think  if  you  tax  the  people  of  southern  Minnesota  to  maintain  the 
streets  of  St.  Paul  and  Minneapolis,  then  it  is  no  more  than  right 
to  tax  the  people  of  southern  Minnesota  to  maintain  those  street 
railroads. 

Mr.  WARREN.  If  you  followed  up  in  Massachusetts  that  analogy, 
you  would  not  have  to  tax  the  whole  State. 

Mr.  Foss.  No;  I  do  not  think  you  would. 

Mr.  WARREN.  We  tax  the  cities  and  towns  for  local  highways,  the 
counties  for  intertown  highways  and  the  State  for  State  highways. 

Mr.  Foss.  Yes. 

Mr.  WARREN.  In  Boston  you  have  your  metropolitan  district. 

Mr.  Foss.  In  Boston  we  have  our  metropolitan  district  to  take 
care  of  it.  My  idea  is  to  take  the  metropolitan  district  of  Boston 
which  these  railroads  serve. 

Mr.  WARREN.  You  spoke  of  the  water  system  there.  The  same 
method  of  taxation  and  operation  applies  to  the  sewer  system? 

Mr.  Foss.  Yes :  and  it  has  worked  out  well. 

Mr.  WARREN.  But  you  do  not  tax  the  western  part  of  the  State 
for  the  metropolitan  region? 

Mr.  Foss.  No ;  only  that  region  through  there. 

Commissioner  GADSDEN.  The  condition  of  electric  railways 
throughout  the  country  is  admittedly  very  bad,  is  it  not  ? 

Mr.  Foss.  Yes,  very  bad. 

Commissioner  GADSDEN.  Pending  the  working  out  of  a  compre- 
hensive plan  such  as  you  advise,  do  you  not  think  in  all  justice  and 
fairness  to  the  companies  that  there  should  be  an  immediate  in- 
crease of  their  rates  of  fare? 

Mr.  Foss.  No ;  I  am  not  sure  that  there  should  be.  I  do  not  think 
that.  We  have  to  meet  the  situation,  of  course,  in  some  way  as 
quickly  as  possible.  I  say  just  go  to  it  as  quickly  as  possible.  It 
may  be  necessary  in  some  cases  to  do  that  temporarily. 

Commissioner  GADSDEN.  I  am  not  talking  about  your  roads  in 
Massachusetts 

Mr.  Foss.  We  have  done  it  in  Massachusetts. 

Commissioner  GADSDEN.  Throughout  the  country  there  are  a  great 
many  roads  who  have  had  no  relief  at  all. 

Mr.  Foss.  No. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       805 

Commissioner  GADSDEN.  I  say  pending  the  eventual  working  out  of 
this  problem,  do  you  not  think  that  those  roads  which  have  not  had 
any  relief  should  be  relieved  at  once? 

Mr.  Foss.  They  should  be,  but  the  people  should  be  told  that  it 
is  only  temporary,  and  if  you  tell  them  the  whole  truth  and  do  not 
go  to  make  it  permanent  instead  of  temporary- 
Commissioner  GADSDEN.  I  mean  as  an  expedient. 

Mr.  Foss.  That  is  right,  if  you  make  it  purely  temporary,  yes ;  but 
if  you  are  going  to  make  that  temporary  business  permanent,  then 
you  are  up  against  it,  because  that  is  only  half  the  truth. 

Commissioner  GADSDEN.  Don't  you  think  this  commission  would  be 
well  advised  if  it  should  take  the  position  that,  pending  this  further 
investigation  of  this  subject  and  a  permanent  solution  of  the  problem, 
it  should  recommend  to  the  American  people  that  some  relief  should 
be  given  to  this  transportation  system  to  keep  it  alive  until  you  can 
remedy  it  ? 

Mr.  Foss.  Yes;  if  you  say  public  ownership  is  the  thing  and  we 
are  going  to  write  about  it  and  recommend  it,  then  I  say  yes.  But  if 
you  wait  until  the  next  60  days  or  90  days  we  will  have  a  higher  fare, 
but  at  the  end  of  60  or  90  days  we  will  have  it  changed. 

Commissioner  GADSDEN.  Suppose  the  American  people  are  not  pre- 
pared for  Government  ownership 

Mr.  Foss.  They  are. 

Commissioner  GADSDEN.  Well,  you  may  be  mistaken. 

Mr.  Foss.  I  believe  they  are.  I  do  not  believe  they  are  prepared  for 
anything  else. 

Commissioner  GADSDEN.  A  good  many  of  us  who  have  been  riding 
on  the  steam  railroads  during  the  war  have  heard  a  great  many  peo- 
ple express  the  opinion  that  if  that  is  an  example  of  governmental 
ownership  we  do  not  want  anything  more  of  it. 

Mr.  Foss.  My  dear  sir,  we  have  not  had  any  yet. 

Commissioner  GADSDEN.  The  people  think  it  is  Government  owner- 
ship. 

Mr.  Foss.  They  ought  to  be  disabused. 

Commissioner  GADSDEN.  How  long  will  it  take  them  to  be  dis- 
abused ? 

Mr.  Foss.  You  have  to  tell  them  they  have  not  had  it.  They  have 
had  a  lease  of  the  roads  and  the  same  crowd  is  managing  them  as 
managed  them  before  the  Government  took  them  over. 

Commissioner  GADSDEN.  But  don't  you  think  governmental  owner- 
ship in  the  public  mind  has  had  a  set-back  from  the  experience  of 
the  war? 

Mr.  Foss.  This  propaganda  which  has  been  put  forward  by  the 
railroads  themselves — by  Wall  Street,  if  you  please,  by  those  vested 
interests  which  have  got  the  newspapers  and  have  got  the  press — 
that  kind  of  stuff  has  been  going  around  the  country  and  many  peo- 
ple believe  we  have  public  ownership  in  this  country  and  that  we 
have  tried  it  out  and  it  is  a  failure.  We  have  not  had  it;  there  is  no 
failure  about  it.  We  are  going  to  have  it,  and  it  is  going  to  succeed 
and  we  are  going  to  effect  wonderful  economies  of  terminal  charges 
and  everything  of  that  sort. 

The  CHAIRMAN.  There  is  one  other  thought  I  would  like  to  discuss 
with  you  for  a  moment  or  two.  It  is  stated  there  are  about  $6,000,- 
000,000  in  bonds  and  money  invested  in  these  utilities  throughout 


806       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

the  country.  It  has  been  freely  stated  here  that  a  good  deal  of 
watered  stock  has  been  permitted  to  be  issued  to  the  public  and  it  is 
now  in  the  hands  of  innocent  purchasers.  Do  you  believe  that  the 
net  result  of  Government  or  municipal  ownership  of  all  of  these 
utilities  would  be  that  the  investor  would  get  his  actual  money  back  ? 

Mr.  Foss.  Yes ;  absolutely,  with  interest. 

The  CHAIRMAN.  With  interest? 

Mr.  Foss.  Yes.  I  think  he  ought  to  have  his  actual  money  back 
with  interest.  If  there  is  any  watering  done,  it  ought  to  be  squeezed 
out.  You  understand  a  security  which  is  privately  owned  of  a  pri- 
vately owned  corporation  does  not  sell  nearly  as  high  as  a  Govern- 
ment security.  The  last  money  we  got  for  the  Boston  Elevated  Kail- 
road  we  had  to  have  a  year  ago  and  it  was  $3,000,000  that  the  stock- 
holders put  up  on  a  guaranty  by  the  State  that  they  would  see  the 
interest  paid  for  10  years,  and  we  had  to  pay  7  per  cent  for  it.  Now, 
if  the  city  of  Boston  had  issued  that  $3,000,000,  what  would  they  have 
had  to  pay  ?  Four  and  a  half  per  cent,  possibly,  or  4^  for  it.  The 
State  would  have  had  to  pay  4^  or  4j.  See  the  difference  in  the  in- 
terest, see  what  you  are  going  to  effect  in  the  cost  of  these  railroads, 
in  the  cost  of  carrying  on  this  property,  if  you  get  your  money  at  4 
per  cent  instead  of  paying  7  for  it.  That  is  what  you  are  going  to 
save.  It  is  going  to  make  a  tremendous  difference.  We  can  do  it 
over  here 

The  CHAIRMAN.  In  reaching  your  conclusion  favoring  Govern- 
ment ownership,  have  you  been  influenced  at  all  in  the  belief  that 
that  plan  would  result  in  paying  back  to  all  of  the  investors  the 
money  which  they  had  put  into  these  properties? 

Mr.  Foss.  Yes ;  it  ought  to. 

The  CHAIRMAN.  That  is  one  of  the  reasons  you  favor  Govern- 
ment ownership? 

Mr.  Foss.  Yes.  Well,  I  believe  that  is  justice.  I  do  not  believe  in 
the  confiscation  of  any  man's  property.  He  should  be  paid  back 
with  good  liberal  interest,  and  the  public  are  willing  to  do  it.  The 
public  do  not  stand  on  that.  They  are  in  favor  of  every  man  getting 
his  money  back,  but  not  a  factitious  price  or  water. 

The  CHAIRMAN.  Do  you  believe  if  we  should  attempt  to  buy  all 
these  properties  at  the  same  time  that  it  might  result  in  the  people 
paying  a  great  deal  more  for  these  properties  than  actually  was  put 
into  them  and  thereby  capitalizing  a  good  deal  of  water  that  is  in 
the  stock? 

Mr.  Foss.  No ;  I  think  that  could  all  be  fairly  found  out.  I  think 
an  investigation,  a  commission  to  find  out  what  these  properties 
were  severally  worth,  what  had  been  put  into  them  and  to  see  that 
nobody  was  harmed  in  any  way — an  exchange  of  securities  could  be 
effected  for  a  Government  security.  Of  course,  a  Government  se- 
curity at  par  would  offset,  you  see — at  par  it  would  be  worth  130  or 
150,  possibly. 

The  CHAIRMAN.  But  in  all  these  cases  the  property  should  be  duly 
valued  by  some  State  tribunal  ? 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  According  to  the  settled  principles  of  law? 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  It  ought  not  to  be  a  purchase  and  sale  proposition  ? 

Mr.  Foss.  No ;  I  do  not  think  so  at  all. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       807 

The  CHAIRMAN.  That  method  would  be  just  to  the  public  as  well 
us  the  investor? 

Mr.  Foss.  Yes,  but  my  theory  is  to  very  liberally  deal  with  the 
people.  We  owe  something  to  the  people  who  put  their  money  into 
these  corporations  and  developed  them ;  no  doubt  about  that. 

The  CHAIRMAN.  Xow  then,  do  you  want  to  apply  your  principle 
to  all  forms  of  public-service  corporations? 

Mr.  Foss.  Yes,  all  quasi-public  corporations. 

The  CHAIRMAN.  The  present  bonded  indebtedness  of  this  country 
is  around  $24,000,000,000— is  it  not— growing  out  of  the  war? 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  Xow  if  we  should  ask,  say  $15,000,000,000  for 
the  steam  railroads  and  $6,000,000,000  more  for  the  utilities  and  we 
will  say  $6,000,000,000  more  for  all  of  the  other  utilities,  how  is  all 
that  money  to  be  financed? 

Mr.  Foss.  I  do  not  think  it  would  bust  us  at  all.  But  we  have 
not  got  to  do  that.  Your  bonded  indebtedness  on  these  railroads  is 
all  fixed.  You  do  not  need  to  disturb  those  bonds  at  all.  Now, 
those  can  be  adjusted  so  that  they  will  receive  a  Government  guar- 
anty. We  have  not  got  to  do  this  thing  that  way  at  all.  These 
owners — I  speak  from  knowledge — of  these  railroads  are  very  willing 
indeed  to  turn  them  over  to  the  Government  at  a  fair  and  reason- 
able price,  not  what  they  cost — 

The  CHAIRMAN.  Let  me  give  you  an  illustration  of  that:  The 
Kansas  City  Southern  Railroad,  which  operates  from  Kansas  City 
down  to  Fort  Arthur  or  the  Gulf,  has  been  valued  or  is  being 
Valued  by  the  Interstate  Commerce  Commission. 

Mr.  Foss.  Yes. 

The  CHAIRMAN.  In  that  proceeding  it  is  stipulated  between  the 
Government  and  the  railroad  that  the  original  cost  was  $50,000,000. 
The  Interstate  Commerce  Commission  found  that  the  cost  of  re- 
production new  less  depreciation  would  be  about  $46,000,000.  The 
capitalization  of  that  railroad  is  $99,000,000.  Now  the  railroad  has 
Ven  earning  very  fair  returns  during  the  past  six  or  eight  years, 
and  the  railroad  claims  that  the  value  of  that  property  based  upon 
the  capitalized  earnings  would  be  all  the  way  from  $77,000,000  to 
$80,000.000.  Xow  with  those  figures  before  you  and  with  the  thought 
of  being  fair  to  the  public  as  well  as  to  the  investor,  what  should  bo 
the  value  of  that  railroad  property  if  purchased  by  the  Government? 

Mr.  Foss.  I  can  not  say  arbitrarily,  but  I  simply  say  if  that 
property — they  should  not  receive  what  they  claim  on  earning  value 
of  the  property.  That  may  enter,  if  you  please,  somewhat  into  the 
value  of  that  property,  but  I  think  a  safe  proposition  is  to  say  this, 
that  they  should  pay  for  that  property  all  it  cost  plus  the  interest. 

The  CHAIRMAN.  Well,  suppose  they  had  boon  getting  the  interest 
right  along,  you  would  not  want  to  compound  that  interest,  would 
you  ? 

Mr.  Foss.  I  do  not  know  as  I  would  compound  it,  but  I  would  see 
that  they  got  an  honest  and  fair  return.  Of  course,  these  stocks  of 
railroads  are  manipulated;  you  understand  that. 

The  CHAIRMAN.  Oh,  yes. 

Mr.  Foss.  They  do  not  all  represent  actual  value.  There  are  pool.*, 
in  Wall  Street  that  see  that  certain  shares  of  stock  sell  at  certain 
times  at  certain  figures  and  that  ut  other  times  they  sell  lower. 


808       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  CHAIRMAN.  The  railroads  in  these  valuation  proceedings  are. 
contending  for  a  great  many  different  items  that  will  add  many, 
many  billions  of  dollars  to  the  value  of  their  property;  increment 
to  land,  present  value  of  land  which  has  been  donated  by  the  Govern- 
ment, contingencies  and  overhead  expenses  and  all  those  things; 
no  one  to-day  knows  just  what  the  Supreme  Court  will  finally  say 
upon  the  disputed  points.  Now,  those  questions  do  involve  billions 
of  dollars.  Xow,  do  you  think  that  this  country  at  this  time  should 
decide  to  buy  those  railroads  before  any  of  us  know  anything  about 
what  those  railroads  are  worth  ? 

Mr.  Foss.  It  is  not  necessary — yes,  we  should  decide  to  buy  them, 
no  doubt  about  that,  and  take  them  right  over,  and  we  will  deter- 
mine the  value  afterwards.-  But  I  want  to  pay  them  what  it  is 
worth.  Whether  they  should  be  recompensed  for  increment  of 
value  which  has  come  to  them  through  a  period  of  years  through  the 
fact  that  they  have  occupied  them  and  business  has  grown  up  around 
them  is  a  thing  that  I  do  not  admit. 

By  the  way,  Mr.  Prince,  a  prominent  banker  in  Boston,  is  here, 
and  he  calls  my  attention  to  the  fact  that  the  public  will  furnish  the 
money  with  a  Government  guaranty.  You  are  speaking  about  the 
Government  issuing  these  securities  in  great  quantities  and  flooding 
the  market  with  Government  securities.  That  would  be  unnecessary. 
And  as  I  said  with  respect  to  the  bonds,  and  as  Mr.  Prince  very 
properly  says,  the  public  will  furnish  the  money  under  a  Govern- 
ment guaranty.  So  we  are  not  going  to  throw  a  great  quantity  of 
Government  bonds  onto  the  market  if  we  take  these  things  over. 

The  CHAIRMAN.  That  is  all. 

(Witness  excused.) 

(At  1  p.  m.  a  recess  was  taken  until  2  p.  m.) 

AFTER    RECESS. 

I  .  . 

The  hearing  was  resumed  at  2  o'clock  p.  m. 

The  CHAIRMAN.  You  may  proceed,  Mr.  Warren. 

Mr.  WARREN.  Mr.  Mortimer,  will  you  take  the  stand  again? 

STATEMENT  OF  MR.  JAMES  D.  MORTIMER  (Resumed). 

Mr.  MORTIMER.  The  electric-railway  industry  for  a  great  many 
years  past  has  been  gradually  losing  its  commercial  aspects.  It  has 
become  an  industry  that  is  regulated  in  the  extreme  by  the  govern- 
mental authorities,  and  it,  of  course,  has  been  one  where  the  net  earn- 
ings have  been  declining. 

It  appears  that  the  railway  industry  has  not  been  increasing  its 
volume  of  business  as  rapidly  as  has  been  the  general  business  in 
community  life  of  the  territory  served.  The  causes  for  that  are  com- 
paratively well  known.  They  have  found  themselves  unable  to  at- 
tract additional  capital  to  expand  facilities,  to  keep  the  railway  utili- 
ties in  line  with  the  growth  of  business  and  expansion  of  territory, 
partly  because  of  the  imposition  of  unremunerative  expenditures, 
both  for  capital  and  for  operating  expenses,  and  partly  because  the 
business  has  been  regarded  as  an  exceedingly  hazardous  one.  Ex- 
penses have  risen  so  rapidly  in  the  last  two  years  that  it  is  not  at  all 
clear  that  there  is  any  uniform  solution  for  the  problem.  In  fact,  as 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       809 

I  indicated  in  my  earlier  testimony,  there  are  a  great  many  of  the 
smaller  communities  served  by  track  mileages  running  up  10  or 
15,  or  possibly  as  high  as  20,  and  in  placing  the  population 
as  high  as  50,000,  where  it  is  doubtful,  at  present  wage  levels  and 
commodity  prices,  that  the  business  can  be  made  remunerative  at  all. 

There  are  a  good  many  of  our  fundamental  conceptions  respecting 
the  railway  business  that  will  probably  have  to  be  modified.  We  may 
have  to  change  from  a  flat  form  of  fares  to  a  distance-tariff  plan.  In 
any  event,  if  we  are  going  to  commercialize  the  business  we  have  to 
be  placed  in  a  position  where  we  can  manufacture  our  product — 
namely,  seat  miles — at  the  lowest  possible  cost,  and  then  be  accorded 
the  necessary  freedom  so  that  we  can  sell  those  seat-miles  to  our 
customers.  Just  what  form  the  commercial  aspect  of  the  sale  of 
our  service  is  going  to  take  is  very  difficult  for  any  electric-railway 
operator  to  state  at  this  time.  In  fact,  the  changes  in  the  funda- 
mental economic  basis  of  street-railway  operation  have  been  so  im- 
portant in  the  last  two  years  that  it  is  not  improbable  that  we  will 
nave  to  go  through  a  two-year  experimental  period.  Of  course,  an 
experimental  period  of  two  years  would  ruin  every  electric  railway, 
and  present  operators  would  not  care  what  would  happen  to  the  rail- 
ways at  the  end  of  the  two  years.  Present  conditions  are  such  that 
emergency  relief  has  to  be  granted,  and  we  have  not  conducted  the 
experiments  to  that  fine  point  to  take  sufficient  time  to  try  to  restore 
it  to  a  commercial  basis,  if  such  a  restoration  is  at  all  possible. 

Any  business  that  is  of  a  shrinking  nature,  where  the  volume  of  its 
market  is  decreasing,  is  necessarily  not  attractive  to  private  investors, 
and  the  changes  in  fare  agreements  that  have  been  general!}7  made 
throughout  the  United  States  have,  of  course,  produced  a  very  great 
reaction  upon  the  riding  habit. 

There  has  been,  in  every  case,  after  the  lapse  of  a  short  period  of 
time,  an  increase  in  revenues  as  the  result  of  an  increase  in  flat  rates 
of  fare.  That  is  true.  The  increase  has  not  in  all  cases  been  equal 
to  the  estimated  increase  resulting  from  the  application  of  the  new 
fare  to  the  previous  number  of  passengers. 

All  important  industrial  centers  are  growing  at  a  rapid  rate.  The 
riding  habit  ought  to  increase  likewise  at  a  rapid  rate,  but  the  in- 
crease in  riding  habit  has  been  somewhat  influenced  by  the  increases 
in  the  flat  rate  of  fare. 

Now,  what  the  railway  business  needs  is  more  business  rather  than 
less.  If  you  liken  the  railway  business  to  a  manufacturing  institu- 
tion, with  a  relatively  large  overhead,  the  analysis  of  the  manufac- 
turer would  be  along  the  following  lines:  I  have  a  large  overhead. 
That  overhead,  distributed  over  my  present  volume  of  output,  is  too 
high  per  unit  to  permit  me  to  sell  in  competition  with  other  com- 
modities of  like  use. 

The  electric-railway  operator  is  faced  with  the  proposal  of  increas- 
ing his  selling  price  so  high  that  competition  from  walking  becomes 
most  severe.  The  principal  competitor  of  the  electric-railway  busi- 
ness is  walking.  The  number  or  cars  to  be  operated  by  an  electric 
railway  in  any  given  time  should,  in  point  of  fact,  be  determined 
more  nearly  by  tne  movement  of  people  that  are  on  the  street,  rather 
than  by  the  number  of  people  that  are  on  the  cars. 

So  I  know,  with  respect  to  the  companies  in  which  I  am  interested, 
that  we  are  anticipating  a  period  of  experimental  development  for 
100043°— 20 52 


810       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

the  next  two  years,  but  we  have  got  to  be  granted  emergency  relief 
in  order  that  we  may  have  a  restoration  of  earning  power,  to  the 
end  that  the  proper  wages  may  be  paid,  that  the  existing  physical 
property  may  be  adequately  maintained,  and  that  we  may  be  placed 
in  a  position  to  invite  the  additional  capital  at  the  end  of  the  two- 
year  period. 

Mr.  WARREN.  Did  you  refer  to  the  British  experience  during  the 
war  period? 

Mr.  MORTIMER.  No ;  I  said  nothing  about  that. 

I  recall  a  series  of  articles  appearing  in  the  Electric  Railway  Jour- 
nal that  purports  to  show  that  under  the  distance  tariff  or  zone  system 
of  fare  in  operation  of  most  of  the  British  street-railway  systems 
they  have  been  able  to  increase  their  revenues  to  substantial  accord 
with  the  increase  in  expenses;  that  their  traffic  has  not  fallen  off, 
except  to  the  extent  that  they  were  not  able  to  provide  the  service 
because  of  the  shortage  of  operators;  that  while  there  were  a  large' 
number  of  men  who  went  into  the  service,  there  were  likewise  large 
numbers  of  women  who  took  their  places,  and  women  ride  to  a 
greater  extent  than  do  men ;  that  the  increases  in  revenues  on  all  the 
British  tramways  where  they  endeavored  to  keep  the  revenues  in 
accord  with  the  increase  in  expenses  have  been  satisfactory;  that 
there  has  been  no  decrease  in  riding  habit  or  traffic  as  the  result  of 
their  increase  in  fares,  except  to  the  extent  that  the  shortage  of  oper- 
ators prevented  them  from  running  prewar  service. 

Mr.  WARREN.  I  think  that  is  all  I  want  to  ask  Mr.  Mortimer,  Mr. 
Chairman. 

Commissioner  MEEKER.  I  would  like  to  get  your  idea  about  the 
proper  way  of  accounting.  You  mentioned  some  things  that  are 
rather  obscure  to  me.  Will  you  state  a  little  more  completely  your 
idea  of  how  depreciation  should  be  cared  for  and  how  obsolescence 
should  be  cared  for? 

Mr.  MORTIMER.  The  purpose  of  accumulating  a  reserve  for  so- 
called  depreciation  is  fundamentally  to  create  a  reserve  out  of  earn- 
ings so  as  to  insure  the  future  replacement  of  the  element  of  physi- 
cal property  at  the  end  of  its  probable  lifetime.  No  elements  of 
physical  property  of  the  same  class  have  all  equalized.  The  lives 
of  cedar  trolley  poles  may  vary  from  8  to  20  years.  There  are,  of 
course,  as  the  statisticians  know,  one  certain  year  in  each  class  of 
property  where  the  number  of  replacements  is  at  a  maximum.  Re- 
placements or  abandonments  invariably  begin  within  a  very  short 
time  after  the  initial  construction  takes  place.  The  curve  of  mor- 
tality of  the  elements  of  physical  property,  to  the  extent  that  such 
mortality  curves  have  been  computed  or  arranged,  are  quite  similar 
to  the  curves  of  mortality  of  human  lives.  The  problem  of  provid- 
ing for  so-called  depreciation  is  not  to  provide  for  the  wearing  out, 
so  much  as  it  is  to  provide  for  the  replacement.  I  am  speaking  now 
from  the  utility  standpoint.  Every  utility  is  presumed  to  operate 
in  perpetuity.  Its  obligations  to  operate  and  conserve  its  capital 
account  do  not  necessarily  terminate  at  the  expiration  of  its  de- 
terminate franchise,  if  it  has  such  a  thing.  No  rates  of  fare  have 
ever  been  allowed  which  will  amortize  the  value  of  physical  property 
to  its  scrap  value  within  the  life  of  the  determinate  franchise.  All 
the  rates  of  fare  provided  for  in  any  plan  never  make  an  allowance 
in  amount  greater  than  what  will  insure  the  replacement  of  the 
elements  of  physical  property  at  the  end  of  their  probable  lifetime. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       811 

Xow,  we  have  a  piece  of  track  which,  for  simplicity  in  calcula- 
tions, we  will  assume  has  a  life  of  15  years.  It  is  the  duty  of  the 
utility  to  appropriate  a  sufficient  amount  of  money  out  of  its  earn- 
ings with  which,  with  equal  increments,  if  you  please,  each  year, 
together  with  the  interest  upon  the  reserve  balances,  will  provide  a 
sum  at  the  end  of  15  years  which  will  enable  the  utility  to  replace 
that  element  of  property — a  piece  of  track — to  the  extent  of  the 
original  cost  thereof. 

Now,  that  will  apparently  result  in  the  creation  on  the  balance 
sheet  of  the  corporation  of  a  liability  very  much  larger  than  the 
amount  that  the  corporation  can  use  in  any  one  year,  but  the  recogni- 
tion of  that  liability  is  essential  if  the  balance  sheet  of  the  corpora- 
tion is  to  fairly  show  the  assets  and  liabilities,  because  the  balance 
sheet  purports  to  represent  fundamentally  the  liability  of  the  corpo- 
ration as  a  group  of  shareholders  to  the  various  creditors  and  tho 
public,  to  the  extent  that  the  public  in  interested  in  the  continued 
operation  of  the  utility.  By  that  I  mean  that  the  depreciation  or 
replacement  reserve  created  by  the  methods  that  I  have  generally 
indicated  records  the  liability  of  the  corporation  to  the  utility  to 
effect  these  replacements  at  the  end  of  the  probable  lifetime  of  the 
physical  property. 

Commissioner  MEEKER.  Suppose,  in  this  case  that  you  cite,  that 
some  exigency  should  arise  whereby  it  was  necessary  to  replace  a 
piece  of  track  at  the  end  of  5  years  instead  of  at  the  end  of  15  years, 
with  absolutely  new  track  that  would  cost,  perhaps,  twice  as  much 
as  the  original  track  cost.  Or  you  could  take  a  more  specific 
example 

Mr.  MORTIMER.  I  will  take  that  example.  That  is  sufficientlv  spe- 
cific, and  the  question  which  you  ask,  Mr.  Commissioner,  consists  of 
two  parts:  One,  how  are  we  going  to  treat  life  that  corresponds  to 
the  remaining  10  years  normally,  the  difference  between  the  probable 
life  of  15  years  and  the  actual  life  of  5  years;  and  the  other  question 
is,  how  shall  we  treat  increased  capital  cost? 

When  the  property  is  abandoned,  the  original  cost  should  be  re- 
moved from  the  capital  account.  If  it  were  1  mile  of  track  and  cost 
$25,000,  we  would  take  $25,000  out  of  capital  account,  crediting 
capital  account  with  that  amount,  and  debiting  the  replacement  re- 
serve with  a  corresponding  amount,  provided  we  are  going  along  on 
the  assumption  that  our  depreciation  reserve  has  been  credited  with 
a  sufficient  reservation  to  take  into  account  the  varying  lives  that 
equipment  and  physical  property  are  subject  to. 

Now,  the  rule  of  the  Interstate  Commerce  Commission  for  ac- 
counting of  that  class  requires  that  an  amount  be  debited  to  deprecia- 
tion reserve  equal  to  the  proportion  that  the  expired  life  bears  to  tho 
probable  life;  in  other  words,  one-third;  and  that  tho  remaining 
two-thirds  will  be  charged  into  ordinary  current  operating  expenses 
of  the  railway.  Whether  it  would  be  in  one  month  or  six  months  is  a 
matter  that  is  left,  as  a  rule,  to  the  discretion  of  the  operating  officers. 
If  it  is  not  charged  to  depreciation  reserve  and  is  to  be  charged  into 
operating  expenses  during  a  period  of  six  months,  it  is  carried  as  a 
suspended  asset  and  written  off  in  equal  monthly  installments. 

Commissioner  MEEKER.  And  if  earnings  are  not  sufficient  to  take 
care  of  it  within  six  months,  you  still  further  suspend  it? 


812       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  MORTIMER.  That  is  a  matter  of  discretion.  Now,  if  you  were 
to  ask  me  what  our  practice  is,  I  would  say  that  only  the  amount  that 
corresponds  to  the  expired  life  is  charged  against  the  depreciation  re- 
serve, and  the  remaining  amount  is  charged  to  operating  expenses  for 
the  month  in  which  the  order  for  property  removal  comes  through 
into  the  accounting  department. 

That  was  the  practice  and  recommendation  of  the  Railroad  Com- 
mission of  Wisconsin  prior  to  1915  or  thereabouts.  With  a  changing 
personnel,  they  changed  the  basis,  and  \vere  thereby  able  to  make  a 
reduction  in  maintenance  expenses,  requiring,  according  to  their  cal- 
culations, that  these  unexpired  lives  of  elements  of  physical  property 
should  all  be  charged  to  depreciation  reserve. 

In  other  words,  in  the  case  that  you  cite,  the  entire  original  cost  of 
the  item  of  physical  property — namely,  the  mile  of  track — should  be 
debited  to  depreciation  reserve  at  the  same  time  that  the  property  ac- 
count is  credited  with  its  original  cost. 

Now,  taking  up  the  question  of  how  the  additional  expenditure  is 
to  be  taken  care  of,  it  is  this:  We  have  taken  out  of  the  plant  and 
property  account  the  original  cost  of  the  element  of  property  that  has 
been  abandoned.  We  should  accordingly  write  on,  that  is,  into  prop- 
erty account,  the  cost  of  the  property  that  has  been  constructed.  The 
costs  of  the  removal  of  the  old  property  should  be  charged  to  operat- 
ing expenses. 

Commissioner  MEEKER.  What  percentage  of  earnings  should  be  set 
aside,  do  you  think,  in  order  to  take  care  properly  of  replacements? 

Mr.  MORTIMER.  I  am  unable  to  answer  that  question  for  the  fu- 
ture, because  the  levels  are,  of  course,  changing.  Operating  ratios 
are  on  an  entirely  different  basis  from  what  they  formerly  were, 
but  more  particularly  the  ratio  of  capital,  utility  capital,  to  oper- 
ating revenues,  is  changed,  due  to  rise  in  rates  of  fare. 

We  have,  by  the  practical  setting  up  of  22  per  cent  of  the  operat- 
ing revenues  of  the  urban  and  surburban  system,  been  able  to  accu- 
mulate, in  the  case  of  the  Milwaukee  Electric  Railway  &  Light  Co., 
a  replacement  reserve  approximately  equal  to  the  estimated  accrued 
depreciation,  or  the  difference  between  reproduction  cost  ned  and  so- 
called  depreciated  value;  so  that,  so  far  as  utility  capital  accounts 
are  concerned,  the  utility  has  been  maintained  intact;  and  we  have, 
as  a  rule,  carried  through  that  practice,  irrespective  of  the  return 
we  were  actually  earning  on  this  utility.  We  have  shaded  it  in  some 
years.  That  is,  in  the  last  year  we  did  so,  when  it  was  necessary  to 
show  a  sufficient  margin  over  bond  interest. 

Commissioner  MEEKER.  Have  the  street  railways  under  your  di- 
rection ever  been  solvent  on  a  5-cent  fare  ? 

Mr.  MORTIMER.  We  have  never  had  a  straight  5-cent  fare  on  any 
of  our  electric  railways  at  a  time  that  they  were  solvent.  They 
always  had  to  get  insolvent — the  utility  had  to  become  insolvent 
before  it  could  get  a  5-cent  fare. 

Mr.  WARREN.  You  are  speaking  of  the  Milwaukee  company? 

Mr.  MORTIMER.  I  am  speaking  of  the  Milwaukee  company.  Keno- 
sha  had  a  5-cent  fare,  and  the  advent  of  the  5-cent  fare  did  not  re- 
store the  solvency  of  the  utility,  if  we  recognize  the  liability  that 
the  utility  has  because  of  the  unpaid  return,  the  unpaid  reasonable, 
return. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       813 

Commissioner  MEEKER.  Could  they  have  operated  solvently  it 
they  had  started  anew  on  a  5-cent  fare  ? 

Mr.  MORTIMER.  No;  they  could  not  have. 

Commissioner  MEEKER.  This  proper  reserve  fund — depreciation 
and  replacement  fund,  and  all  of  the  other  elements — if  taken  care 
of,  would  not  enable  the  railways  to  operate  on  a  solvent  basis  with 
a  5-cent  fare? 

Mr.  MORTIMER.  Xo;  not  during  the  period  of  time  that  we  have 
under  review. 

Commissioner  MEEKER.  How  far  back  would  that  extend? 

Mr.  MORTIMER.  Well,  I  am  going  back  to  1896.  On  the  Mil- 
waukee Electric  Railway  &  Light  Co.  there  were  periods  of  time 
when  the  return  earned  upon  the  fair  measure  of  the  utility  capital, 
after  providing  for  depreciation,  was  7  or  8  per  cent  possibly;  but 
that  was  in  times  before  we  had  a  regulation  of  rates  by  a  regulat- 
ing commission. 

Commissioner  MEEKER.  But  since  the  regulation  of  rates,  the 
5-cent  fare  has  never  been  a  sufficient  fare? 

Mr.  MORTIMER.  Well,  if  we  had  had  a  5-cent  fare  in  1913  and 
1914,  it  would  probably  have  been  remunerative;  but,  of  course, 
that  assumes  a  static  condition  with  respect  to  the  other  factors  of 
operating  expenses;  and  with  an  increase  in  rate  of  fare,  there 
would  probably  have  been  a  synchronous  increase  in  certain  other 
items  of  operating  expense,  possibly  wrages,  etc.  It  wyould  cer- 
tainly have  increased  our  taxes,  because  combined  railway  and 
electric  utilities  in  Wisconsin  are  virtually  on  an  income-tax  basis. 

The  Milwaukee  Electric  Railway  &  Light  Co.,  as  a  corporation., 
has,  of  course,  been  solvent.  It  enjoys  a  favorable  reputation  in 
that  respect,  but  that  has  not  been  due  to  the  railway  business.  Its 
electric  business  has  been  rapidly  developed,  and  is  growing  at  a 
very  rapid  rate.  It  has  tended  to  assist  the  railway  business  very 
materially,  because  it  is  taking  over  portions  of  the  reserve  power 
station  facilities  and  absorbing  them  by  absorbing  their  output  and 
thus  reducing  the  rate  of  increase  of  capital  expenditures  in  the 
case  of  the  railway. 

Commissioner  MEEKER.  What  would  you  say  in  answer  to  the 
accusation  that  the  street  railways  have  been  addicted  to  issuing 
watered  stock  and  that  they  have  been  trying  to  pay  dividends  upon 
water? 

Mr.  MORTIMER.  I  would  say,  in  the  first  place,  speaking  general  ty, 
it  is  an  attack  that  is  made  primarily  for  the  purpose  of  confusing 
the  issues.  .  The  figures  that  I  have  presented  to  you  applicable  to 
the  Milwaukee  Electric  Railway  &  Light  Co.  have  no  bearing  what- 
ever with  respect  to  capital  stock  and  bonded  debt,  but  represent  only 
the  appraised  value  of  the  physical  property ;  and  if  any  one  of  such 
persons  to  whom  you  refer  should  say  that  the  system  can  be  satis- 
factorily operated  and  produce  an  8  per  cent  return,  a  reasonable 
return  upon  the  fair  measure  of  utility  capital,  whereas  we  are  able 
only  to  operate  it  at  a  2  or  J3  per  cent  return  on  the  present  rate  of 
fare,  then  I  should  tell  him  he  is  losing  his  time,  that  he  should  be 
in  the  street  railway  business,  and  I  have  a  job  for  him. 

Commissioner  MKEKER.  Has  any  part  of  the  value  of  the  plant 
been  paid  for  out  of  earnings? 


814       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  MORTIMER.  There  have  been  substantial  additions  to  the  plant 
and  property  account  through  reinvestment  of  depreciation  reserve, 
through  reinvestment  of  earnings  specifically  appropriated  for  that 
purpose;  but  the  amount  that  the  company  has  earned  over  and  above 
a  reasonable  return  has  been  negligible. 

Commissioner  MEEKER.  Even  including  these  amounts  turned  back 
into  plant,  the  returns  on  a  fair  valuation  have  been  modest? 

Mr.  MORTIMER.  They  have  been  low;  in  fact,  and  of  course,  rela- 
tively low  during  the  last  two  or  three  j'ears. 

Commissioner  MEEKER.  I  think  that  is  all. 

Commissioner  SWEET.  Did  you  finish  what  you  had  to  say  about 
Kenosha?  As  I  recollect  it,  you  said  this  morning  that  you  got  a 
change  in  the  law,  which  made  a  different  provision  for  third-class 
cities. 

Mr.  MORTIMER.  Yes. 

Commissioner  SWEET.  Enabling  you  to  do  certain  things  there,  but 
not  including  Milwaukee  and  Superior? 

Mr.  MORTIMER.  That  is  correct. 

The  CHAIRMAN.  Did  you  take  advantage  of  that  new  law  in 
Kenosha  ? 

Mr.  MORTIMER.  Well,  we  now  have  in  process  of  preparation  a 
contract  to  submit  to  the  officials  of  the  city  of  Kenosha,  under  which 
\ve  propose  to  give  them  additional  railway  facilities. 

Commissioner  SWEET.  Does  that  involve  an  increase  of  fares? 

Mr.  MORTIMER.  This  does  not  involve  any  increase  in  fares  as  a 

Eart  of  the  contract,  but  it  will  require  that  the  rate  of  fare  shall 
e  determined  by  the  company  and  shall  be  in  such  form  as  will 
produce  the  maximum  net  earning  power  for  the  street-railway 
utility  has  expanded.  We  will,  or  course,  have  to  secure  the  ap- 
proval of  this  contract  by  the  railroad  commission  and  assurance 
from  the  railroad  commission  that  they  will  accept  our  filings 
of  the  rates  of  fare. 

Commissioner  SWEET.  Is  the  Kenosha  account  kept  entirely 
separate  from  other  accounts? 

Mr.  MORTIMER.  Yes;  from  the  Milwaukee  Electric  Railway  & 
Light  Co.,  and  the  other  utilities  of  the  Wisconsin  Gas  &  Electric  Co. 

Commissioner  SWEET.  Do  the  Kenosha  accounts  include  any 
suburban  districts? 

Mr.  MORTIMER.  None  whatever.  The  service  is  confined  wholly 
within  the  city  limits  of  the  city  of  Kenosha. 

Commissioner  SWEET.  You  have  been  charging  a  5-cent  fare? 

Mr.  MORTIMER.  Yes ;  we  have  had  a  5-cent  fare,  and  the  return  on 
this  very  high  earning  per  car-mile  has  been  on  the  order  of  3  per 
cent  per  annum.  In  other  words,  we  had  at  the  rate  of  about  G  per 
cent  for  allowances  for  future  replacements  and  for  return,  and  that, 
in  turn,  is  referring  to  the  actual  bare  bones  of  the  physical  property 
value. 

Commissioner  SWEET.  And  you  divided  that  amount  in  two,  in  the 
middle,  and  devote  half  of  it  to  returns  upon  the  investment  and  the 
other  half  to  replacements? 

Mr.  MORTIMER.  In  that  particular  case,  I  do  not  recall  how  the 
distribution  was  made.  It  is  my  recollection  that  there  was  not 
appropriated  for  depreciation  an  amount  equivalent  to  3  per  cent.  I 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       815 

think  it  was  appreciably  under  2  per  cent.  So  that  our  return  actu- 
ally shown  during  the  last,  say  10  months,  was  at  the  rate  of  4  per 
cent,  the  return  as  per  books,  whereas,  on  computing  the  return  upon 
the  commission's  formula,  it  would  be  on  the  order  of  3  per  cent. 

Commissioner  SWEET.  How  did  the  valuation  upon  the  basis  of 
the  physical  property  compare  with  the  issues  of  bonds  and  stocks  in 
the  book  charges? 

Mr.  MORTIMER.  Well,  in  the  case  of  the  Milwaukee  Electric  Rail- 
way &  Light  Co.  and  the  Milwaukee  Light  &  Traction  Co.,  the  re- 
production costs  of  the  physical  property  was  $2,000,000  in  excess — 
the  reproduction  cost  of  the  physical  property,  plus  materials  and 
supplies,  plus  working  capita],  like  accounts  receivable,  cash,  etc., 
was  on  the  order  of  $2,000.000  in  excess  of  the  par  value  of  the  pre- 
ferred and  common  capital  stock,  plus  the  present  value  of  the  lia- 
bility on  account  of  funded  debt;  and  when  I  say  "the  present  value 
of  the  liability  on  account  of  funded  debt,"  I  mean  the  par  value  of 
the  funded  debt  and  securities,  less  the  unamortized  portion  of  the 
discount  at  which  they  were  sold. 

So  there  was  a  straight  case  where,  on  the  face  of  it,  there  was  no 
water  in  its  securities,  as  compared  with  the  reproduction  cost  of 
the  property  and  assets. 

Commissioner  Sw EET.  Had  common  stock  been  issued  ? 

Mr.  MORTIMER.  Yes. 

Commissioner  SWEET.  What  became  of  that  ? 

Mr.  MORTIMER.  I  am  counting  that.  That  is  included  in  the  par 
value  of  the  preferred  and  common  stock.  We  found  in  our  prop- 
erties there  that  it  was  absolutely  impossible  to  make  any  reference 
to  the  security  issues,  because  they  have  gone  back  over  a  very  long 
period  of  time,  and  the  Railroad  Commission  in  its  early  stages  sub- 
stituted physical  valuation  for  any  attempt  at  stock  valuation  or 
security  valuation. 

Commissioner  SWTEET.  Was  there  any  value  attached  to  }Tour  fran- 
chise? 

Mr.  MORTIMER.  We  have  no  allowance  for  franchise  value  whatever, 
and  no  allowance  in  these  valuations  for  superseded  property  of  any 
kind. 

Commissioner  SWEET.  Did  you  have  a  dispute  with  the  State  com- 
mission in  regard  to  the  basis  of  valuation? 

Mr.  MORTIMER.  We  were  not  satisfied  with  the  valuation  that  was 
made  as  of  1907,  but  we  were  fairly  well  satisfied  with  the  valuation 
made  as  of  January  1,  1914;  so  the  dispute  was  not  so  serious  be- 
tween us  that  we  have  hesitated  to  use  the  figures.  In  fact,  we  have 
accepted  them  for  the  purpose  of  rate-making. 

Commissioner  SWEET.  Was  there  a  basic  difference  between  those 
two  valuations,  or  simply  a  difference  of  opinion  as  to  what  the 
values  were? 

Mr.  MORTIMER.  Xo;  there  was  no  difference  between  us  as  to  the 
quantity  of  property.  There  was  sonic  difference,  to  begin  with, 
between  our  engineers  and  the  commission's  engineers  respecting  unit 
prices,  and  there  was  also  some  difference  with  respect  to  some 
amount  to  be  allowed  as  overhead,  but  the  differences  were  largely 
minimized. 

Commissioner  SWEET.  The  last  valuation  was  of  1914? 


8  IS       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  MORTIMER.  January  1,  1914,  made  as  of  that  date,  and  begun 
in  the  early  part  of  that  year,  and  completed  as  of  January  1,  1914, 
in  the  month  of  August,  1917. 

Commissioner  SWEET.  That  was  before  prices  had  begun  to  go  up 
very  much? 

Mr.  MORTIMER.  Yes. 

Commissioner  SWEET.  Suppose  you  were  to  take  a  valuation  of  the 
railway  property  now ;  do  you  think  that  the  reproduction  cost,  the 
cost  of  reproducing,  upon  tlie  present  high  prices  of  steel  and  equip- 
ment of  all  kinds,  ought  to  be  taken  into  account  ? 

Mr.  MORTIMER.  I  think  that  is  an  element  that  would  have  to  be 
given  consideration,  just  like  the  estimated  cost  of  reproduction  is 
only  one  element  in  valuation.  We  have  not  needed  in  any  of  our 
calculations  to  show  that  regulation  as  practiced  in  Wisconsin  was 
unreasonable. 

Commissioner  SWEET.  I  do  not  know  whether  you  have  expressed 
the  opinion  that  your  maximum  revenue  would  be  reached  by  an 
increase  of  fare;  in  other  words,  whether  the  patronage  would  fall 
off  as  your  fares  advanced,  so  that  you  could  not  get  much  more 
revenue  than  you  are  getting  now. 

Mr.  MORTIMER.  I  feel  almost  sure  that  almost  any  change  in  rate 
of  fare  upward  would  increase  revenues.  I  am  confident  of  that. 

Commissioner  SWEET.  The  falling  off  in  revenue  would  not  equal- 
ize the  gain  in  fare? 

Mr.  MORTIMER.  No;  I  am  very  sure  of  that. 

Commissioner  SWEET.  You  think  the  increase  in  fares  would  be, 
at  present,  at  least,  very  helpful  to  the  companies  throughout  the 
country  ? 

Mr.  MORTIMER.  There  can  be  no  doubt  about  it. 

Commissioner  SWEET.  Do  you  see  any  other  means  of  awarding 
immediate  relief? 

Mr.  MORTIMER.  Well,  as  emergency  measures,  it  would  be  highly 
advantageous  to  the  railway  industry  if.  first,  the  unremunerative 
capital  ani  operating  expeditures  could  be  eliminated.  I  refer 
primarily  to  paving  and  the  other  contributions  which  street-rail- 
way utilities  indirectly  make  to  taxes,  sprinkling,  etc. 

The  second  thing  is  to  abandon  the  operation  of  the  service  over 
lines  which  can  not  be  made  remunerative,  or  which  can  not  other- 
wise be  supported. 

The  third  would  be  .to  impose  a  distance-tariff  plan  on  the  outlying 
sections  of  long  lines  or  lines  of  modest  length,  so  as  to  increase  the 
revenues  and  minimize  the  losses;  and  the  fourth  thing  would  be  an 
immediate  and  large  increase  in  the  flat  rate  of  fare.  An  immediate 
and  large  increase  in  the  flat  rate  of  fare  is  essential,  for  two  rea- 
sons :  First,  it  is  necessary  in  order  to  restore  equality  between  operat- 
ing revenues  and  operating  expenses ;  and  second,  it  is  important  that 
a  large  increase  in  fare  be  allowed  to  take  care  of  increased  expenses 
that  the  street  railways  will  meet  in  the  next  few  months,  because 
of  rate  increases  and  probably  coal  costs,  and  to  return  the  net  earn- 
ing power  of  the  railways  to  a  relatively  high  level,  so  that  their 
credit  at  the  end  of  two  years  may  be  reestablished  and  that  they  may 
be  able  to  go  into  the  money  markets  and  procure  the  additional 
capital  that  will  Be  needed  at  that  time. 

The  CHAIRMAN.  You  are  excused,  Mr.  Mortimer. 

Mr,  WARREN.  Mr.  Quackenbush. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       817 

STATEMENT  OF  MR.  JAMES  L.  QUACKENBUSH. 

Mr.  WARREX.  Mr.  Chairman,  I  am  calling  Mr.  Quackenbush  with 
reference  to  his  experience  with  public  supervision  and  control  in 
New  York  State  and  New  York  City. 

Mr.  Quackenbush,  you  are  a  lawyer  by  profession  ? 

Mr.  QUACKENBUSH,  Yes,  sir. 

Mr.  WARREX.  You  are  counsel  for  the  Interborough  Rapid  Tran- 
sit Co.? 

Mr.  QUACKEXBUSH.  Yes,  sir. 

Mr.  WARREX.  And  also  for  the  New  York  Railways  Co.? 

Mr.  QUACKEXBUSH.  Yes,  sir. 

Mr.  WARREX.  How  long  have  you  been  connected  with  the  com- 
panies professionally  ? 

Mr.  QUACKEXBUSH.  Fifteen  years. 

Mr.  WARREX.  That  is  about  as  long  as  you  have  had  a  public-serv- 
ice commission  in  Nsw  York? 

Mr.  QUACKEXBUSH.  Longer. 

Mr.  WARREN.  Longer? 

Mr.  QUACKEXBUSH.  We  have  had  it  12  years. 

Mr.  WARREX.  You  have  two  commissions  there,  one  the  so-called 
up-State  commission,  and  the  one  with  particular  control  in  New 
York  City  and  the  immediate  vicinity,  I  believe? 

Mr.  QUACKEXBUSH.  Just  New  York  City. 

Mr.  WARREX.  Have  you  had  experience  with  both  commissions? 

Mr.  QUACKEXBUSH.  A  slight  experience  with  the  up-State  commis- 
sion, and  a  very  large  experience  with  the  city  commission. 

Mr.  WARREX.  Will  you  please  tell  us  what  changes  are  necessary, 
in  your  opinion,  Mr.  Quackenbush,  in  the  commission  laws  or  prac- 
tices to  make  them  more  effective  and  more  efficient  in  the  present 
situation  of  the  street  railways  and  properly  to  control  in  the  future 
the  street  railways?  In  that,  I  include,  of  course,  the  railways 
operating  the  subways  and  the  elevated  ? 

Mr.  QUACKEXBUSH.  Fundamentally,  I  think  the  laws  of  New  York 
are  satisfactory.  The  trouble  in  New  York  has  not  been  with  tha 
law.  but  with  its  administration. 

The  first  time  that  anything  has  been  done  by  the  public-service 
commission  in  the  first  district,  which  is  the  New  York  City  district, 
of  the  slightest  benefit  to  the  railroads,  was  done  last  week  by  Com- 
missioner Nixon.  Since  the  1st  day  of  July,  1907,  down  to  the  1st 
day  of  July,  1019,  I  have  been  in  daily  contact  with  the  administra- 
tion of  the  public-service  commission  in  the  first  district,  and  I  can 
not  now  recollect  a  single  transaction  that  has  been  of  the  slightest 
benefit  to  the  railroads  under  their  jurisdiction. 

Now,  the  trouble  has  been  that,  instead  of  the  members  of  the- 
commissions  carrying  out  the  theory  of  Gov.  Hughes  in  the  session 
of  1907,  when  the  public-service  commission  law  was  first  enacted, 
namely,  that  the  commission  would  be  a  tribunal,  impartial  and 
fair,  between  the  industry  and  the  public;  that  it  would  be  a  means 
of  the  prevention  of  any  further  prejudice  against  the  industry  on 
the  part  of  the  public;  that  it  would  ascertain  the  truth  and  toll  tho 
people  the  truth ;  that  the  people,  learning  the  truth,  would  be  edu-. 


818        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

cated  up  to  carrying  out  what  is  always  the  desire  of  the  people — to  do 
justice — that  function  completely  and  absolutely  failed. 

Now,  that  you  do  not  need  to  take  my  statement  about  it — and  I 
might  be  supposed  to  be  a  prejudiced  witness — I  call  your  atten- 
tion to  the  fact  that  there  has  been  no  question  of  politics  entering 
into  the  matter.  During  the  12  years  beginning  with  Gov.  Hughes, 
the  majority  of  the  commission  was  of  his  party,  the  Republican 
Party.  Political  changes  in  the  State  of  New  York  succeeding 
his  administration  resulted  in  the  majority  of  the  commission,  for 
a  period  of  years,  being  of  the  Democratic  Party.  Then  it  swung 
again  to  the  Republican  Party ;  and  this  present  year,  with  a  Eepub- 
lican legislature  and  Democratic  governor  in  the  State,  it  was  agreed 
that  something  had  to  be  done.  So  they  both  agreed  on  the  enact- 
ment of  a  law,  which  practically  legislated  out  of  office  the  remain- 
ing commissions  and  legislated  into  office  a  single  commissioner,  Mr. 
Louis  F.  Nixon,  and  took  from  the  public-service  commission  the 
duties  of  supervising  the  reconstruction  work  of  the  subways,  in 
which  the  city  is  financially  interested,  and  all  the  contracts  between 
the  Interborough  Rapid  Transit  Co.  and  the  city  on  the  one  hand, 
and  the  Brooklyn  Rapid  Transit  Co.  and  its  subsidiary  companies, 
and  the  city,  on  the  other  side  of  the  river.  The  changes  in  tlie  law 
were  practically  all  that  I  have  stated. 

The  public-service  committee  of  the  New  York  Senate  three 
years  ago  carried  on  an  investigation  of  the  whole  matter  of  trac- 
tions, of  public  utilities.  That  investigation  began  four  years  ago; 
it  began  in  1915,  and  ran  through  1916,  and  continued  through 
1917  and  1918.  It  consumed  months  of  time.  I  attended  the  senate 
committee.  It  was  a  joint  committee.  I  was  mistaken  in  saying 
it  was  a  senate  committee.  The  chairman  was  a  senator.  It  was 
a  joint  committee  of  both  houses. 

The  law  was  completely  revised.  The  substantive  portions  of  the 
law  remained  unchanged,  but  the  procedural  part  was  changed. 
I  will  not  go  into  that  now,  because  I  think  whether  it  was  as 
it  was  proposed  by  the  so-called  Thompson  Law,  or  as  at  present,  is 
of  no  consequence  to  the  problem  confronting  3^011  at  the  present 
moment. 

The  bill  passed  the  senate  two  years.  It  did  not  pass  in  the  as- 
sembly. I  think  it  is  fair  to  say  from  that  that  my  conclusion  that 
the  law  itself  is  satisfactory  is  warranted. 

The  main  change  suggested  was  to  get  quicker  action  by  the  com- 
mission, and  if  you  care  to  know  about  that,  I  might  spend  a  moment 
in  explaining  it.  The  idea  was  to  get  rid  of  the  practice  that  the 
commission  had  fallen  into  of  failing  to  recognize  that  it  was  an  ad- 
ministrative body,  instead  of  treating  everything  as  though  it 
were  a  court,  with  long-drawn-out  examinations  and  cross-examina- 
tions and  the  usual  number  of  adjournments  and  postponements, 
and  to  have  matters  heard,  in  the  first  instance,  by  so-called  regula- 
tory commissions,  who  would  decide  the  ordinary  routine  matters 
promptly  and  provide  then  for  a  hearing  commission.  The  idea  was 
to  abolish  the  two  separate  commissions,  and  to  have  one  commis- 
sion, the  hearing  commissioners  to  sit  in  Albany  and  take  up  mat- 
ters that  might  be  referred  to  them  by  the  regulatory  commissioners, 
or  that  might  be  brought  to  them  in  an  appeal  from  the  utility,  with 
a  further  provision  that  decisions  could  be  summarily  reviewed  by 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       819 

the  appellate  division  in  the  third  department  sitting  in  Albany,  and 
not  go  to  the  court  of  appeals  except  on  a  certified  question  of  law 
of  the  highest  importance. 

I  believe  that  that  bill,  which  already  passed  the  senate  on  two 
occasions,  would  make  for  celerity;  but,  so  far  as  we  are  concerned 
— and  by  "  we,"  I  mean  the  companies  operating  largely  on  ISIan- 
hattan  Island — we  could  get  along  with  the  existing  law  if  we 
could  get  it  administered  in  the  manner  that  was  first  intended. 

In  other  words,  it  has  been  a  failure  on  the  part  of  individuals  to 
recognize  that  they  were  there  as  protectors  of  the  people  who  had 
their  investments  there.  I  go  further  than  that :  I  say  that  the  pub- 
lic-service-commission regulation  in  New  York  City  failed  because 
it  did  not  courageously  put  a  stop  to  the  prejudice  that  was  shown 
by  the  former  governor  of  Massachusetts  here  this  morning. 

Now,  I  challenge,  so  far  as  it  relates  to  the  city  of  New  York,  the 
accuracy  of  every  statement  made  by  that  gentleman.  There  is  no 
warrant  for  it,  and  yet  it  exists,  and  it  exists  solely  and  only  because 
those  men  who  were  in  a  position  all  those  years  to  know  the  truth 
and  did  know  the  truth  kept  the  truth  to  themselves  and  did  not  con- 
vey it  to  the  public  whom  they  represented. 

From  the  time  that  the  commission  took  office,  on  July  1,  1007, 
down  to  this  act  of  Commissioner  Nixon,  the  whole  problem  was  to 
control  the  outgo  of  utilities,  and  no  heed  or  regard  was  paid  to 
their  income  whatever.  Notwithstanding  that  the  surface  lines  of 
the  New  York  Railways  Co.  were  going  down  hill,  were  going  fast 
toward  a  receivership  last  year;  notwithstanding  that  we  warned 
them  of  it,  advised  them  of  it,  that  our  monthly  reports,  quarterly 
reports,  annual  reports,  frequent  hearings  under  oath  showed  the 
fact,  they  continued  to  make  orders  to  increase  service.  They  took 
the  view,  and  both  commissions  took  the  view  that  they  were  not 
concerned  with  the  question  of  how  we  were  going  to  get  the  money  to 
provide  the  service — and  when  I  said  awhile  ago  that  I  was  slightly 
familiar  with  the  operation  of  the  so-called  up-State  commission  I 
meant  by  actual  appearance  before  them,  although  I  represent  two 
roads  that  are  within  their  jurisdiction;  but  I  do1  know  about  their 
operations,  because  it  is  my  business  to  watch  the  operations  of  both 
commissions. 

That  commission  in  Buffalo  last  year,  when  the  men  struck  for 
higher  wages,  took  the  position  that  they  must  go  on.  The  lower  court 
also  took  that  position,  but  the  court  of  appeals,  with  some  sanity, 
said  no,  that  they  could  not  operate  without  income,  and  if  it  was 
a  fact  that  they  did  not  have  income  sufficient  to  pay  the  wage  of 
the  War  Labor  Board  that  that  was  a  question  of  fact  to  be  tried  out. 

I  think  it  is  only  fair  to  say  that  the  commission  in  the  Albany 
district  has  shown  a  greater  disposition  to  function  in  accordance 
with  the  fundamentals  than  the  one  in  New  York  City. 

Now,  the  New  York  City  Commission  took  office  in  July,  1907, 
when  the  surface  lines  were  tottering  toward  bankruptcy  and  became 
bankrupt  in  September.  They  were  getting  an  inadequate  fare  there 
at  that  time  through  excessive  use  of  free  transfers.  The  average 
fare  had  been  descending  until  at  the  time  of  the  insolvency  in  Sep- 
tember, 1907,  it  was  roughly  3.5  cents. 

The  receivers  of  the.  New  York  City  Railway  Co.,  which  then  oper- 
ated all  the  lines  on  Manhattan  Island,  found  the  leases  of  the  Third 


820       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Avenue  and  many  of  the  others  unprofitable  and  returned  them  to 
their  owners,  under  ('  o  instructions  of  the  United  States  court.  That 
meant  that  the  duty  to  exchange  transfers  ceased,  because  the  law 
of  New  York  did  not  require  transfers  from  otherwise  independent 
and  competing  lines. 

The  public-service  commission  knew  Avhat  the  rate  of  fare  was, 
but  the  public-service  commissioners  made  speeches  in  various  por- 
tions of  the  city  announcing  that  they  would  restore  the  transfers; 
and  during  the  years  1907,  1908,  1909,  1910,  and  1911  we  were  en- 
gaged in  efforts  to  persuade  them  not  to  do  that. 

The  matter  went  along — 

The  CHAIRMAN.  To  do  what — to  make  speeches  or  to  restore  the 
transfers  ? 

Mr.  QUACKENBUSH.  Oh,  no.  I  tried  in  my  humble  way  to  reason 
with  them  as  brethren  not  to  make  the  speeches,  but  that  was  unavail- 
ing, and  so  I  resorted  to  the  courts  and  succeeded  in  getting  the. courts 
to  prevent  their  carrying  put  their  nefarious  purpose  of  restoring  the 
transfers ;  and  being  unwilling  to  leave  their  record  to  be  determined 
by  the  courts  finally,  and  wanting  to  get  quick  action,  these  gentle- 
men went  to  the  legislature  in  1912  and  succeeded  in  securing  the 
passage  through  both  houses  of  the  legislature  of  a  bill  which  en- 
acted into  law,  in  extenso,  their  order  for  the  restoration  of  the 
transfers. 

Mr.  WARREN.  You  mean  the  restoration  between  the — 

Mr.  QUACKENBUSH.  Between  the  independent  foreign  lines  that 
had  been  separated. 

They  knew,  of  course,  as  I  knew,  that  the  order  could  not  be  sus- 
tained, because  it  was  confiscatory,  and  instead  of  leaving  it  as  a 
judicial  question,  it  was  sought  to  make  it  a  legislative  one.  Former 
Gov.  John  A.  Dix  vetoed  that  bill. 

Then,  in  the  latter  part  of  1912,  the  independent  companies  and 
the  commission  arranged  a  modification  of  the  transfer  free  across 
Fifty-ninth  Street;  and  they  waived  the  others,  and  that  is  the  sit- 
uation down  to  the  present  time. 

Now,  I  mention  that  as  proof  of  the  correctness  of  my  indictment. 
They  knew  better.  They  knew  that  they  were  not  protecting  the 
property  or  the  service  in  doing  that. 

Now,  let  us  pass  that  and  come  to  the  last  few  years.  It  was  ap- 
parent in  1917,  early  in  1917,  as  soon  as  we  got  into  the  war — it  was 
apparent  before  we  got  into  the  war,  that  we  were  going  onto  a  new 
price  level.  It  was  perfectly  apparent  that  the  5-cent  fare,  with  free 
transfers  on  the  surface  lines,  would  be  inadequate  to  keep  them 
going.  I  am  not  talking  now  about  return.  I  am  talking  about 
keeping  them  going  in  the  interest  of  the  public,  keeping  the  equip- 
ment up,  so  that  it  could  render  that  safe  and  adequate  service  that 
the  statute  requires;  and  transfers  having  been  the  principal  cause 
of  the  lowering  of  the  average  rate  of  fare — rather  than  to  ask  for 
a  flat  increase  of  fare  in  the  first  instance,  the  surface  companies  made 
application  to  the  commission,  in  May,  1917,  for  the  privilege  of 
abandoning  the  transfers,  as  the  commission  might  direct. 

We  had  procured  changes  in  the  law,  I  might  say,  parenthetically, 
in  1910,  which  left  the  whole  matter  with  the  commission. 

Mr.  WARREN.  The  whole  matter  of  transfers? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       821 

Mr.  QUACKENBUSH.  Of  transfers — either  to  abolish  them  entirely, 
or  to  limit  their  use,  also  in  the  matter  of  transfers  upon  transfers; 
in  other  words,  to  deal  with  the  whole  subject. 

Those  proceedings  were  begun  in  May,  1917,  and  when  Commis- 
sioner Nixon  took  office  on  the  8th  day  of  May,  1919,  he  found  them 
pending  undecided.  In  the  meantime,  the  New  York  Railways  Co. 
had  gone  into  the  hands  of  a  receiver. 

The  Second  Avenue  Railway  Co.  in  New  York  has  never  come  out 
of  the  hands  of  a  receiver  since  it  started  there  in  1907.  And  now 
the  receiver  is  unable  to  earn  interest  on  the  certificates  issued  by  him 
under  the  orders  of  the  court,  and,  rather  facetiously,  he  is  consid- 
ering whether  there  won't  be  a  receivership  of  the  receiver.  [Laugh- 
ter.] 

Now,  that  condition  confronting  that  particular  line  of  railway 
on  Second  Avenue  alone  condemns  the  action  of  the  gentlemen  that 
held  those  positions  during  those  years. 

Now,  there  is  another  thing:  A  number  of  public-spirited  gentle- 
men in  Brooklyn  conceived  the  idea  that  it  would  be  a  good  thing  to 
have  a  3-cent  fare  in  New  York  City,  and  so  they  organized  a  cor- 
poration to  operate  the  cars  on  the  Manhattan  Bridge,  and  they  called 
it  the  Manhattan  Three-Cent  Fare  Line.  We  opposed  it,  naturally. 
We  opposed  it  because  it  was  economically  unsound,  and  everybody 
knew  that  it  was.  But  they  were  received  with  open  arms,  and  they 
got  their  franchise,  a  short  haul  across  the  bridge. 

Across  the  Williamsburg  Bridge  in  1904,  an  arrangement  was 
made  for  a  ten-years'  term  to  operate,  a  number  of  the  companies  en- 
tering into  the  thing  jointly.  They  organized  the  so-called  Bridge 
Operating  Co.  and  agreed  to  operate  for  a  3-cent  fare.  Just  as  soon 
as  it  became  apparent  that  that  3-cent  fare  for  the  short  haul  across 
the  bridge  was  earning  a  little  more  than  an  ordinary  rate  upon  the 
low  capitalization  of  the  line,  being  entirely  an  instrumentality  for 
joint  operations  of  several  lines,  the  public-service  commission  re- 
duced that  rate  to  2  cents,  ignoring  entirely  the  fact  of  the  long  haul 
of  the  lines  feeding  into  the  short-haul  line. 

In  1917,  when  the  transfer  hearing  was  started,  it  was  only  neces- 
sary to  show  the  difference  between  operating  expenses  and  income  to 
show  that  some  emergency  relief  was  needed.  The  facts  were  there, 
but  they  wanted  a  valuation;  and  the  thing  went  along — examination 
upon  examination  of  the  accounts,  and  all  the  various  things. 

Counsel  for  the  commission  was  nominated  for  district  attorney 
that  fall  and,  among  the  reasons  that  he  gave  the  people  why  he 
should  be  elected  district  attorney,  was  that  he  had  prevented  the 
abolition  of  the  transfers,  or  any  charge  for  the  transfers.  lie  did 
not  get  elected  on  that  issue,  but  he  ran  on  it. 

I  am  speaking  of  facts  as  they  are,  because  I  suppose  that  is  what 
you  want  to  know.  These  gentlemen  are  all  friends  of  mine.  I 
have  gotten  along  with  them  pleasantly.  I  do  not  enjoy  stating  what 
I  do;  but  the  truth  is  the  truth,  and  it  was  about  time  it  should  be 
told  somewhere  by  somebody,  and  I  propose  to  tell  it  as  long  as  you 
want  to  listen  to  it. 

Now,  I  say  that  for  the  commission,  for  one  day,  to  keep  Judgo 
Ransom  in  office  after  he  made  that  a  campaign  issue — and  it  is  in  the 
public  prints  that  he  did  it — they  convicted  themselves  of  an  utter 
lack  of  appreciation  of  their  duties  under  the  law. 


822       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

That  has  been  the  trouble  in  New  York. 

Now,  that  is  the  surface  situation.  Let  us  take  up  now  the  Inter- 
borough  Rapid  Transit  Co,,  operating  the  elevated  lines  and  sub- 
ways. 

The  only  rapid  transit  available  to  the  people  of  New  York,  Man- 
hattan Island  and  the  Bronx  was  the  Manhattan  Elevated,  and  this 
had  become  utterly  inadequate  to  meet  the  terrific  congestion  of 
traffic  afforded  to  it.  For  years  the  matter  was  discussed  in  New 
York  as  to  what  relief  should  be  given  to  the  public.  The  rapid- 
transit  act  was  amended.  Efforts  were  made  to  get  subways  built, 
and  franchises  for  20  years  were  prepared. 

The  legislature  is  to  blame  now.  There  was  not  any  commission 
at  the  time  I  am  speaking  of. 

They  could  not  find  anybody,  of  course,  that  could  go  into  the 
investment  of  the  millions  upon  millions  required  to  construct  and 
operate  subways  on  any  20-year  franchise,  or  25  years — I  do  not  re- 
call just  exactly  which,  but  I  think  is  was  a  20-year  arrangement — 
because  you  could  not  amortize  any  such  investment  in  that  time. 

That  remained  the  law  for  some  time. 

The  franchise  was  peddled  upon  the  steps  of  the  city  hall,  and  no 
takers. 

Finally  the  law  was  changed,  and  a  number  of  gentlemen  or- 
ganized the  Interborough  Rapid  Transit  Co.  and  took  the  chance  of 
equipping  and  operating  it.  The  city  put  its  own  money  in,  because, 
of  course,  that  was  the  economic  thing  to  do,  for  the  reason  that 
Gov.  Foss  mentioned  here  this  morning — public  credit  is  always 
cheaper  than  that  of  private  corporations.  And  the  city  then  had 
credit,  the  company  agreeing  to  pay  the  interest  and  sinking  fund 
on  the  investment  of  the  city. 

The  subway  began  operation  in  the  fall  of  1904.  It  was  not  very 
long  before  it  was  apparent  that  extensions  must  be  had.  By  the 
way,  I  might  say — and  you  probably  know  it,  or  probably  I  know 
you  all  do  know — that  the  original  subway  was  a  Z-shaped  line.  It 
came  up  the  eastern  side  of  the  city  to  the  Grand  Central,  went 
westerly  across  Forty-second  Street,  until  it  met  Broadway,  and 
then  went  on  up  Broadway  on  the  westerly  side  of  the  city.  That 
was  laid  out  that  way  not  because  it  was  considered  the  scientific 
way  to  lay  out  a  railway,  but  because  the  limitations  of  the  city's 
credit  were  such  that  the  city  could  not  at  the  time  finance  a  line 
tip  and  down  the  east  side  of  the  island,  and  up  and  down  the  west 
side.  They  laid  it  out  that  way  with  the  idea  that,  as  soon  as  we 
got  going,  naturally  the  extensions  up  the  east  side  would  be  built 
and  the  extensions  down  the  west  side  would  be  built,  and  would 
be  financed  out  of  the  earnings  and  the  established  credit  of  the 
city,  from  the  original  plan. 

As  I  was  saying,  after  1904  it  became  apparent  that  they  had  to 
build  those  extensions.  The  congestion  was  increasing.  It  was  pay- 
ing. Nothing  was  done  by  the  old  Board  of  Rapid  Transit  Commis- 
sioners, who  had  charge  of  it  prior  to  the  1st  of  July,  1907 — nothing 
of  any  great  consequence.  I  do  not  mean  this  to  be  as  criticism  of 
them,  because  the  period  from  1904  to  1907  was  the  period  of  the  up- 
building of  the  subway;  but  by  1907  it  had  become  apparent  that 
something  had  got  to  be  done. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       823 

Now,  what  was  done  by  the  commission,  of  which  Mr,  Wilcox  was 
chairman  in  1907  and  succeeding  years? 

The  fundamental  theory  of  the  public-service  commission  law  in 
New  York,  and  of  course  throughout  the  United  States  is,  as  Gov. 
VQSS  has  said,  monopoly — not  competition,  but  regulation  and  mo- 
nopoly. It  was  the  commission's  duty  to  regulate  it.  It  had  all  the 
powers  of  regulation. 

Instead  of  undertaking  to  accept  any  one  of  the  several  offers  that 
the  Interborough  Rapid  Transit  Co.  made  to  the  city  to  build  those 
natural  extensions  that  I  have  mentioned,  with  their  own  money,  the 
commission  thought  they  had  to  have  competition,  they  had  to  have 
public  operation;  and  they  proceeded  with  a  plan  of  building  an 
independent  subway,  and  that  was  to  have  another  Z,  coming  down 
Lexington  Avenue  and  crossing  below  Forty-second  Street,  and  then 
coming  down  the  west  side.  They  called  that  the  Triborough  Sub- 
way, and  they  spent  several  million  dollars  in  actually  constructing 
it.  That  has  no  justification  in  finance,  economics,  railroading,  or 
common  sense. 

It  was  not  the  fault  of  the  law. 

Tenders  were  requested  from  people  to  build  these  lines  in  com- 
peting with  us,  and  they  did  not  succeed  in  getting  them. 

The  next  thing  was  the  encouragement  of  the  Brooklyn  Rapid 
Transit  Co.  to  come  in,  and  they  laid  out  this  so-called  dual  system, 
•which  is  now  in  process  of  completion,  and  they  had  so  many  railways 
in  Manhattan  Island,  as  a  result  of  that,  that  of  course  it  was  im- 
possible for  any  of  them  to  be  sure  of  earning  the  fixed  charges  dur- 
ing the  first  few  years  of  operation ;  and  that  was  recognized. 

Now  the  city's  credit  in  the  meantime  had  become  so  narrow  that 
it  could  not  build  these  things.  It  had  to  have  private  capital.  The 
private  capital  could  not  be  gotten  on  any  plan  that  was  so  sure  to 
result  in  thin  traffic  in  the  first  years,  and  therefore  these  present 
contracts  were  prepared,  and  if  you  will  pardon  me,  I  will  dwell  a 
moment  on  those  contracts,  because  I  think  concerning  them  the 
truth  has  not  permeated  very  many  places. 

The  city  did  not  have  the  capital,  and  I  will  confine  myself  to  the 
Interborough  side  of  it  with  which  I  am  familiar,  although  the 
Brooklyn  plan  is  identical  in  principle.  The  city  did  not  have  the 
capital.  It  invited  the  Interborough  Rapid  Transit  Co.  to  raise  the 
capital  necessary  to  construct,  equip,  and  operate  its  part  of  the  plan 
that  the  city  laid  out — not  our  plan;  their  plan — the  plan  we  ad- 
vised against.  We  did  not  have  it  in  our  treasury  anywhere.  It 
required  $80,000,000,  the  original  plan,  of  new  capital,  of  which  we 
were  to  contribute  $58,000,000  for.  const  ruction  and  $22,000,000  for 
equipment.  It  was  provided  that  we  should  not  go  beyond  the 
$58,000,000  for  construction;  that  the  city  would  contribute  $58,000,- 
000  for  construction,  and  more  if  needed,  and  we  would  contribute 
$22,000,000  for  equipment,  and  more  if  needed. 

We  had  to  refund  the  bond  issue  which  we  had  against  the  original 
cost  of  all  of  our  equipment  of  the  old  subway,  and  we  therefore  had 
to  get  out  an  issue  of  $100,000,000  of  bonds,  which  we  got  out. 

These  contracts  were  finally  executed  in  1913,  after  negotiations 
extending  from  1907  to  1913.  All  the  terms  of  the  contracts  were 
incorporated  into  acts  of  the  legislature,  so  that  there  would  be  no 


824       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

question  about  the  power  of  the  commission.  The  matter  was  deter- 
mined by  the  court  of  appeals  to  be  constitutional  or  legal,  and 
investors  generally  were  invited  to  take  the  Interborough  Rapid 
Transit  Co.'s  fives  in  the  aggregate  amount  of  $160,000,000,  for 
refunding  purposes,  and  the  others  that  I  have  mentioned. 

At  the  same  time,  the  city  was  issuing  bonds  for  its  contribu- 
tions. These  are  5  per  cent  bonds,  and  the  contract  provided  that 
we  were  to  have  a  1  per  cent  sinking  fund,  so  that  they  would  be 
amortized  in  about  38  years. 

Now,  when  that  proposition  was  made,  it  was  perfectly  apparent 
to  anybody  with  the  simplest  knowledge  of  finance  that  you  could 
not  get  the  individual  investors  to  put  money  to  the  extent  of 
$160,000,000  into  that  venture  unless  they  were  guaranteed  by  the 
city  or  unless  they  had  first  call  on  the  revenues  of  the  joint  enter- 
prise. 

The  city  could  not  guarantee — and  may  I  be  pardoned  for  a 
moment  now  in  digressing,  because  I  deal  with  facts,  and  not  with 
theory. 

The  discussion  of  Gov.  Foss  this  morning  about  public  ownership, 
that  we  are  going  to  do  it  right  off,  so  far  as  the  State  of  New  York 
is  concerned — if  I  may  be  pardoned  the  use  of  a  remark  concerning 
the  distinguished  gentleman  from  Massachusetts — is  nothing  but 
stuff  and  nonsense. 

Under  the  constitution  of  the  State  of  New  York,  the  city  of 
New  York  has  absolutely  no  power  to  lend  its  credit  to  any  cor- 
poration, or  to  guarantee  anything,  or  to  become  the  owner  of  stock 
in  any  corporation;  but  before  the  measure  suggested  by  the  ex- 
governor  of  Massachusetts  can  be  carried  out  in  the  State  of  New 
York,  an  amendment  to  the  constitution  must  be  obtained.  This 
may  seem  like  a  law  lecture,  and  probably  it  is  familiar  to  you,  but, 
very  briefly  stated,  under  our  constitution,  you  can  amend  it  only 
by  a  constitutional  convention,  or  by  an  amendment  passing  the 
legislature;  then  the  same  amendment,  as  passed,  being  submitted  to 
the  next  succeeding  legislature,  made  up  of  the  senate,  which  has, 
since  the  first  enactment,  been  newly  selected  from  the  people;  ana 
then,  after  those  two  successive  legislatures  have  passed  the  amend- 
ment, it  is  submitted  to  the  people  at  the  next  annual  election,  and 
on  the  time-table  as  of  to-day  of  the  governor's  program — mind  you, 
I  am  not  talking  about  whether  public  ownership  is  the  thing  or  not; 
I  am  talking  about  whether  you  can  do  it  now — we  could  not  get 
anything  through  in  New  York  State  for  our  relief  until  the  legis- 
lature next  year  passed  it,  in  1920:  and  then,  there  being  an  election 
in  1920  for"  senators,  the  senate  of  1921  would  be  a  new  one,  and 
they  could  pass  it  in  the  fall  of  1921.  If  the  people  approved  it,  it 
would  be  in  shape  for  the  legislature  of  1922  to  pass  the  requisite 
legislation  through  by  constitutional  amendment.  So  that  on  the 
time-table 

Commissioner  MEEKER.  Has  not  the  legislature  authority,  how- 
ever, to  amend  the  charter  of  New  York  City,  so  that  New  York  may 
do  it? 

Mr.  QUACKENBUSH.  No,  sir;  it  is  absolutely  prohibited  by  the  con- 
stitution— no  city.  It  is  in  the  constitution.  Not  the  city  itself,  nor 
any  city  or  other  political  subdivision  in  the  State,  can  do  it.  That 
is  because,  in  the  very  early  days,  when  I  lived  up  in  the  central 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       825 

^ 

part  of  the  State,  they  came  along  and  bonded  my  town  to  build 
the  steam  railroad  out  there.  You  all  know  the  history  of  the  early 
days  of  that.  That  was  put  in  the  constitution,  so  that  no  misguided 
gentlemen  of  the  notions  of  the  distinguished  former  governor  of 
Massachusetts  would  use  public  moneys  for  any  such  things,  for  you 
can  not  put  his  ideas  into  effect  until  you  have  had  the  approval  of 
two  successive  legislatures  and  have  gotten  the  majority  vote  of  the 
voting  population  of  the  State  of  New  York. 

The  CHAIRMAN.  Assuming  that  public  sentiment  in  Xew  York  was 
ready  for  public  ownership,  what  are  the  steps  possible  to  be  taken 
by  which  the  properties  in  New  York  could  be  taken  over,  after  the 
constitution  had  been  amended  and  had  been  ratified? 

Mr.  QUACKENBUSH.  If  the  legislature,  convening  on  the  first  Wed- 
nesday of  January,  1922,  passed  a  bill  and  it  was  signed  by  the 
governor,  the  law  would  be  there.  Then  would  come  the  question 
of  condemnation  or  purchase.  By  no  possible  stretch  of  my  imagina- 
tion can  I  conceive  of  the  carrying  out  of  anything  that  would  pro- 
tect my  clients  in  less  than  three  years  from  to-day.  I  think  you 
can  see  that  that  would  be  so.  That  is  moving  pretty  fast,  too.  So 
that  that  is  not  available. 

Now,  I  digressed  there,  because  that  condition  existed  when  you 
made  the  contract,  and  therefore  the  people  who  were  to  take  out 
the  $100,000,000  of  bonds,  could  not  get  any  of  the  guaranty.  They 
could  not  fall  back  on  taxation  or  on  the  public  treasury,  and  so 
it  was  provided  that  the  private  investor  in  the  new  enterprise 
should  have  the  first  call  on  earnings,  and  the  city  subordinated  in 
the  interest  and  sinking  fund  on  its  investment  until  the  interest  and 
sinking  fund  charges  on  our  investment  were  paid. 

Mr.  WARREN.  How  much  did  you  say  the  city's  investment  was? 

Mr.  QUACKENBUSH.  Practically  a  hundred  million. 

Mr.  WARREN.  As  against  your  $160.000,000? 

Mr.  QUACKENBUSH.  I  had  not  come  to  that  yet,  but  answering 
your  question,  the  increased  cost  of  equipment  and  additional  equip- 
ment due  to  the  enlarged  system  required  $40,000,000  of  additional 
capital,  which  we  procured  last  year  through  a  note  issue:  so 
that  our  capital  outstanding  is  $200,000,000,  as  against  the  city's 
$100,000,000,  in  round  numbers. 

Mr.  WARREN.  Yes.    Will  you  resume.  Mr.  Quackenbush? 

Mr.  QUACKENBUSH.  Yes.  Now,  I  think  I  was  about  to  speak  of 
the  obtaining  of  the  $100,000,000.  which  became  last  year  $200,000,000. 
I  want  to  make  this  point  about  it,  bearing  on  something  I  am  com- 
ing to  a  little  later,  about  the  attitude  of  public  officials. 

Mr.  Warren  asked  me  about  the  city's  investment  and  I  said 
$100,000,000.  I  want  to  call  attention  to  the  character  of  the  so- 
called  city's  investment.  The  people  of  New  York  City  have  been 
told  in  the  last  few  years  how  "  they  "  have  $100,000.000  invested  in 
the  Interborough  subway,  and  $1"»0 ,000,000  invested  in  the  Brooklyn 
Rapid  Transit  subway,  as  if  it  came  from  the  treasury  of  the  city  of 
New  York. 

Now,  as  I  have  said,  it  did  not  come  from  the  treasury  of  the 
city  of  New  York,  because  they  did  not  have  it,  and  all  that  they 
got  was  from  the  investors  throughout  the  United  States  and  Europe; 
probably  the  same  individuals  who  bought  our  5  per  cent  bonds 
bought  the  New  York  city  bonds  in  the  same  enterprise  to  average 

1GOG4H0— 20 53 


826        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

up  their  rates  and  sense  of  security.  So  that  the  enterprise,  the 
subway  enterprise  in  New  York  City,  was  put  on  its  feet  by  the  in- 
vesting public  of  the  civilized  worlcf. 

The  CHAIRMAN.  Is  the  city  obligated  to  pay  those  bonds? 

Mr.  QUACKENBUSII.  The  city  is  obligated  to  pay  those  bonds,  but 
the  money  come  from  the  investing  public,  and  under  the  contract  we 
are  required  to  amortize  that  investment  and  it  will  go  back  to  the 
people  at  maturity  without  the  city  treasury  being  the  gainer  or 
the  loser.  So  that  the  thing  to  do  is  to  consider  it  as  an  en- 
terprise in  which  city  credit  is  coupled  with  corporation  credit  and 
the  money  all  the  time  is  the  money  of  the  honest  investor  who 
put  it  in  in  good  faith,  and  he  put  it  in  in  good  faith  on  the  holding 
out  to  him  of  a  contract  which  has  been  authorized  by  the  legislature, 
sustained  by  the  court  of  appeals,  entered  into  by  the  city  of  New 
York,  which  provided  that  his  investment  would  be  a  first  call 
upon  the  earnings. 

Now  is  there  anybody  that  supposes  for  a  moment  that  in  1913 
when  we  raised  $160,000,000  that  a  single  one  of  those  people  could 
think  for  a  moment  that  a  time  would  come  when  the  city  with 
$100,000,000  of  investment  junior  to  ours,  with  a  provision  that  so 
long  as  the  interest  and  sinking  fund  on  our  investment  was  not 
earned  it  became  cumulative  with  compound  interest  before  the 
city  was  permitted  to  take  anything  out  of  the  earnings  for  its 
interest  and  sinking  fund — did  anybody  suppose  that  the  time  would 
come  when  such  an  investment  would  be  in  jeopardy  ?  That  the  city, 
having  the  power  at  any  time  and  the  public-service  commission 
representing  the  city  having  the  power  at  any  time  to  modify  that 
contract  so  that  if  the  revenues  were  not  sufficient  that  they  would 
be  made  sufficient  to  take  care  of  the  city's  investment? 

So  that  I  say  that  morally  the  public  authorities  in  the  city  and  in 
the  State  of  New  York  are  estopped  from  doing  anything  to  pre- 
vent that  investment  made  under  those  circumstances  from  being 
self-sustaining.  And  yet  we  have  been  endeavoring  for  the  last  year, 
as  the  Interborough  has  suffered  the  fate  of  all  tractions,  to  per- 
suade the  city  administration  and  the  public-service  commission 
and  the  legislature  to  change  that  rate  of  fare  so  that  that  invest- 
ment will  be  self-sustaining  not  only  for  us  but  for  the  city. 

Now,  bear  in  mind  there  can  not  be  any  talk  .of  water  about  that, 
there  can  not  be  any  of  the  distinguished  governor's  talk  about 
fooling  or  half  truths  about  what  I  am  saying,  because  the  records 
are  all  there  to  substantiate  what  I  am  saying.  It  is  a  question  of 
$200,000,000  which  we  raised ;  and  $100,000,000—1  am  now  speaking 
of  the  completion  of  the  plan — starving  to  death  to-day. 

Now,  there  are  two  hundreds  of  millions  of  new  money  put  in  in  th<* 
last  six  years.  There  can  not  be  any  talk  about  water  so  far  as  that 
venture  is  concerned ;  because  when  we  made  the  contract  the  question 
arose  as  to  what  was  to  be  done  to  conserve  our  earnings  in  the  old 
subway,  which,  as  you  know,  had  become  prosperous,  and  it  was 
agreed  that  we  had  built  it  up — we  had  taken  the  risk  when,  as  I  say, 
nobody  else  would — and  we  said.  "  Find  out  what  our  investment  is," 
and  Lhe  city  mayor  then,  being  the  late  Mayor  Gay  nor,  appointed  a 
committee  of  engineers  and  accountants,  and  they  determined  that 
our  investment  at  that  time  in  the  original  equipment  of  the  old  sub- 
way was,  in  round  numbers,  $48,000,000. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       827 

Now,  so  that  there  can  not  be  any  question  of  the  accuracy  of  what 
I  say  to  you,  you  examine  the  contract  and  you  will  find  that  it  is 
provided  in  the  contract  that  after  our  bond  interest  comes  out  and 
sinking  fund  that  we  shall  take  out  of  the  subway  earnings  $6,335,000 
a  year  and  then  after  that,  the  city  shall  take  out  8.76  per  cent  upon 
its  investment,  after  which  we  divide  equally.  Now,  of  course,  the 
city's  bond  interest  and  sinking  fund  averages  5£  per  cent,  and  where 
does  the  8.76  come  from?  The  8.76  was  arrived  at  by  adding  the 
48,000,000  which  was  conceded  to  be  our  investment,  to  the  $80,- 
000,000  which  we  were  to  put  in,  making  in  round  numbers  one 
hundred  and  twenty-odd  millions  of  dollars,  $3,000,000  coming  out 
for  a  special  reason,  so  it  is  $125,000,000 — and  the  special  reason  was 
that  we  contributed  the  tunnel  under  East  River  for  $3,000,000,  which 
cost  us  eight  or  ten  million  dollars,  but  it  was  calculated  at  $125,- 
000,000.  Six  per  cent  on  the  80,000,000  that  we  were  to  put  in  plus 
the  $6,335,000  produces  $10,000,000  or,  which  divided  by  125  pro- 
duces 8.76,  which  was  what  was  contracted  that  we  were  to  receive 
on  the  terms  then  under  consideration.  And  it  was  said,  "Well,  you 
get  that,  the  city  must  get  that  on  its  investment,"  so  that  the  city  of 
New  York  is  in  that  venture,  not  as  an  exercise  of  sovereignty,  but  as 
a  railrdad  corporation,  engaged  in  profit,  and  the  profit  is  the  differ- 
ence between  5J  per  cent  and  8.76  per  cent  plus  the  50-50  that  we 
divide  after  those  things  are  taken  care  of.  So  that  our  investment 
to-day  can  not  be  disputed  by  anybody  representing  the  public  or 
anyone  else  for  that  matter,  that  it  is  the  200.000,000,  160,000.000  of 
bonds,  40,000,000  of  notes  secured  by  sixty-odd  millions  of  bond — 
but  I  am  speaking  now  in  terms  of  money — $248,000,000  standing 
there  being  starved  to  death. 

Commissioner  MEEKER.  The  fixed  charges,  then,  are  excessive  be- 
cause of  this  element  of  profit  that  the  city  gets  over  and  above  the 
5^  per  cent  return  on  the  investment? 

Mr.  QUACKENBUSH.  They  have  not  come  within  sight  of  that, 
Mr.  Commissioner.  But  what  I  point  out  is  that  the  enterprise  is 
absolutely  on  a  parity;  and  I  want  to  make  that  plain  to  you,  be- 
cause there  has  been  a  good  deal  of  talk  that  we  had  some  advantage 
over  the  city  of  Xew  York.  Now  we  are  absolutely  mathematically 
down  to  a  fraction  on  a  parity  with  the  city  except  that  our  invest- 
ment is  senior  and  their  is  junior  in  point  of  time  of  coming  out 
of  the  earnings;  that  is  all. 

Now,  on  a  5-cent  fare  on  the  calculations  made  in  1913,  it  was 
agreed  by  the  city  and  by  us  that  probably  for  the  first  three,  four, 
or  five  years  the  enterprise  would  not  take  care  even  of  our  fixed 
charges,  because  it  would  take  time  to  build  it  up.  And  to  provide 
against  that,  when  our  earnings  were  large  on  the  old  subway  we 
accumulated  a  cash  surplus  of  over  $10,000,000,  and  we  had  a  book 
surplus  of  about  $18,000,000,  the  other  portion  of  it  being  invented, 
however,  in  subsidiary  lines  whose  credit  has  been  so  impaired  that 
of  course  they  can  not  now  pay  it  back  to  us.  To-day  our  situation 
is  that  we  have  exhausted  that  cash  surplus.  Our  requirements  are 
very  heavy,  as  you  know,  and  the  last  of  our  surplus  went  the  1st 
day  of  this  July  to  meet  our  fixed  charges,  and  now  we  are  living 
from  hand  to  mouth.  We  will  be  $5.000.000  short  on  the,  1st  ot 
January  of  meeting  our  fixed  charges.  The  best  possible  estimate 
of  earnings  on  a  5-cent  fare,  if  the  5-cent  fare  continues,  the  deficit 


828       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

from  operations  under  fixed  charges  for  the  next  three  or  four  or 
five  years  will  continue  in  sums  of  five,  four,  three,  along  there.  It 
is  the  most  hopeful  view  to  take  of  it.  Unless  we  get  an  increase 
__in  the  fare  between  now  and  the  1st  day  of  January  it  means  a 
receivership  for  the  Interborough  Rapid  Transit  Co.,  unless  some 
of  the  large  owners  are  willing  to  take  it  on  their  backs  and  tide 
it  over  the  1st  of  January  in  the  hope  that  the  governor  and  the 
legislature  may  take  it  into  their  heads  to  do  something.  Our 
borrowing  capacity  is  gone;  we  have  not  anything  beyond  possibly 
$2,000,000,  if  we  scrape  the  box,  anywhere. 

That  is  the  condition  of  the  Interborough  Rapid  Transit,  and  that 
is  the  condition  facing  the  people  who  have  got  the  $200,000,000  at 
stake  here.  And  the  city  in  the  meantime  is  facing  the  payment 
annually  upon  its  investment  in  our  subway  of  $100,000.000  and 
$150,000,000  in  the  Brooklyn  Rapid  Transit  subway  of  thirteen  and 
one-third  millions  of  dollars. 

Commissioner  SWEET.  The  only  remedy  you  see  is  in  the  raise  of 
fare? 

Mr.  QUACKENBUSH.  That  is  the  only  thing  possible  for  this  system. 

Commissioner  SWEET.  How  large  a  raise  would  be  required? 

Mr.  QUACKENBUSH.  An  8-cent  fare. 

Commissioner  SWEET.  To  8  cents? 

Mr.  QUACKENBUSH.  Yes;  8  cents  on  the  rapid-transit  line,  and 
of  course  in  the  city  of  New  York  you  can  not  in  fairness  to  the 
surface  lines  have  any  fare  that  is  different  on  the  rapid-transit  line. 

The  whole  solution  of  the  thing  should  be  an  arrangement  by 
which  a  universal  8-cent  fare  is  charged  for  transportation  in  New 
York  City  with  reasonable  adjustments  and  provisions  that  if  on 
the  numerous  independent  surface  lines  that  are  in  the  greater 
city  that  produces  an  inordinate  return  there  shall  be  a  provision 
that  it  shall  go  into  the  property  or,  if  you  please,  into  the  treasury 
of  the  city,  because  you  have  got  to  have  them  on  an  equality 
in  order  to  carry  out  the  proper  theory  of  governmental  regulation. 

Now  these  facts  are  all  known,  and  have  been  all  known — — 

Commissioner  SWEET.  Would  Commissioner  Nixon  have  authority 
now  to  grant  that  raise  if  he  wanted  to  ? 

Mr.  QUACKENBUSH.  There  is  one  view  in  which  he  might  have. 
The  trend  of  judicial  decisions  in  our  State  and  in  the  United  States 
Supreme  Court  is  such  that  I  am  not  prepared  to  say  that  he  would 
not  have  it;  but  candor  requires  me  to  say  to  you  that  I  would  be 
facing  long  years  of  litigation,  which  of  course  would  have  to  go 
to  the  Supreme  Court  of  the  United  States,  if  he  did  not  have 
additional  legislative  power. 

Commissioner  SWEET.  Then  you  think  that  the  legislature  of 
New  York  should  be  called  upon  to  give  him  that  authority? 

Mr.  QUACKENBUSH.  They  certainly  should;  and  we  had  a  bill  for 
that  purpose  there  in  1918,  and  it  did  not  get  beyond  committee  in 
either  house.  The  same  bill  was  there  last  year.  It  passed  the 
assembly  and  failed  in  the  senate;  both  times  failed  because  the  two 
governors — Gov.  Whitman  in  1918,  and  Gov.  Smith  in  1919 — were 
not  able  to  see  their  duty  requiring  them  to  recommend  anything  to 
the  legislature. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       S293 

Mr.  WARREN.  Is  there  anybody  who  could  grant  that  increase- 
now  but  the  city  ? 

Mr.  QUACKENBUSH.  It  could  be  done  to-morrow  by  joint  action  of 
Commissioner  Nixon,  Transit  Commissioner  Delaney,  and  the  board 
of  estimate.  I  do  not  say  now,  because  I  want  to  be  cautious  on  this 
subject,  because  my  words  may  be  quoted  against  me — I  do  not  say 
that  it  is  not  possible  to  work  out  a  legal  theory  which  can  ultimately 
be  sustained  which  does  not  require  the  joint  and  concurrent  action  of 
those  three  bodies,  but  I  do  saj"  that  that  gets  rid  of  litigation.  If 
Commissioner  Nixon  with  the  concurrence  of  Commissioner  De- 
laney— and  I  will  digress  to  explain  that  he  is  the  commissioner  in 
charge  of  construction  work  and  has  succeeded  to  the  powers  of  the 
old  Board  of  Rapid  Transit  Railroad  Commissioners  who  were  the 
contracting  agents  as  to  the  rapid  transit — if  those  two  commis- 
sioners and  the  board  of  estimate  and  apportionment,  consisting  of 
the  mayor — you  know  their  composition — and  the  borough  presi- 
dents and  the  president  of  the  board  of  aldermen  and  the  comptroller 
of  the  city  would  concur,  that  could  be  brought  about  within  24  hours'' 
time. 

Mr.  WARREN.  Without  the  need  of  any  legislation? 

Mr.  QUACKENBUSH.  Without  legislation ;  and  if  that  could  be  done, 
that  ought  to  be  done  because,  as  I  pointed  out  to  you,  we  can  not 
live  beyond  the  1st  of  January  unless  we  get  help.  And  when  I  say 
help — our  credit  will  not  stand  it — I  mean  as  a  business  proposition, 
not  as  it  did  last  year.  Last  year  we  were  able  to  get  through  with 
the  aid  of  the  War  Finance  Corporation,  and  but  for  them  we  never 
would  have  got  through  with  our  new  capital  requirements.  But 
they  took  a  part  of  our  loan.  The  bankers  who  had  placed  the 
original  one  hundred  and  sixty  millions  spread  the  rest  of  it.  And 
I  doubt  myself  whether  that  was  entirely  a  loan  .taken  on  an  in- 
vestment basis,  but  probably  taken  by  the  then  owners  of  the  same 
securities  who  did  not  want  them  to  go  through  a  receivership.  And 
I  do  not  know  that  anybody  after  listening  to  what  I  say  here  will  be 
very  likely  to  buy  any  of  our  bonds  on  the  1st  of  January.  And  I 
am  saying  what  I  sa.\  with  a  due  sense  of  my  responsibility,  too. 
And  the  War  Finance  Corporation  will  not  loan  any  more — and 
there  you  are. 

Now  the  problem  and  the  reason  I  am  so  vehement  and  so  critical 
in  my  statement  is  that  if  this  tribunal  can  do  anything  that  will 
energize  those  gentlemen  into  concurrent  action — I  do  not  say  mine 
is  the  only  plan,  but  anything  that  will  increase  the  revenue,  then 
we  can  be  saved  from  bankruptcy  and  the  people  who  have  not  only 
the  $200,000,000  of  notes  and  our  stock,  but  all  the  other  securities 
that  I  have  not  yet  mentioned,  because  the  companies  that  I  repre- 
sent have  out  approximately  five  hundred  millions  of  securities,  anct 
that  is  one-twelfth  of  the  whole  problem  you  have  got  before  you. 

The  CHAIRMAN.  Delaney  and  Nixon  were  appointed  by  the  gov- 
ernor ? 

Mr.  QUACKENBUSH.  Yes. 

The  CHAIRMAN.  How  many  members  constitute  the  board  of  esti- 
mate? 

Mr.  QUACKENBUSH.  Five  boroughs  each  have  the  president  of  the 
borough  upon  the  board. 


830       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION1. 

The  CHAIRMAN.  How  are  they  appointed? 

Mr.  QUACKENBUSH.  They  are  elected  by  the  people;  and  then  the 
mayor,  the  comptroller,  and  the  president  of  the  board  of  alder- 
men sit  on  the  board  of  estimate,  all  elected  by  the  people.  They 
have  different  voting  powers.  The  mayor,  tne  president  of  the 
board  of  aldermen,  and  the  comptroller  each  have  three  votes.  The 
Borough  of  Brooklyn  and  the  Borough  of  the  Bronx  each  have  two 
votes.  The  Borough  of  Queens  and  Staten  Island  have  one  vote 
each. 

The  CHAIRMAN.  Would  a  majority  vote  of  the  board  of  estimate 
control  the  situation? 

Mr.  QUACKENBUSH.  Yes,  sir.  So  far  there  has  been  a  sort  of 
gentlemen's  agreement  over  there  that  whatever  is  done  is  going  to 
be  unanimous. 

The  CHAIRMAN.  The  mayor  is  for  municipal  ownership,  is  he 
not? 

Mr.  QUACKENBUSH.  The  mayor  is  for  municipal  ownership. 

The  CHAIRMAN.  And  he  has  a  vote? 

Mr.  QUACKENBUSH.  He  has  three  votes.  His  votes  count  3  out 
of  16.  I  trust  I  have  enumerated  them  correctly;  but  there  are  10 
votes,  of  which  the  mayor  and  the  comptroller  have  6  and  the  presi- 
dent of  the  board  of  aldermen  3,  making  9  out  of  the  16,  and  then 
the  presidents  of  the  boroughs. 

Commissioner  SWEET.  Those  three  men  have  a  majority  of  all  ? 

Mr.  QUACKENBUSH.  Yes,  sir;  those  three  men  have  a  majority 
of  all. 

Commissioner  SWEET.  Why  should  the  mayor,  if  he  is  in  favor 
of  municipal  ownership,  be  opposed  to  a  proper  readjustment  here? 

Mr.  QUACKENBUSH.  Well,  now— 

Commissioner  SWEET.  I  do  not  think  Gov.  Foss,  according  to  what 
he  said  here  this  morning  toward  the  last,  under  examination,  would 
oppose.  He  said  he  was  in  favor  of  a  square  deal  to  the  people  who 
had  already  made  investments. 

Mr.  QUACKENBUSH.  Well  now,  so  that  what  I  say  here  may  not 
be  challenged  in  any  quarter,  before  my  answer  I  will  refer  you  to 
a  statement  made  on  behalf  of  the  board  of  estimate  in  January  of 
this  year  by  Comptroller  Craig,  in  which  was  expressed  the  idea 
that  they  would  not  do  anything  so  long  as  the  existing  contracts 
remained  imchanged.  They  want  to  rewrite  the  contracts.  The  at- 
titude— and  mind  you,  now,  I  am  speaking  from  memory  and  I 
mean  to  be  accurate,  but  I  want  what  I  say  checked  up  by  the  writ- 
ten document,  because  it  is  my  intention  not  to  go  without  its 
bounds — the  theory  is  that  if  we  are  dissatisfied  with  our  bargain, 
turn  the  roads  over  to  them  and  they  will  operate  them  on  be- 
half of  the  public.  They  will  raise  the  fares,  they  will  pay  the  in- 
terest and  sinking  fund  on  the  city's  investment  and  they  will  hayo 
due  regard  to  the  real  investment,  as  they  say,  that  is  in  the  property. 

Xow.  if  you  desire  to  know  further  concerning  the  attitude  of  the 
city  officers,  it  might  be  well  to  ask  the  members  of  the  War  Finance 
Corporation  to  give  you  some  information  concerning  their  attitude 
when  our  application  was  before  them  for  a  loan  a  year  ago,  when  the 
whole  membership  of  the  War  Finance  Corporation,  Gov.  Harding 
leading  them,  called  upon  the  mayor  and  his  colleagues.  They  went 
into  executive  session  and  I  was  not  present,  and  I  am  not  able  to  tell 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       831 

you  of  my  own  knowledge  what  took  place.  Probably  Gov.  Harding 
could  tell  you.  I  have  heard  rumors  that  the  view  is  that  a  receiver- 
ship of  the  Interborough  Eapid  Transit  Co.  would  not  be  regarded 
by  the  city  administration  as  an  unmixed  evil  (I  trust  that  I  am 
quoting  accurately  the  statement),  the  theory  being  that,  if  we  arc 
busted,  the  owners  will  take  the  attitude  probably  of  the  distin- 
guished former  governor  of  Massachusetts  who  frankly  said  that  he 
also  had  investments  in  tractions  and  would  be  glad  to  sell  out  on  the 
best  terms  obtainable,  and  then  they  would  have  municipal  ownership 
and  operation. 

The  CHAIRMAN.  Can  that  be  done  until  the  constitution  has  been 
amended  ? 

Mr.  QUACKENBUSH.  Oh,  they  could  operate,  perhaps  as  an  emerg- 
ency measure.  Suppose  we  decamped  and  ran  away — suppose  we 
fell  down  completely,  they  have  under  the  contract  the  right,  the 
public-service  commission,  to  operate  it  instead  of  a  receiver.  Of 
course  what  will  happen — a  receiver  will  be  appointed ;  and  you  have 
hit  upon  it,  because  I  am  answering  Commissioner  Sweet's  question. 
I  do  not  want  to  be  understood  as  agreeing  with  their  conclusions, 
because  they  also  are  born  of  complete  ignorance  of  the  law  and  of - 
the  contracts  and  of  what  will  be  done;  but  that  is  the  theory,  that 
they  are  going  to  starve  the  Interborough  into  surrendering  its  rights, 
surrendering  the  custody  of  the  property.  And  these  statements  that 
I  mentioned  are  in  the  public  press  at  various  times,  coming  from 
some  of  the  officials,  and  I  assume  with  the  authority  of  all  of  them. 
Now,  they  can  not  do  it,  because  if  we  are  not  able  to  pay  our  fixed 
charges,  as  you  know,  the  mortgage  securing  the  first  5  per  cent  bonds 
that  I  am  talking  about  will  be  foreclosed,  a  receiver  will  be  ap- 
pointed and  it  will  be  the  duty  of  that  receiver  under  the  instruc- 
tions of  the  court  to  preserve  the  equities  of  the  contract  for  the  bene- 
fit of  those  bondholders.  In  other  words,  the  contract  will  be  carried 
out  by  the  courts  instead  of  by  us,  and  the  city  of  Xew  York  will  be 
no  forwarder.  That  is  the  truth  of  it.  But  the  people  of  the  city 
of  Xew  York  do  not  seem  to  appreciate  that,  and  unless  you  gentle- 
men are  able  to  find  out  by  checking  up  my  statements  that  they  are 
truthful  and  correct,  and  tell  them,  they  will  never  know.  Unless 
Commissioner  Xixon  tells  them  or  the  new  commissioner,  Delaney, 
and  I  have  great  hopes — the  only  thing  that  has  cheered  up  my  other- 
wise sad  and  desolate  existence  of  the  last  few  years  was  the  action 
of  Commissioner  Xixon  last  week  in  ordering  those  transfers  and  his 
request  to  know  what  the  conditions  of  the  company  are.  So  pos- 
sibly he  will  state  the  facts,  but  he  can  not  alone  do  the  thing,  except, 
as  I  say,  in  a  possible  theory  that  might  be  sustained. 

Xow,  when  we  were  undertaking  to  get  that  loan  from  the  War 
Finance  Corporation,  we  sought  the  cooperation  of  the  city  as  the 
junior  investor  in  that  enterprise.  We  were  not  able  to  get  it;  and 
that  is  why  I  say  the  War  Finance  Corporation  is  able  to  tell  .you, 
if  you  are  interested,  why  the  city  representatives  would  not  turn 
their  hands  over  to  save  us  last  year  from  bankruptcy.  Because  we 
had  invested — I  forgot  to  state  that  to  you — in  absoluate  good  faith 
we  had  invested  our  entire  cash  surplus  in  construction  account  and 
a  year  ago  this  time  we  we're  right  on  the  ragged  edge,  not  able  to 
meet  current  bills  for  supplies  which  were  coining  in  from  the  Pull- 
man Co.  and  from  everybody,  and  we  were  on  the  rocks;  and  then 


832       PROCEEDINGS  OF  FEDERAL  ELECTRIC. RAILWAYS  COMMISSION. 

it  was,  as  I  say,  that  I  heard  it  has  been  expressed  as  not  being  an 
unmixed  eA'il  if  we  did  have  a  receivership. 

Now,  there  is  another  phase  of  this  matter,  and  I  think  I  have 
covered  it  sketch ily,  that  a  good  deal  has  been  said  about,  and  that 
is  this  question  about  the  holding  company,  and  that  is  where  the 
old  history  comes  in,  and  it  is  freshened  up  every  now  and  then;; 
that  is,  the  Interborough  Consolidated  Corporation. 

In  1906  the  Interborough  Rapid  Transit  Co.,  the  operating  com- 
pany of  the  subway  and  the  elevated,  and  the  New  York  City  Rail- 
way Co.,  the  lessee  of  all  the  lines  on  Manhattan  Island  and  the  lines 
in  the  Bronx,  formed  a  consolidation,  not  a  merger,  turned  in  their 
respective  stocks  in  exchange  for  proportions  of  stock  and  bonds  of 
the  Interborough-Metropolitan  Co. — as  it  was  then  called,  since  by 
reorganization,  now  called  the  Interborough  Consolidated  Corpora- 
tion, which,  bv  the  way,  went  into  the  hands  of  a  receiver  on  the  21st 
day  of  March,  1919. 

Xow  the  Interborough  Consolidated  Corporation  took  the  thirty- 
five  millions  of  capital  stock  of  the  Interborough  Rapid  Transit  Co. 
and  for  that  exchanged  seventy  millions  of  its  4£  per  cent  bonds. 
That  was  equivalent  to  a  9  per  cent  annual  dividend  upon  the  Inter- 
borough Rapid  Transit  Co.'s  stock.  At  the  time  we  made  the  con- 
tract with  the  city  in  1913,  the  Interborough-Metropolitan  Co.  was 
in  existence,  and  through  its  ownership  of  this  stock  controlled 
through  voting  power  the  action  of  the  operating  company  in  mak- 
ing the  contract.  It  was  known  by  everybody  at  the  time  that  the 
Interborough-Metropolitan  Co.  had  in  addition  to  the  $70,000,000 
of  bonds  $45,000,000  of  preferred  stock.  Now,  the  $6,335,000,  which 
has  come  to  be  called  a  preferential,  that  wre  are  entitled  to  take  out 
of  the  subway  earnings  represented  our  average  net  profits  of  the 
years  1910  and  1911.  They  were  taken  as  a  fair  test  and  agreed  to. 

I  have  not  said  anything  so  far  about  the  elevated  features  of  the 
contract,  because  the  city  did  not  have  any  investment  there.  I 
wanted  to  impress  upon  you  first  the  fact  that  the  city's  own  invest- 
ment is  not  being  taken  care  of  intelligently  or  faithfully  by  any- 
body. 

Now  we  put  many  millions  of  dollars  in  the  improvements  of  the 
elevated  lines  and  added  and  extended  the  lines  and  third-tracked 
them  and  made  an  agreement  with  the  city  by  which  it  shared  in 
the  profits  above  our  average  profits  of  1910  and  1911,  which  in  that 
case  were  $1,590,000.  Now  the  sum  of  those  two  which  have  been, 
called  preferentials  was  known  to  everybody  to  be  sufficient,  with 
other  nonoperating  income  which  we  had,  to  pay  a  dividend  on 
our  preferred  stock. 

Now,  I  say  that  when  those  facts  were  known  and  when  it  was 
known  to  the  people  with  whom  we  were  in  daily  conference  for  three 
years  of  time  that  the  Interborough-Metropolitan  Co.  permitted 
the  Interborough  Rapid  Transit  Co.  to  make  this  contract  and  they 
knew  that  that  was  done  on  the  strength  of  these  preferentials  and 
that  those  preferentials  were  sufficient  to  pay  the  interest  on  the  4£ 
per  cent  bonds  plus  a  return  on  the  preferred  stock,  that  it  is  wicked, 
immoral  and  unjust  and  nothing  but  simple  repudiation  morally  for 
anybody  who  took  part  in  that  transaction  or  who  succeeded  those 
who  did  take  part  in  it,  to  starve  us  now  into  the  destruction  of  tha 
values  of  that  preferred  stock  and  of  those  bonds. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       833 

Now,  that  is  the  elevated  and  subway  part  of  that  holding  com- 
pany. In  addition  to  that,  we  had  the  securities  of  the  New  York 
Railways  Co.,  which  had  come  through  a  four  years'  receivership 
from  1907  to  1912,  during  which  time,  as  I  think  Gen.  Tripp  has 
told  you — he  was  the  chairman  of  the  joint  reorganization  committees, 
and  I  imagine  he  gave  you  in  a  general  way  the  facts  about  how  the 
capitalization  was  written  down.  At  any  rate,  when  we  took  the 
properties  over  after  the  examinations  of  the  reorganization  com- 
mittees and  of  the  public-service  commission,  the  commission  it- 
self found  that  there  were  warranted  at  that  time  an  issuance  of 
$85,000,000  plus  of  securities.  That  was  for  capital  purposes. 

Mr.  WARREX.  That  is  the  surface  railways? 

Mr.  QUACKEXBUSH.  The  New  York  Railways. 

The  actual  capital  outstanding  after  the  reorganization  and  to- 
day was  less  than  $100,000.000.  I  think  the  view  that  the  commis- 
sion took  at  the  time  was  that  the  margin  between  values  and  capi- 
talization was  about  $16,000.000,  and  they  directed  an  amortization 
fund  of  $108,000  a  year  to  be  set  aside  out  of  earnings  to  take  care 
of  that  difference.  We  did  not  agree  with  them  at  that  time  that 
they  had  that  power,  and  subsequently  without  litigation  they 
agreed  that  they  did  not  have  it  and  rescinded  it.  I  mention  it  as 
an  evidence  of  value  that  they  regarded  as  there. 

Now,  in  1917 — I  am  coming  back  now  to  where  I  quit  about  the 
transfers,  and  I  am  talking  now  about  the  surface  lines  and  the  hold- 
ing company's  investment  in  the  surface  lines — I  had  this  property 
appraised  by  Ford,  Bacon  &  Davis.  And  I  told  those  gentlemen— 
and  when  I  say  these  "  I's  "  I  am  doing  it  for  brevity  and  not  because 
I  am  the  whole  thing:  I  do  not  want  to  appear  here  to  be  immodest, 
but  to  be  brief;  everything  that  I  have  done  has  been  with  the  con- 
sent and  knowledge  and  conference  with  the  president  and  executive 
committee,  and  I  am  the  lawyer  of  the  concern — I  said  "  I  want  an 
appraisal  now  that  we  can  get  quick  action.  I  do  not  want  any- 
thing to  be  put  in  here  that  is  going  to  be  arguable  even,  because  we 
want  emergency  action.  You  appraise  it  on  the  cost  to  reproduce 
less  depreciation  on  the  straight-line  method.  Never  mind  what 
your  views  are  about  it;  you  appraise  it  on  prewar  prices  and  you 
leave  out  any  question  of  franchise  value,  any  question  of  superseded 
value,  any  question  of  going  value,  any  questions  of  the  many  things 
that  you  gentlemen  knowr  are  perfectly  proper  in  a  rate  case,  and 
make  a  report  to  the  owners  on  which  we  can  ask  for  emergency 
relief."  And  they  found  the  property  was  worth  in  round  numbers 
on  these  eliminations  and  others  which  occur  to  you,  $70,000,000. 

Now,  we  have  been  paying  taxes  for  years  on  a  special  franchise 
tax  valuation  of  $16,000,000,  leaving  out  all  the  other  questions.  Now 
there  we  have  $70,000,000  on  which  we  have  not  earned  one  penny 
for  our  stock,  and  on  the  reorganization  it  was  reduced  to  $17,r>00,000 
of  which,  in  round  numbers,  $16,000,000  is  in  our  treasury  and  some 
of  the  rest  of  it  in  the  hands  of  the  public.  We  have  not  earned  a 
dollar  on  that  from  the  day  we  took  it  over  on  the  first  of  January, 
1912. 

Now,  th.^  physical  valuations  made  by  the  public-service  commis- 
sion in  1910  on  which  they  made  their  order  allowing  our  capital 
issues  in  1911  and  1912  indicated  at  least  $r>0,000,000  of  tanjriblo 


834       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

property.  On  that  reorganization  were  issued  at  $30,000,000  of  in- 
come 5  per  cent  bonds  and  at  no  time  since  the  first  of  January, 
1912,  did  they  receive  their  full  5  per  cent  interest  in  their  six 
months'  periods.  Taking  the  calendar  year — in  the  year  1916  they 
either  received  it  or  so  near  to  it  that  it  was  regarded  as  practically 
5  per  cent.  Since  June  30,  191G,  nothing  was  paid  on  them. 

Now,  underneath  tho.se  bonds  the  only  securities  on  the  New  York 
Eailways  Co.  lines  were— I  speak  more  in  round  numbers — $9,000,000 
and  odd  of  underlying  liens  on  the  various  owned  companies,  $21,- 
000,000  of  securities  on  the  12  leased  lines,  and  $18,000,000  of  the 
first  fours.  In  other  words,  the  funded  debts  on  that  property  were 
only  $48,000,000,  and  yet  that  property  went  into  the  hands  of  a  re- 
ceiver on  the  20th  of  March  last  and  the  first  mortgage  of  $18,000,000 
is  now  under  foreclosure. 

Now,  there  is  something  wrong  when  that  situation  arises  and  when 
under  such  conditions  there  is  any  talk  about  water.  I  never  have 
mentioned  the  question  of  the  securities  except  as  I  have  mentioned 
them  here  on  the  theory  that  everybody  knew  they  were  out  and  made 
a  bargain  knowing  that  they  were  out,  and  when  people  make  bar- 
gains under  those  conditions  they  or  their  successors  ought  to  be 
ashamed  of  themselves  to  repudiate  them. 

But  the  holding  company  has  nothing  to  do  with  it.  I  do  not  need 
to  say  that  to  the  gentlemen  sitting  here.  The  question  is  the  invest- 
ment; and  under  the  statutes  of  the  State  of  New  York  it  is  the  value 
of  the  property  devoted  to  the  public  service  that  is  entitled  to  a  fair 
average  return,  having  due  regard  among  ether  things  to  the  neces- 
sity of  reserving  out  of  earnings  a  provision  for  surplus  and  con- 
tingency. Now,  that  is  a  queer  phrase,  but  I  am  the  author  of  it. 
I  have  sat  with  the  legislature  in  every  revision  of  the  public-service- 
commission  law  year  after  year,  and  I  will  tell  you  for  a  moment 
just  how  that  came  about. 

The  law  of  the  State  of  New  York  from  1850  to  1910  provided  that 
rates  would  not  be  reduced  unless  during  the  preceding  year  the 
company  had  earned  more  than  10  per  cent  upon  the  capital  actually 
expended.  Now,  the  gentlemen  who  were  on  earth  during  that  time 
I  think  knew  a  great  deal  more  than  some  of  the  highbrows  that 
have  come  around  since,  and  I  think  you  will  agree  with  me.  Gov. 
Hughes  in  1909  refused  to  approve  the  consolidated  report  of  the 
revision  commissions  on  the  railroad  law  because  they  left  that  10 
per  cent  provision  in.  He  insisted  on  its  coming  out.  And'  in  1910 
the  matter  came  up  and  we  had  a  general  revision  of  the  law.  And 
I  said  at  that  time,  and  with  all  due  regard  to  the  governor,  that  that 
was  not  good  business,  and  this  phrase  that  I  mentioned  to  you  was 
the  best  that  we  could  get  as  a  compromise. 

Now,  that  meant  Smythe  versus  Ames;  that  is  what  that  meant. 
It  did  not  mean  G  per  cent.  It  meant  all  the  things  that  the  gentle- 
man who  preceded  me  has  said,  and  I  indorse  everything  he  has  said. 
It  means,  of  course,  you  have  got  to  have  something  to  attract  capital. 
You  have  got  to  keep  the  industry  going,  and  you  have  got  to  have 
provision  for  reserve,  and  we  have  not  been  able  to  get  those  things. 
So  I  say  to  you  it  is  not  the  fault  of  the  law. 

And  one  thing  which  I  should  have  said  to  Mr.  Warren  in  the  be- 
ginning in  this  rather  rambling  statement  I  will  say  now.  Possibly 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       835 

if  the  provision  which  obtains  in  many  of  the  States  for  filing  sched- 
ules and  having  a  hearing  afterwards  had  been  put  into  the  law  of 
1910  we  might  have  been  a  little  further  along,  and  when  we  get  the 
next  crack  at  the  public-service-commission  law  something  of  that 
sort  I  think  ought  perhaps  to  be  put  in.  But  that  is  not  the  thing. 

Now,  I  have  told  you  I  have  eliminated  water.  I  have  shown  you 
the  values  of  our  main  leading  property.  We  have  got  others  which 
I  will  not  go  into  here.  I  am  not  saying  that  we  are  entitled  to  re- 
turns on  the  lines  perhaps  over  on  Long  Island  in  which  we  invested 
our  good  money,  but  we  invested  there  with  the  idea  that  we  would 
wait  until  that  borough  grew  up.  That  is  a  business  venture  and  we 
can  not  squeal  much  about  that.  So  I  merely  mention  it  to  call  3-0111* 
attention  to  the  fact  that  we  have  other  things  Under  our  outstanding 
securities  than  the  things  I  have  specifically  mentioned. 

Commissioner  SWEET.  Suppose  you  laid  aside  all  interest  in  the 
investment  and  simply  looked  at  this  question  in  New  York  from 
the  standpoint  of  a  citizen  who  needed  this  service,  the  same  as  all 
citizens  do ;  what  would  you  say  was  the  best  policy — I  am  eliminat- 
ing now  the  question  of  morals,  arid  honesty  is  always  the  best  policy, 
but  the  best  policy  from  the  standpoint  of  the  citizen — for  the  city 
to  take  or  the  State  so  far  as  it  has  control  ? 

Mr.  QUACKEXBUSH.  Xow,  Mr.  Sweet,  I  want  to  say  before  I  answer 
that  question,  lest  I  be  thought  to  be  absolutely  poisoned  with 
prejudice  on  one  side,  that  I  began  my  career  serving  the  public • 

Commissioner  SWEET.  You  see,  I  am  absolving  you  from  prejudice. 

Mr.  QCACKEXHUSH.  I  know  you  are,  but  I  want  to  make  it  clear 
for  emphasis,  that  years  ago  I  was  city  attorney  of  the  city  of  Buf- 
falo. X.  Y.,  and  I  think  I  can  still  divest  myself  of  my  experience 
and  give  a  fair  answer  to  your  question.  And  there  is  not  any  doubt 
in  my  mind  that  even  if  there  be  a  receiver  appointed  of  the  Inter- 
borough  and  all  these  line,  you  can  not  get  the  service  the  people  are 
entitled  to  until  you  solve  this  question  by  increasing  the  rate  of 
fare. 

Xow,  in  Xew  York  City  the  congestion — or  density  of  traffic  is  a 
better  word — is  such  that  the  troubles  in  Boston  and  other  places 
won't  count.  And  the  direct  answer  to  your  question,  without  cir- 
cumlocution, is  that  the  best  thing  for  the  citizens  generally,  par- 
ticularly for  the  riders,  is  to  impose  at  once  an  8-cent  fare.  l\o\v, 
we  are  perfectly  willing  that  the  city  shall  take  1  cent  out  of  that  8 
cents  to  insure  it  gets  a  return  on  its  investment.  Our  president,  be- 
fore he  became  ill,  went  l>efore  the  board  of  trade  and  transportation 
and  authorized  them  to  transmit  to  the  board  of  estimates  through 
their  committee  an  offer  to  the  effect  that,  if  they  would  increase  the, 
fare  to  8  cents,  we  would  agree  that  they  should  take  1  cent  out 
of  the  8.  Xow,  1  cent  out  of  8  will  take  care  of  their  interest;  and 
that  we  would  waive  a  lot  of  things  which  you  are  not  interested  in. 
The  comptroller  did  not  receive  the  communication  and  said  that  they 
had  closed  the  situation,  so  I  am  informed,  when  they  denied  our 
application  of  December  31,  1918. 

Xow,  that  railroad,  just  like  any  other  railroad,  can  not  render  tho 
kind  of  service  that  is  nmled  unless  it  has  an  adequate  return. 

Commissioner  SWEET.  Are  you  figuring  that  there  would  be  any 
falling  otf  of  patronage  'i 


836       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  QUACKENBUSH.  Yes;  we  are  figuring — and  in  this  we  have 
the  advice  of  distinguished  engineers  like  Stone  &  Webster,  Day  & 
Zimmerman,  Barclay,  Parsons  &  Clapp 

Commissioner  MEEKER.  The  falling  off  would  be  very  slight  in 
New  York? 

Mr.  QUACKENBUSH.  Well,  we  have  made  our  estimate  which  war- 
rants my  statement  to  you  that  it  would  be  perhaps  13  per  cent  the 
first  year  and  12,  11,  and  so  forth,  because  conditions  in  New  York, 
as  you  know,  are  unique — I  mean,  particularly,  Manhattan,  and 

Commissioner  SWEET.  Of  course,  you  understand,  Mr.  Quacken- 
bush,  that  this  commission  can  not  enter  definitely  and  distinctly 
into  local  problems. 

Mr.  QUACKENBUSH.  No ;  I  do  not  expect  you  will,  but  on  the  other 
hand 

Commissioner  SWEET.  We  are  looking  into  it,  and  we  are  listening 
to  you  with  a  great  deal  of  patience,  and  we  are  glad  to  hear  these 
local  problems  with  a  view  of  formulating  a  general  idea  of  the 
situation  throughout  the  country,  and  that  is  all  anybody  can  expect 
of  us. 

Mr.  QUACKENBUSH.  I  appreciate  you  can  not  take  up  our  quarrels ; 
but  on  the  other  hand  if  you  do  not  know  the  facts,  you  are  not  in- 
formed. 

Commissioner  SWEET.  No. 

Mr.  QUACKENBUSH.  And  you  are  going  to  hear  some  other  side  of 
these  facts  and  I  wanted  you  to  hear  my  side. 

Commissioner  SWEET.  Of  course,  you  understand  the  situation  gen- 
erally throughout  the  country? 

Mr.  QUACKENBUSH.  I  do. 

Commissioner  SWEET.  And  do  you  think  that  there  is  a  function 
that  can  be  performed  by  this  commission  which  will  be  useful  to  the 
general  public? 

Mr.  QUACKENBUSH.  This  commission  can  perform  the  function  of 
pointing  out  that  the  duty  of  public-service  corporations  or  of  the 
local  authorities  of  the  municipalities  is 

Commissioner  SWEET.  To  represent  the  public? 

Mr.  QUACKENBUSH.  To  represent  the  whole  public;  that  is  this,  to 
be  courageous,  to  tell  them  the  truth :  That  rates  should  be  determined 
not  by  ancient  history  but  by  what  is  devoted  to  the  public  use;  to 
tell  them  that  the  public  can  not  have  good  service  or  safe  service  or 
convenient  service,  no  matter  who  owns  the  instrumentality,  unless 
the  public  or  the  public  treasury  pays  an  adequate  price  for  the 
service  rendered,  so  that  you  can  keep  it  up. 

Commissioner  SWEET.  Just  as  they  have  to  pay  for  commodities 
which  they  buy  for  the  table  or  anything  else. 

Mr.  QUACKENBUSH.  Of  course,  it  is  the  same  thing.  We  are  not 
dealing  with  anything  else.  And  then,  and  the  main  thing,  and  if  I 
may  be  pardoned  for  an  expression,  but  I  think  it  will  be  interesting, 
I  remember  perfectly  well  when  the  question  was  whether  we  were 
going  to  get  into  the  war,  being  present  at  a  meeting  at  which  Joseph 
H.  Choate  and  Mr.  Root  and  others  discussed  the  question.  And  I 
remember  also  being  present  at  a  later  date,  and  a  day  or  so  before 
Mr.  Choate  died,  at  a  meeting  in  which  the  former  prime  minister  of 
France  was  present,  and  I  remember  that  what  Mr.  Choate  said  was, 
**  If  you  are  going  to  do  something,  for  God's  sake  hurry  up."  Now, 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       837 

that  is  what  we  are  asking,  and  that  is  the  message  that  I  think  you 
can  convey  to  these  public  bodies.  If  you  are  going  to  do  something, 
do  not  take  the  advice  of  the  governor  of  Massachusetts  but  hurry  up. 
Put  a  little  oxygen  into  the  patient  and  then  build  him  up ;  and  then, 
if  a  major  operation  is  needed,  perform  it. 

Now,  those  are  the  things  that  ought  to  de  done ;  and  the  only  thing 
that  you  can  do,  in  my  judgment,  that  will  be  of  any  value  to  us  and 
to  the  industry  generally  is  to  put  a  stop  to  the  cheap  talk,  what 
Governor  Smith  in  his  campaign  facetiously  said  was  "old  stuff." 
Now,  our  laws  recognize  the  statute  of  limitations  on  a  great  many 
things,  and  with  the  history  that  I  have  given  you  of  our  negotiations 
with  the  appointees  of  Governor  Hughes,  whom  I  have  criticized — 
and  the  time  is  never  going  to  come  when  public  servants  are  not  go- 
ing to  be  subject  to  criticism,  I  hope,  but  whom  I  have  always  said 
were  well-intentioned  men  and  certainly  were  absolutely  above  any 
suspicion  as  to  their  integrity — those  men  made  a  contract  with  us. 
It  was  ratified  by  Mayor  Gaynor  and  his  board  of  estimate  after  he 
had  made  a  campaign  against  having  anything  to  do  with  us.  Now, 
if  we  were  good  enough  to  contract  with  in  1913,  and  if  it  was  all  right 
for  us  to  be  the  instrumentality  of  getting  $200,000,000  put  into  this 
enterprise,  it  is  about  time  to  have  the  statute  of  limitations  run  on 
matters  which  were  done  by  William  C.  Whitney  and  his  colleagues 
in  the  late  eighties  or  early  nineties. 

We  have  gone  through  the  public-service  commission  fire  on  re- 
organization; we  have  been  through  a  receivership  on  the  surface 
lines,  and  we  are  back  again;  and  the  thing  is  not  to  talk  buncombe 
but  to  recognize  facts;  and  I  say  you  can  help  on  that. 

Now,  MS  to  the  other  thing-^and  I  think  that  I  will  mention  this 
because  at  a  meeting  at  which  I  was  present,  among  some  of  the 
gentlemen  who  are  here  in  this  room,  one  of  the  members  said  that 
what  troubled  him  in  dealing  with  this  whole  matter  was  how  to 
meet  the  constant  statement  that  you  are  seeking  to  repudiate  your 
contracts,  and,  of  course,  that  view  does  prevail.  And  I  think  there 
this  body  may  dp  a  service  if  you  will  get  the  public  to  see  that  after 
all  it  is  the  public  that  is  interested  in  the  question  of  rate;  it  is  their 
business,  and  that  no  matter  if  20  years  ago  with  conditions  entirely 
different  the  local  authorities  of  some  little  village  or  some  big  city 
and  some  well-intentioned  but  ill-advised  corporation  managers  made 
contracts  that  no  longer  fit  the  case,  that  the  interest  of  the  people  is 
the  supreme  law,  and  that  if  the  time  comes  that  the  interest  of  the 
people  requires  a  modification  of  the  rate,  and  the  carrier  is  ready 
on  its  part  to  modify  them,  and  the  people  represented  by  their 
sovereign  representatives  in  the  legislature,  for  instance,  or  their  dele- 
gated bodies  are  ready  to  do  it  and  the  local  authorities  of  the  little 
town  or  the  village  or  small  city  or  medium-sized  city  or  the  big  city 
come  up  and  say,  "We  make  a  contract,"  the  answer  is  that  the 
sovereign  people  represented  by  the  legislature  or  its  delegated  com- 
mission will  say  to  the  local  authorities:  "  That  contract  was  all  right 
as  between  you  and  that  carrier,  that  contract  probably  to-day  will 
be  recognizecl  in  the  courts  as  a  judicial  matter,  but  now  the  principals 
are  dealing  face  to  face,  and  I,  the  people  of  the  State,  do  not  any 
longer  need  your  service,  Mr.  Agent,  city,  town,  or  village;  now  you 
just  step  aside  and  you  forget  your  little  petty  and  short-sighted 
vision  of  this  question, and  I  will  make  a  bargain  with  the  carrier  that 


838       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

will  be  in  the  interest  of  the  general  public,  whose  interest  after  all 
is  the  only  concern  of  anybody." 

Now,  that  view  has  not  been,  so  far  as  I  know,  very  much  stated.  I 
think  that  its  general  expression — it  is  well  founded  in  law — its  gen- 
eral elucidation  will  be  very  helpful  in  educating  public  opinion, 
which  is  what  I  believe  is  the  function  of  this  body,  and  it  will  help 
those  local  authorities  and  those  courageous  public-service  commis- 
sions and  members  of  legislatures  and  governors  who  want  to  do 
their  duty  over  troublesome  hurdles. 

Now,  I  have  lots  more  ideas  but  I  think  my  time  has  expired.  If 
there  are  any  questions,  I  want  to  be  very  free  in  answering  them. 

The  CHAIRMAN.  Mr.  Quackenbush 

Mr.  QUACKENBUSH.  Oh,  may  I  add — I  hate  to  interrupt  you,  Mr. 
Chairman,  but  my  talk,  I  quite  appreciate,  has  been  rather  vehement. 
Lest  you  should  think  that  I  have  lived  a  quarrelsome  life  with  the 
public-service  commissioners  I  want  to  say  to  you  that  with  all  the 
companies  that  I  have  represented  during  the  whole  period  of  the 
life  of  the  public-service  commission,  we  have  had  one  case  against 
us,  against  the  Interborongh  Rapid  Transit  Co.,  for  penalty  for 
failure  to  render  service,  in  which  we  succeeded  at  the  trial  court. 
We  have  had  one  or  two  differences  of  opinion  in  which,  with  the 
exception  of  the  2-cent  fare  rate,  we  have  succeeded  in  the  courts.  We 
have  been  represented  in  all  these  years  as  defiant  of  the  public- 
service  commission.  We  have  been  represented,  not  by  them  alto- 
gether but  generally  by  public  officials,  by  public-spirited  citizens,  by 
some  of  the  newspapers,  as  defying  their  orders. 

We  took  the  New  York  Railways  Co.  on  the  1st  day  of  January, 
1912,  under  the  orders  that  had  been  made  by  the  commission  when 
the  receivers  had  it  in  1908  and  1909.  They  never  made  a  new  order. 
We  operated  it  without  an  order  as  to  service,  and  there  was  no 
order  made  until  last  September,  when  the  commission  was  stam- 
peded into  making  an  order  by  the  district  attorney  of  the  county, 
who  said — when  we  could  not  get  enough  men  and  were  hiring  women, 
and  everybody  knows  the  conditions  in  the  middle  of  the  summer — 
that  if  they  made  an  order  he  would  see  that  somebody  went  to 
jail  if  they  did  not  get  more  cars,  so  they  made  an  order.  I  want  you 
to  keep  that  in  mind  in  connection  with  what  I  have  said ;  and  it  is 
that  we  have  rendered -such  service  in  the  city  of  New  York  on  the 
surface  lines  that  they  did  not  make  an  order,  and  we  have  rendered 
such  service  on  the  elevated  and  subway  lines  that  they  have  never 
had  to  make  an  order.  They  have  made  a  general  order  and  we 
have  had  conferences  and  we  have  agreed,  with  one  single  exception, 
and  my  personal  relations  with  the  gentleman  whom  I  have  criti- 
cized are  agreeable  and  satisfactory.  Whether  they  will  continue 
so  I  do  not  know  and  I  do  not  care. 

Now,  Mr.  Chairman. 

The  CHAIRMAN.  In  a  general  way,  Mr.  Quackenbush,  your  testi- 
mony this  afternoon  has  been  quite  a  serious  indictment  of  the  ad- 
ministration of  the  law  in  New  York  City. 

Mr.  QUACKENBUSH.  Yes. 

The  CHAIRMAN.  Has  that  criticism  been  directed  toward  the 
public-service  commission  particularly  or  all  of  the  different  officers 
who  have  to  deal  with  your  public  problems  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       839 

Mr.  QCACKENBUSH.  The  public-service  commission  and  board  of 
estimate,  combined. 

The  CHAIRMAN.  Combined? 

Mr.  QUACKENBUSH.  Yes. 

The  CHAIRMAN.  Has  it  not  been  a  well-accepted  fact  hi  New  York 
City  that  you  had  a  5-cent  contract — I  mean  a  o-cent-fare  contract— 
and  that  that  imposed  an  obligation  which  the  city  could  force  you 
to  live  up  to? 

Mr.  QUACKENBUSH.  That  has  been  preached  but  it  has  not  been 
an  accepted  fact.  Every  intelligent  newspaper  has  not  accepted 
that  as  the  fact.  They  have  recognized  what  I  undertook  to  say 
here  a  few  minutes  ago — that  a  bargain  made  under  the  circum- 
stances which  I  have  described,  which  produced  no  return  to  the 
city's  investment  required  revision  in  the  interest  of  the  taxpayers 
of  the  city,  leaving  out  entirely 

The  CHAIRMAN.  But  has  it  not  been  the  law  as  interpreted  by  the 
courts  of  that  State,  at  least  up  to  a  recent  date,  that  a  franchise  of 
that  kind  was  an  established  affair? 

Mr.  QUACKENBLSH.  That  contract  regarding  the  rapid-transit 
lines  has  never  been  the  subject  of  litigation  in  any  court  in  the 
State.  What  you  have  in  mind  is  the  decision  of  the  court  of  ap- 
peals in  the  Rochester  case. 

The  CHAIRMAN.  Yes. 

Mr.  QUACKENBUSH.  Which  has  no  relation  whatever  to  the  rapid- 
transit  situation. 

The  CHAIRMAN.  But  did  not  the  Rochester  case  decide  that  the  city 
had  no  right  to  relieve  the  company  of  a  5-cent  charge? 

Mr.  QUACKENBUSH.  No.  The  Rochester  case  decided  that  the  act 
of  1910  did  not  definitely  and  clearly  convey  to  the  commission 
jurisdiction  to  fix  rates  of  fare  in  controvention  of  the  terms  of 
a  franchise  granted  since  the  amendment  of  the  constitution  in 
1875.  They  did  not  say  that  they  had  no  right  to  dp  it.  They 
simply  said  that  in  precise  language  they  had  not  done  it,  and  then 
immediately  the  legislature  was  requested  to  do  it,  and  since  that 
time  several  decisions  of  the  court  of  appeals  have  been  handed 
down  clearly  showing  that  they  would  hold  that  the  legislature 
had  the  power.  Now  that  is  all  there  was  in  the  Rochester  rase. 
And  Judge  Hughes  made  the  argument  before  the  joint  committee 
of  the  senate  and  the  assembly  on  the  12th  day  of  March  of  this  year 
right  along  the  lines  I  am  now  stating  to  you  and  expressed  as 
his  own  opinion — and  he  was  the  author  of  the  law — that  the 
court  of  appeals  had  clearly  irlfcimared  to  the  legislature  that,  if 
they  acted,  they  did  not  possess  the  power  to  act;  and  their  last 
decision  within  this  week  I  have  in  my  pocket,  and  I  suppose  }rou  have 
seen  it. 

The  CHAIRMAN.  But  until  a  recent  date  the  public-service  com- 
mission has  been  of  the  opinion  that  they  did  not  have  the  right  to 
modify  that  contract;  is  not  that  so? 

Mr.  QUACKEXBUSII.  No.  I  am  glad  you  asked  that  question.  As 
soon  as  that  decision  came  down,  they  wore  of  the  opinion  in  New 
York  that  they  could  not  take  any  action  on  anything,  and  I  con- 
vinced them  that  right  within  the  terms  of  that  opinion  they  had 
power  over  transfers,  because  they  were  of  statutory  origin;  and 


840       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

they  wrote  an  opinion  that  they  did  have  the  power,  and  it  is  a  mat- 
ter of  record,  but  they  never  exercised  the  power. 

The  CHAIRMAN.  When  was  that  opinion  written? 

Mr.  QUACKENBUSH.  The  decision  in  the  Rochester  case  came  down 
on  the  5th  of  April,  1918,  and  I  immediately  presented  the  thing 
to  the  public  service  commission  the  latter  part  of  April  or  May, 
1918,  and  it  is  in  the  Third  Avenue  case,  and  you  will  find  it  cited 
in  the  report.  I  should  say  within  a  couple  of  months.  It  took  some 
time  to  figure  it  out,  but  within  a  couple  of  months  they  reached 
that  conclusion  and  made  their  decision.  But  they  said — and  with 
this  I  agree — that  it  would  be  much  better  if,  instead  of  their  trying 
to  give  an  unbalanced  relief  by  eliminating  transfers  here  and 
there,  we  could  get  the  consent  of  the  board  of  estimate,  to  let  them 
decide  the  whole  question.  And  we  immediately  applied  for  their 
consent,  which  they  declined;  and  then  we  went  back  to  the  commis- 
sion, and  I  said  to  them  in  language  that  is  as  plain  as  I  have 
said  here  to-day,  "  Do  something.  We  are  on  the  rocks ;  we  are 
going  to  be  broke.  Give  us  a  charge  for  transfers  that  will  help  us 
along."  And  the  last  commission  went  out  of  office.  The  case  closed 
in  November  and  they  went  out  of  office  on  the  8th  day  of  May  with- 
out its  being  decided. 

The  CHAIRMAN.  You  claim  you  have  been  very  closely  in  contact 
with  the  commission  from  1907  up  to  date? 

Mr.  QUACKENBUSH.  I  do  not  believe  anybody  has  been  any  closer 
except  their  own  organization. 

.The  CHAIRMAN.  When  was  the  first  time  your  railroads  asked  to 
have  the  fares  increased  ? 

Mr.  QUACKENBUSH.  In  May,  1917,  as  soon  as  we  got  into  the  war. 

The  CHAIRMAN.  Up  to  that  time  you  had  been  operating  upon 
favorable  terms  ? 

Mr.  QUACKENBUSH.  We  had  been  as  to  everything  except  the 
transfers.  Now  as  to  the  transfers,  we  started  the  education  of  the 
commission  in  1907,  and  had  a  struggle  with  them  right  straight 
along,  so  that  the  fare  question — and  by  that  I  mean  the  rate  ques- 
tion, our  3^-cent  rate  which  we  had — has  been  a  subject  of  testi- 
mony— well,  going  from  here  up  there  [indicating],  3  feet  of  it, 
extending  over  months  and  months  at  a  time,  and  they  all  the  time 
were  going  to  extend  the  transfers.  Does  that  answer  that  question  ? 

The  CHAIRMAN.  Yes. 

Commissioner  BEALL.  You  are  familiar  with  that  decision  given 
last  week  in  Buffalo? 

Mr.  QUACKENBUSH.  Yes.  You  will  find  I  am  on  the  brief  in- 
tervening. 

Commissioner  BEALL*  Some  people  think  that  will  apply  to  New 
York  and  others  do  not. 

Mr.  QUACKENBUSH.  Well,  I  think  that  it  indicates  the  need  of 
additional  legislation  and  that  the  legislation  will  be  sustained. 

Commissioner  BEAIX.  Do  you  think  it  applies  to  New  York  City 
or  do  you  not  care  to  express  an  opinion  ? 

Mr.  QUACKENBUSH.  Oh.  I  am  willing  to  express  an  opinion  on 
anything  you  ask  me.  I  think  it  applies,  but  not  to  the  extent  of 
giving  the  adequate  relief  that  we  ought  to  have.  I  think  it  en- 
larges considerably  the  limited  jurisdiction  possessed  by  Commis- 
sioner Nixon,  and  I  hope  to  be  able  to  persuade  him  and  his  advisers 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       841 

as  to  the  correctness  of  my  views,  but  it  is  not  going  to  solve  the 
thing. 

The  CHAIRMAN.  I  presume  regulation  is  not  in  a  finished  state  yet. 
In  New  York  you  have  one  public-service  commissioner,  Mr.  Nixon. 

Mr.  QUACKENBUSH.  Yes. 

The  CHAIRMAN.  In  view  of  the  great  mass  of  detail  work  which 
must  come  before  the  commissioner  for  his  judgment,  do  you  think 
it  possible  for  one  man  to  successfully  and  properly  officiate  as  the 
commissioner  to  regulate  those  large  transportation  and  other  utility 
questions  ? 

Mr.  QUACKENBUSH.  Well,  I  would  say  immediately,  no;  but  you 
must  bear  in  mind,  Mr.  Chairman,  that  the  amendment  of  this  year 
created  a  single  commissioner,  but  authorized  him  to  appoint  depu- 
ties, which  he  has  done,  and  those  deputies  fulfill  exactly  the  func- 
tions that  were  fulfilled  by  the  associate  commissioners  under  the 
old  act.  It  is  the  same  thing  under  a  different  form  of  organization. 

Commissioner  MEEKER.  How  many  deputies  have  been  appointed  ? 

Mr.  QUACKENBUSH.  He  has  appointed  Mr.  Glennon  and  Mr.  Bar- 
rett so  far.  "I  do  not  recall  any  others.  My  recollection  is  that  he 
has  authority  to  appoint  at  least  three.  But  the  idea  of  it  was  to 
economize.  Commissioners'  salaries,  as  you  know,  before  were 
$15,000  a  year  for  five,  making  a  salary  list  of  $75,000,  and  the  salary 
of  the  commissioner  himself  was  cut  down  and  the  deputies'  cut 
down  to  $7,500. 

Whether  that  is  wise  remains  to  be  seen.  I  do  remember  on  that 
subject — and  it  is  pertinent  to  a  question  which  was  asked  the  gov- 
ernor of  Massachusetts — that  when  the  question  of  the  salaries  of 
the  original  commission  was  under  discussion  in  the  legislature  in 
1907.  it  was  pointed  out  by  some  opposed  to  so  high  a  salary  as 
$15,000,  which  meant  $150.000  for  the  two  commissions,  that  Gov. 
Hughes  recommended  that  because,  notwithstanding  that  the  sal- 
aries of  the  judges  of  the  court  of  appeals  of  the  State  were  only 
$12,000,  Gov.  Hughes  would  appoint  to  the  commissions  men  of 
such  standing  and  ability  that  their  decisions  would  be  accepted 
by  the  carriers,  the  utilities,  and  by  the  public  as  final  and  it  would 
be  unnecessary  to  go  into  court  to  review  them ;  he  was  going  to  get 
men  of  the  highest  grade,  and  I  have  no  doubt  the  governor  in- 
tended to  do  so,  and  as  I  have  said,  so  far  as  character,  integrity,  and 
intelligence,  he  succeeded,  but  he  did  not  succeed  in  getting  men  who 
held  the  scales  even. 

The  CHAIRMAN.  If  the  railroad  and  the  public  officers  should 
modify  the  contract  to  an  8-cent  fare,  is  there  any  appeal  from  that 
contract  on  the  part  of  the  public? 

Mr.  QUACKENBUSH.  No ;  not  if  it  is  by  agreement. 

The  CHAIRMAN.  That  forecloses  the  question;  they  can  not  even 
attack  the  legality  of  the  rate  in  court? 

Mr.  QUACKENBUSH.  Oh,  yes;  I  am  very  glad  you  asked  that  ques- 
tion. 

The  CHAIRMAN.  I  wanted  to  know  that. 

Mr.  QUACKENBUSH.  Yes ;  I  can  answer  that  in  a  minute.  Since  the 
separation  of  the  functions  of  regulation  and  of  construction  and  con- 
tracting, which  formerly  had  been  combined  in  the  public-service 
commission,  Mr.  Nixon  now  is  vested  only  with  jurisdiction  to 
regulate — that  is  the  rate-making  power  of  the  State  of  New  York. 
100043°— 20 54 


842       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  Delaney  is  the  contracting  agent  of  the  cit}r,  and  an  amendment 
to  the  contract  would  be  made  by  Mr.  Delaney ;  and  assuming  now  the 
general  view  that  prevails,  but  not  conceding  its  correctness,  with 
the  approval  of  the  board  of  estimate  and  apportionment  and  our- 
selves. That  is  the  contract  part.  Then  we  must  go  in  on  the  rate- 
making  feature  and  have  its  fairness  determined  by  Mr.  Xixon  in  an, 
ordinary  rate  case,  which  is  subject  to  review  on  the  complaint  of 
anybody  in  the  appellate  division  on  certiorari. 

The  CHAIRMAN.  So  there  is  some  remedy  in  court? 

Mr.  QUACKENBUSH.  Yes ;  I  was  hurried  in  my  answer,  because  for 
the  moment  I  forgot  about  the  fact  that  a  person  could  intervene,  as 
you  know,  under  the  State  and  make  a  complaint  that  the  rate  is 
unduly  burdensome  upon  the  public  and  have  an  ordinary  rate  case 
heard  and  have  his  da}r  in  court  on  certiorari.  There  is  not  any 
clanger  of  any  job,  in  other  words. 

The  CHAIRMAN.  I  do  not  care  to  examine  on  the  mass  of  figures 
you  have  presented..  It  is  rather  an  intricate  situation  involved  in 
New  York. 

Mr.  QUACKENBUSH.  "Well,  I  did  not  mean  to  go  into  a  mass  of 
figures,  but  I  wanted  you  to  see  that  there  are  certain  principles  un- 
derlying it. 

The  CHAIRMAN.  I  am  very  glad  to  have  them  in  the  record. 

Mr.  QUACKENBUSH.  If  I  have  made  that  clear,  I  have  done  what 
I  sought  to  do. 

Mr.  WARREN.  We  are  very  much  obliged,  Mr.  Quackenbush. 

(Witness  excused.) 

Mr.  WARREN.  I  trust  the  commission  fully  understands  that  in 
putting  on  evidence  with  respect  to  particular  situations,  we  are  not 
doing  it  with  the  expectation  that  the  commission  will  endeavor  to 
cure  them,  but  simply  as  isolated  instances  of  the  general  situation 
we  want  to  bring  before  you. 

At  this  point,  if  I  may,  I  should  like  to  put  in  a  letter  from  Mr. 
Thomas  A.  Edison.  It  happens  to  bear  on  the  very  question  of  con- 
tract that  the  last  witness  discussed : 

ORANGE,  N.  J.,  July  22,  1919. 
FEDERAL  ELECTRIC  RAILWAYS  COMMISSION, 

Washington,  D.  C. 

GENTLEMEN  :  I  have  been  very  much  interested  in  the  progress  made  by  the 
electric  railways  since  I  first  built  one  at  Menlo  Park,  N.  J.,  in  1880. 

The  systems,  operation,  and  apparatus  have  now  reached  great  perfection. 
Some  of  the  greatest  engineers  in  the  country  have  given  almost  the  whole  of 
their  lives  to  attain  this  end.  The  end  is  not  yet  reached.  The  great  trunk 
lines  will,  in  time,  be  added  to  the  electric  domain.  It  is  to  the  greatest  ad- 
vantage to  the  public  that  every  encouragement  be  given  to  those  who  have 
and  will  still  further  act  as  pioneers  in  the  further  perfection  of  this  flexible 
and  highly  economical  system  of  power  distribution,  whereby  our  natural 
fuels  are  conserved  to  a  greater  extent  and  all  the  power  of  waterfalls  utilized. 

At  the  present  time  the  electric-railway  industry  has  reached  a  serious  stage. 
Everything  has  stopped  advancing.  Countless  millions  of  securities  based  on 
this  industry  are  held  by  conservative  investors,  families,  etc.,  who  are  pos- 
sessed of  a  dread  for  the  future.  No  more  capital  can  be  obtained,  except  in 
special  cases. 

The  ironclad  contracts  between  the  roads  and  the  cities  made  in  the  pioneer- 
ing days  under  normal  conditions  have  no  protective  clause  against  the  greatest 
change  that  has  taken  place  in  centuries,  due  to  the  World  War.  The  munici- 
palities can  exact  their  pound  of  flesh  if  they  so  desire,  with  the  ultimate 
bankruptcy  of  these  organizations,  but  the  spirit  that  is  now  abroad  in  the 
world  is  against  this.  We  are  now  all  trying  to  play  fair.  If  suffer  we  must, 


PROCEEDINGS  OF  FEDEEAL  ELECTRIC  RAILWAYS  COMMISSION.       843 

let  us  all  suffer  alike.    If  prosperity  comes,  all  should  participate  in  a  like 
manner. 

I  hope  the  commission  will  succeed  in  placing  this  industry  on  its  feet  again. 
This,  in  its  turn,  will  stop  stagnation ;  give  the  roads  stability  to  raise  plenty 
of  capital;  new  extensions  will  go  on;  new  things  will  be  perfected  and  intro- 
duced. The  restless  Americans  who  work  all  day  and  far  into  the  night  are 
forever  pushing,  higher  and  higher  that  great  line  of  30°  angle,  illustrating  the 
rise  of  the  American  Nation  in  wealth  and  power. 
Yours,  very  truly, 

THOS.  A.  EDISON. 

STATEMENT  OF  MR.  JAMES  0.  CAKE. 

Mr.  WARREN.  Your  full  name  is  James  O.  Carr,  I  think? 

Mr.  CAKE.  Yes,  sir. 

Mr.  WARREN.  Ami  you  reside  where,  Mr.  Carr? 

Mr.  CARR.  Pittsburgh,  Pa. 

Mr.  WARREN.  And  you  were  one  of  the  public-service  commis- 
sioners in  New  York  of  the  up-State  district  between  what  dates? 

Mr.  CARR.  May  1, 1915,  to  February  1, 1918. 

Mr.  WARREN.  And  before  that  in  what  were  you  engaged? 

Mr.  CARR.  Well,  for  about  20  years  I  was  very  actively  engaged 
in  the  operation,  construction^  and  reorganization  of  public  utilities, 
street  railroads,  electric  light  and  gas  companies. 

Mr.  WARREN.  And  for  about  how  long^Mr.  Carr? 

Mr.  CARR.  For  about  20  years. 

Mr.  WARREN.  So  that  your  experience  ran  back  pretty  nearly  to 
the  electrification  of  horse  railroads  and  the  construction  of  new 
electric  railways;  did  it  not? 

Mr.  CARR.  The  electrification  generally  of  street  railroads  began 
about  1890,  as  I  recall  it. 

Mr.  WARREN.  And  your  connection  with  the  work  began  about  five 
years  later? 

Mr.  CARR.  No;  I  was  connected  with  it  before  that  time,  but  not 
so  actively. 

Mr.  WARREN.  There  is  only  one  point  on  this  that  I  want  to  get 
from  Mr.  Carr,  and  that  is  as  to  the  extension  of  rides  in  the  earlier 
days  of  the  business. 

Mr.  Carr,  did  the  electrification  of  street  railways  generally  in- 
volve the  construction  of  extensions  affording  the  public  longer  rides 
for  the  old  nickel  fare  than  they  had  formerly  enjoyed? 

Mr.  CARR.  Very  much  so. 

Mr.  WARBEN.  Would  you  give  the  commission  any  particular 
example  of  that  which  you  may  recall? 

Mr.  CARR.  Why,  I  think  that  is  true  of  practically  every  city  in 
the  country;  and  I  imagine  every  man  on  this  commission  recognizes 
that  fact.  *  I  recall  very  specifically  one  case,  and  that  was  the  city 
of  Schenectady,  N.  Y. 

Mr.  WARREN.  Won't  you  tell  briefly  just  Ayhat  happened  there? 

Commissioner  BKAF.L.  Are  you  the  man  who  used  to  be  with  the 
Schenectady  company  ? 

Mr.  CARK.  I  am  the  same  man ;  yes. 

Commissioner  BEAU,.  I  have  not  seen  you  for  a  good  many  years. 

Mr.  CAKR.  You  remember  the  Schenectady  property  also? 

Commissioner  BE  ALL.  Yedi 


844       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CAKR.  At  that  time,  in  1890,  the  Schenectady  Railway  con- 
sisted of  a  horse  road  about — I  think,  all  told,  less  than  3  miles  long — 
just  one  line  of  road,  no  branches  or  extensions;  and  the  fare  on  that 
road  was  5  cents,  fixed,  I  believe,  by  the  original  franchise  which 
was  granted  in  1886.  That  road  was  electrified  in  1890.  It  con- 
tinued to  operate  as  an  electric  road  from  1890  to  1900,  at  which 
time  the  property  was  acquired  by  the  General  Electric  Co.  in  con- 
nection with  its  development  at  Schenectady. 

It  was  absolutely  essential  for  it  to  have  transportation  facilities 
for  the  employees  in  that  city.  The  road  was  developed  from  that 
time,  from  1900  to  1905,  from  around  3|  miles  of  track  to  110  miles. 
That,  of  course,  included  interurban  lines,  but  the  city  lines  com- 
prised, as  I  recall  them,  about  26  miles  of  track.  And,  of  course, 
the  city  lines  as  they  were  extended  formed  a  part  of  the  interurban 
lines.  So  that  the  result  was  that  in  that  city  in  particular,  where 
the  passenger  had  a  ride  of  around  3  miles  if  he  took  the  entire  ride 
in  1900,  in  1905  and  since  that  time,  he  had  a  ride  if  he  desired  it  of 
10  miles,  and  in  some  instances — well,  approximately  10  miles  for  a 
nickel,  and  he  could  not  only  take  it  in  one  direction,  but  he  could 
take  it  in  half  a  dozen  directions. 

Xow  that  is  one  concrete  illustration  of  the  extension  of  service 
with  no  increase  of  fare,  and  that  has  been  true  all  over  the  country. 
The  5-cent  fare  wras  a — well,  it  was  a  motto,  almost  a  household 
motto ;  you  can  ride  on  the  street-cars  for  a  nickel. 

Mr.  WARREN.  Do  you  remember  the  Boston  situation? 

Mr.  CARR.  Yes ;  I  used  to  live  in  Boston. 

Mr.  WARREN.  I  thought  you  did.  That  consisted  before  electrifi- 
cation of  a  number  of  different  horse-railroad  lines,  did  it  not? 

Mr.  CARR."  Yes.  I  remember  in  the  old  days  of  riding  to  Brighton 
on  the  horse-car  from  Boston  and  nearly  freezing,  and  its  taking  a 
period  of  one  and  a  half  to  two  hours. 

Mr.  WARREN.  -And  keeping  your  feet  warm  if  you  could  ? 

Mr.  CARR.  In  the  hay ;  yes. 

Mr.  WARREN.  Before  they  were  merged,  the  rate  in  Boston  was  5 
cents  with  a  3-cent  charge  if  any  person  went  from  one  of  the  radiat- 
ing lines  to  another ;  is  that  the  fact  ? 

Mr.  CARR.  I  do  not  recall  the  fact  as  to  the  transfers  on  the  horse 
lines,  but  after  the  lines  there  were  electrified,  there  was  a  3-cent 
charge  for  transfers. 

Mr.  WARREN.  And  that  was  subsquently  removed,  after  electrifi- 
cation ? 

Mr.  CARR.  I  do  not  remember,  because  I  moved  away  from  Boston 
in  1894. 

Mr.  WARREN.  But  do  you  know  that  the  lines  were  extended  very 
greatly  within  the  city  ? 

Mr.  CARR.  Oh,  very  greatly,  all  over  the  suburbs  of  Boston. 

Mr.  WARREN.  Now  you  have  been  a  public-service  commissioner 
and  have  had  experience  in  that  position.  Will  you  briefly — and  this 
is  the  onty  other  subject  on  wrhich  we  have  called  Mr.  Carr,  Mr.  Chair- 
man— state  to  the  commission  what  effects  you  have  observed  either 
on  the  system  or  on  the  administration  of  supervision,  and  what 
changes  you  would  suggest  better  to  meet  the  situation  which  I  sup- 
pose you  with  others  would  say  exists  to-day  in  the  street-railway 
world. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       845 

Mr.  CARR.  Well,  when  I  left  the  public-service  commission  I  left 
it,  as  I  assumed,  for  good ;  and  I  have  not  given  any  thought  to  the 
subject  since  that  time.  I  assume  I  may  be  somewhat  different  from 
a  good  many  men  who  sit  on  public-service  commissions.  I  have 
rather  positive  ideas  about  a  great  many  things,  and  my  idea  about  a 
commission  is  that  the  commission  should  have  full  power  to  exer- 
cise the  law. 

I  had  the  good  fortune — as  I  thought  at  the  time,  but  my  pride 
has  taken  a  fall  since — to  have  written  the  decision  in  the  State  of 
New  York  in  the  second  district  commission,  giving  authority  to 
railroads  to  increase  any  fare,  and  I  thought  I  had  done  a  very  re- 
markable piece  of  work.  I  spent  the  whole  summer  on  it,  and  the 
commission  was  unanimous  on  the  proposition.  It  arose  out  of  the 
plight  which  a  very  small  street  railroad  found  itself  in  down  on. 
Long  Island. 

Mr.  WARREN.  May  I  interrupt  there  with  just  one  question?  Is 
it  your  experience  or  observation  or  judgment  that  small  companies, 
are  in  just  the  same  plight? 

Mr.  CARR.  Oh,  they  are  all  the  same. 

Mr.  WARREX.  There  is  no  difference  between  the  small  companies, 
and  the  city  companies.  Now,  you  may  go  on  with  that  case. 

Mr.  CARR.  As  I  recall  it,  we  had  this  matter  before  us  all  of  the 
summer  of  1017.  There  was  an  association  of  the  railway  companies 
in  New  York,  in  which,  I  think,  some  of  the  companies  in  the  first 
district  participated,  endeavoring  to  impress  upon  our  commission 
the  necessity  for  relief  to  the  corporations.  It  was  an  organized 
propaganda  or  an  organized  effort  on  the  part  of  the  corporations, 
to  make  us  know  or  realize  that  more  money  was  required  or  would 
be  required  by  the  street  railroads  to  enable  them  to  perform  their 
service.  And  after  the  hearings  were  given  during  the  summer 
to  the  street  railroad  committee  presenting  general  propositions^ 
no  specific  data  with  relation  to  the  operations  of  any  particular 
company,  but  conditions  in  general  with  respect  to  wages,  cost  of 
material  and  things  of  that  sort,  we  were  able  to  get  down  to  the 
consideration  of  certain  specific  cases  which  had  been  filed  by  the 
various  companies  with  the  commission.  In  fact,  at  that  time  I 
think  the  companies  in  Rochester,  Syracuse,  Utica,  Albany,  Ithaca, 
Binghamton,  Elmira,  Buffalo,  Poughkeepsie,  Kingston,  and  some 
other  roads  in  the  lower  district  had  filed  applications  for  in- 
creased rates.  And  as  the  result  of  the  hearing  which  we  had— 
we  started  in  immediately  with  hearings  after  the  committee  had 
finished  with  its  presentation  of  facts — I  was  able  to  bring  to  a 
point  where  it  was  ready  for  determination  several  of  the  cases 
that  involved  the  fewer  intricacies — that  is,  the  smaller  companies 
had  a  concrete  state  of  facts  as  to  which  there  was  no  dispute  and 
as  to  which  the  valuations  could  be  readily  determined,  which, 
of  course,  did  not  apply  with  the  larger  cities.  And  we  made  one 
case  the  case  upon  which  to  rest  our  determination,  which  was 
known  as  the  Iluntington  case;  and  we  decided  in  that  case  that  not- 
withstanding the  statutes  in  the  State  of  New  York,  we  had  the 
right  and  the  right  had  been  delegated  to  us  by  the  legislature  to. 
increase  the  rate  of  fare  to  the  corporation  if  it  was  entitled  to  an. 
increase  in  order  to  live. 


845       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  And  that  notwithstanding  a  fixed  5-eent  fare  in  the 
franchise?. 

Mr.  CARR.  And  that  notwithstanding  a  fixed  5-cent  fare.  My 
view  of  that  apparently,  in  which  I  am  alone,  except  the  four  com- 
missioners who  stood  with,  me  in  that  case,  was  that  the  statute  did 
not  mean  that  the  municipality  had  a  right  to  fix  a  fare  for  all 
time  as  a  condition  for  giving  its  consent  to  the  operation  by  a 
street  railroad  in  the  streets  of  a  municipality  as  against  the  State 
itself,  In  other  words,  we  held  that  the  State  was  supreme  when 
it  came  to  the  question  of  determining  what  rate  a  public  utility 
should  charge.  We  then  decided  on  that  state  of  the  law  from  our 
standpoint,  from  all  the  decisions  of  the  courts,  with  one  exception, 
the  Westchester  case,  and  basing  our  position  on  the  cases  that  had 
been  decided  by  the  Supreme  Court  of  the  United  States  in  some 
instances,  that  we  had  the  power  to  grant  an  increase,  and  we  did 
grant  the  increase  in  that  case  and  numerous  others. 

Mr.  WARREN.  Well,  the  court  sustained  your  view  that  the  legis- 
lature was  supreme? 

Mr.  CARR.  No. 

Mr.  WARREN.  Oh,  I  thought  they  held  simply  that  the  legislature 
had  not  in  your  public-service  law  clearly  delegated  that  authority. 

Mr.  CARR.  I  do  not  know  what  the  real  decision  was  because  I 
left  the  commission  before  the  case  was  -decided,  and  I  have  never 
seen  it. 

The  CHAIRMAN.  The  commission  will  adjourn  at  this  point  until 
8  o'clock  to-night. 

Mr.  CARR.  I  have  to  leave  here  at  9.2.5. 

Mr.  WARREN.  I  think  we  can  get  you  off  on  that  train. 

(At  5  p.  m.  an  adjournment  was  taken  to  8  p.  m.) 

EVENING  SESSION. 

The  hearing  was  resumed,  at  8  o'clock  p.  m. 

STATEMENT  OF  MR.  JAMES  0.  CARR— Continued. 

Mr.  WARREN.  I  judge  from  what  you  were  saying,  Mr.  Carr,  be- 
fore the  recess,  that  one  thing  you  think  should  be  remedied  is  the 
law  under  which  the  commissions  act,  so  that  in  cases  where  they 
have  not  jurisdiction,  either  because  of  contractual  franchises  or 
otherwise,  they  should  be  given  that  jurisdiction  over  rates,  and  if 
the  constitutions  of  the  States  interfere  with  the  giving  of  such 
jurisdiction,  you  think  the  public  interests  would  be  served  by  chang- 
ing the  constitutions,  so  that  authority  might  be  given  the  commis- 
sions; is  that  so? 

Mr.  CARR.  I  believe  that  if  public-service  corporations  are  to  be 
regulated  by  regulating;  commissions,  they  should  have  full  power  to 
regulate  them.  I  have  in  mind  particularly  the  New  York  law  under 
which  we  were  operating,  wrhich  gave  the  commission  every  power 
that  a  regulating  body  could  possibly  have,  so  far  as  service  was  con- 
cerned. There  was  110  limit,  practically,  to  what  could  be  required, 
but  going  along  with  that  there  was  not  the  same  power  to  provide 
the  means  for  the  corporation  to  get  the  money  to  make  those  iin- 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       847 

provements,  if  improvements  were  required,  or  to  provide  such  other 
expenses  as  might  be  necessary  to  give  the  service  that  the  public  was 
entitled  to,  and  which  it  demanded. 

Mr.  WARREN.  That,,  in  your  judgment,  is  just  as  essential — the  pos- 
session of  that  power  is  just  as  essential  as  the  power  over  service; 
that  one  without  the  other 

Mr.  CARR.  One  without  the  other  makes  it  absolutely  incomplete. 

Mr.  WARREN.  Yes. 

Mr.  CARR.  That  law,  as  it  now  stands,  gives  every  power  to  the 
commission  to  reduce  fares,  but  it  does  not  give  them  power  to  in- 
crease fares  when  increases  are  necessary,  and  absolutely  required  in 
order  to  enable  the  corporation  to  perform  its  functions. 

Mr.  WARREN.  Now,  in  view  of  the  present  emergency,  which  has 
been  testified  to  by  various  people  here,  do  you  think  it  is  essential 
that  some  immediate  relief  should  be  furnished  to  many  of  these 
street  railway  companies? 

Mr.  CARR.  That  is  a  very  broad  question. 

Mr.  WARREN.  Well,  you  qualify  it  in  your  answer. 

Mr.  CARR.  Of  course,  whether  or  not  there  should  be  immediate 
action  is  a  question  of  fact ;  and  that  fact,  I  believe,  is  easily  demon- 
strated in  most  cases  to  prove  that  the  street  railways  throughout 
the  country  to-day,  in  most  instances,  are  barely  able  to  earn  their 
operating  expenses.  I  do  not  believe  there  is  hardly  any  in  the 
country  that  is  able  to  earn  a  return  on  its  capital  invested. 

Mr.  WARREN.  Do  you  think  that  many  of  them  are  really  not 
earning  their  operating  expenses,  properly  defined,  including  a 
proper  allowance  for  depreciation  of  the  plant? 

Mr.  CARR.  I  think  there  is  no  question  about  that. 

Mr.  WARREN.  Well,  under  those  circumstances,  it  would  seem  to 
be  necessary  that  they  should  get  some  kind  of  quick  relief,  even 
though  of  a  temporary  character;  would  it  not? 

Mr.  CARR.  Yes;  I  think  that  is  true;  and  I  also  believe  that  a  great 
many  of  the  States  have  the  facilities  for  affording  quick  relief. 

Mr.  WARREN.  You  do? 

'  Mr.  CARR.  I  think  the  State  of  Xew  York,  in  so  far  as  its  second- 
district  commission  is  concerned,  acted  with  reasonable  promptness 
on  matters  of  that  sort.  At  least,  it  did  when  I  was  there.  We  mado 
it  a  point  to  expedite  action  wherever  it  seemed  to  be  urgent,  and  it 
was  expedited;  but,  of  course,  it  must  be  borne  in  mind  that  there 
are  certain  provisions  in  the  law  which  can  not  be  ignored,  and 
which  make  it  obligatory  upon  the  commission  to  satisfy  itself  that 
the  company  is  not  earning  a  fair  return  before  it  can  increase  the 
rate.  But  in  most  instances  to-day  T  do  not  think  the  company  would 
have  .very  much  trouble  in  satisfying  a  commission  on  that  point. 

Mr.  WARREN.  And  satisfying  them  speedily? 

Mr.  CARR.  And  satisfying  them  speedily. 

Mr.  WARREN.  So  as  to  justify  a  speedy  decision  by  the  commission? 

Mr.  CARR.  That  is  so. 

Mr.  WARREN.  And  if  such  decisions  could  be  rendered,  it  would 
go  far,  would  it  not,  to  afford  temporary  relief  for  the  situation, 
pending  some  more  permanent  form  of  relief? 

Mr.  CARR.  Well,  it  all  depends  upon  how  they  must  apply  the 
money  that  they  get  on  the  increase. 


848       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Well,  if  they  are  not  earning  operating  expenses,  it 
would  be  a  pretty  simple  thing  to  determine  how  the  money  should  be 
spent ;  would  it  not  ? 

Mr.  CARR.  Yes;  but  nowadays  there  seems  to  be  a  very  decided 
fluctuation  in  certain  elements  of  operating  expense. 

Mr.  WARREN.  Do  you  think  the  commissions  should  in  any  way 
control  the  expenditure  of  the  money  if  they  gave  this  emergency 
relief? 

Mr.  CARR.  That  is  all  provided  for  in  the  system  of  accounting; 
which  is  required  of  these  corporations  under  the  State  regulations. 

Mr.  WARREN.  So  that  the  commission  could  control  the  expendi- 
ture of  the  money  to  such  an  extent  to  see  that  it  was  applied  as  it 
should  be? 

Mr.  CARR.  I  do  not  think  any  commission  goes  as  far  as  that — that 
rs,  not  so  far  as  to  attempt  to  dictate  as  to  the  actual  disbursement  of 
income  for  expenses.  The  most  they  attempt  to  do,  so  far  as  I  have 
been  informed,  is  to  make  their  order,  setting  forth  what  the  money 
that  is  derived  from  capital  can  be  expended  for.  Of  course,  if  the 
company  attempts  to  expend  money  derived  from  capital  for  oper- 
ating expenses,  there  is  certain  provision  made  for  that.  It  shows 
up  in  their  accounting. 

Mr.  WARREN.  Yes,  of  course.  This  increase,  of  course,  would  be 
income,  would  it  not? 

Mr.  CARR.  That  would  be  income,  absolutely. 

Mr.  WARREN.  Well,  the  commission,  I  think,  probably  in  every 
case,  has  a  right  to  call  for  reports  periodically  from  the  company. 

Mr.  CARR.  Oh,  yes. 

Mr.  Warren.  And  if  the  commission  should  be  satisfied  that  the 
money  was  being  improperly  spent,  say  for  dividends,  when  the 
dividends  should  not  be  paid,  the  commission  could  easily  reduce  the 
emergency  rate,  could  it  not  ? 

Mr.  CARR.  Undoubtedly. 

Mr.  WARREN.  So  that  it 

Mr.  CARR.  I  think  that  is  a  very  remote  possibility. 

Mr.  WARREN.  Do  you  mean  the  improper  expenditure  of  the 
income  ? 

Mr.  CARR.  I  think  you  would  have  great  difficulty  in  finding  a 
street  railway  to-day  that  would  attempt  to  pay  dividends  when  they 
were  not  having  earnings  enough  to  cover  operating  expenses. 

Mr.  WARREN.  I  agree  with  you.  I  think  any  emergency  relief  that 
they  might  obtain  would  be  fully  absorbed  in  taking  care  of  the 
property. 

Mr.  CARR.  That  is  it  absolutely. 

Mr.  WARREN.  But  the  delays  that  have  been  incident  to  some  cases 
in  that  case  would  be  more  prejudicial  to  furnishing  the  relief  which 
is  needed  at  this  time?  I  am  not  speaking  of  New  York  particularly ; 
but  in  many  cases  in  the  past  it  has  taken  a  long  time  to  get  decisions 
on  rate  increases,  has  it  not  ? 

Mr.  CARR.  Yes ;  it  has,  in  many  instances,  where  complicated  ques- 
tions arose,  and  as  a  rule,  those  delays  were  largely  incident  to  the 
action  of  the  municipality  in  which  the  corporation  was  located. 

Mr.  WARREN.  They  opposed  it? 

Mr.  CARR.  They  invariably  opposed  any  rate  increase. 

Mr.  WARREN.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       849 

Mr.  CARR.  And  the  commission  had  to  pass  on  questions  of  law 
and  questions  of  fact ;  and  I  think  it  is  the  history  all  over  the  coun- 
try that  each  locality,  as  a  rule,  fights  any  increase  in  fare.  It  ap- 
pears to  be  human  nature. 

Mr.  WARREN.  But  if  the  localities  were  convinced,  or,  at  any  rate, 
seriously  impressed  with  the  importance  to  the  street  railway  of  some 
increased  revenue,  as  a  result,  possibly,  of  a  report  of  this  commis- 
sion, if  the  commission  should  take  that  view,  then  it  would  be  pos- 
sible for  the  commissions,  in  a  great  many  cases,  to  afford  very  imme- 
diate relief,  would  it  not?  That  is,  I  mean  within  a  few  weeks. 

Mr.  CARR.  It  would.     Yes,  indeed. 

Mr.  WARREN.  Instead  of  its  being  a  matter  of  months? 

Mr.  CARR.  The  great  trouble  is  that  the  people,  as  such,  are  not  let 
alone.  I  believe  the  public — and  by  that  I  mean  the  people  as  a 
class — will  decide  fairly  on  any  public  question  that  is  put  up  to 
them ;  but  there  are  always  certain  people  in  the  community  that  feel 
it  incumbent  upon  them  to  advise  and  lead  the  public,  with  the  re- 
sult that  there  is  always  trouble,  that  opposition  does  develop  in  that 
way,  and  that  is  what  has  to  be  overcome  before  you  can  reason  it  and 
argue  it  out  with  the  public,  so  as  to  make  them  actually  believe  what 
you  are  trying  to  tell  them,  that  you  are  in  trouble  and  you  need 
help.  Now,  if  you  leave  out  the  third  party,  your  public  will  come 
to  the  front  very  quickly,  but  it  is  always  a  public  benefactor  that 
comes  across  and  is  trying  to  help  the  people  who  causes  the  trouble. 
That  has  been  my  experience,  and  I  think  I  am  right  in  saying  it. 

Mr.  WARREN.  But  notwithstanding  that,  would  not  the  commis- 
sions, in  many  instances,  be  justified,  in  this  present  emergency,  in 
furnishing  relief  of  a  temporary  character? 

Mr.  CARR.  With  respect  to  those  commissions  of  which  I  have  any 
knowledge,  I  have  no  doubt  that  every  one  of  them  would  give  relief 
to-day  if  a  plain  statement  of  facts  was  furnished  them,  if  they 
thought  it  correct,  without  waiting  for  any  great  length  of  time  to 
get  a  mass  of  evidence  in  front  of  them'  that  they  would  have  to  pore 
over  and  spend  their  nights  and  Sundays  in  digesting.  The  pur- 
pose of  every  one  of  these  commissions  to-day  is  to  aid  the  corpora- 
tion that  needs  help,  but  where  they  are  bound  around  with  statutes 
and  with  constitutional  provisions  and  other  things  that  prevent 
them  from  giving  that  aid,  they  are  absolutely  helpless,  no  matter 
how  much  they  may  desire  to  help  the  corporation ;  and  the  best  evi- 
dence of  that  is  what  has  happened  in  New  York. 

Mr.  WARREN.  Yes,  I  appreciate  that.  But  in  cases  where  they 
have  jurisdiction,  you  feel  that  many  of  the  companies  could  furnish 
such  a  prima  facie  case  as  to  justify  immediate  relief,  and  the  com- 
missions would  be  willing  to  give  it,  of  a  temporary  character? 

Mr.  CARR.  In  the  average  case,  where  a  corporation  is  required  to 
keep  its  accounts  as  prescribed  by  the  commission,  a  plain  operating 
statement  put  in  front  of  a  commission  would  demonstrate  whether 
or  not  they  were  entitled  to  any  relief.  That  lias  the  facts  right 
in  it.  They  do  not  need  to  go  around  it  and  to  present  any  argument 
to  show  whether  or  not  they  are  earning  enough  to  pay  expenses. 

Mr.  WARREN.  That  would  be  enough  for  the  commission  ? 

Mr.  CARR.  That  would  be  enough  for  the  commission,  temporarily. 

Mr.  WAHREN.  Yes;  I  mean  that. 


850       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  CARR.  It  should  be  enough  to  show,  taking  a  period  of  six 
months  or  a  year,  exactly  what  that  company  is  doing  with  respect 
to  its  earnings,  and  as  to  whether  or  not  it  is  making  enough  to  take 
care  of  its  operating  expenses  and  any  return  on  its  investment. 

Mr.  WARREN.  And  in  a  period  like  the  present,  with  costs  going 
up  as  rapidly  as  they  are,  and  with  wages  going  up  by  leaps  and 
bounds,  as  they  have  been  doing  in  the  last  few  weeks,  the  delays 
which  would  be  incident  to  the  ordinary  procedure  of  the  commis- 
sions would  involve  very  serious  injury  to  the  companies;  would 
they  not? 

Mr.  CARR.  Well,  if  there  was  any  very  long,  delay,  I  would  say  it 
would. 

Mr.  WARREX.  Yes. 

Mr.  CARR.  Of  course,  it  is  difficult  to  say  how  long  you  can  keep 
a  corporation  that  is  on  the  down  grade  from  becoming  bankrupt, 
so  that  it  can  not  continue  any  longer. 

Mr.  WARREX.  Well,  for  example,  a  company  whose  wages  are 
increased  to-day  from  40  or  45  cents  to  60  or  62  cents  wyould  be  pretty 
seriously  affected  by  a  delay  of  a  month  or  two. 

Mr.  CARR.  I  should  think  that  would  be  very  serious.  Another 
proposition:  You  can  not  very  well  pay  things  unless  you  have 
money  to  pay  them  with,  whether  wages  are  increased  from  40  to 
60  cents  or  50  cents. 

Mr.  WARREX.  If  you  do  not  have  the  money 

Mr.  CARR.  It  is  very  essential  to  get  it. 

Mr.  WARREN.  Yes;  without  very  much  delay. 

Mr.  CARR.  Well,  you  will  have  very  hard  work  to  get  it,  if  that 
is  your  financial  status. 

Mr.  WARREX.  You  say  wre  will  not  find  it  very  difficult  to  get 
money  ? 

Mr.  CARR.  I  say  you  will  find  it  difficult  to  get  money,  if  that  is 
your  financity  status. 

Mr.  WARREX.  I  am  only  speaking  about  increased  rates. 

Mr.  CARR.  Oh,  yes. 

Mr.  WARREX.  I  think  that  is  all  I  want  to  ask  Mr.  Carr,  unless 
you  have  something  further  that  you  want  to  say  to  the  commission, 
Mr.  Carr. 

Mr.  CARR.  There  is  one  statement  that  I  thought  I  would  like  to 
allude  to,  not  so  much  because  of  my  loyalty  to  the  New  York 
Commission,  but  because  I  think  it  is  a  thing  that  ought  not  to  go 
unchallenged. 

Ex-Gov.  Foss  who  testified  there  made  the  statement  that — as 
I  understood  it,  it  was  to  this  effect — that  these  so-called  quasi-public 
corporations,  as  he  termed  them,  spend  most  of  their  time  in  the 
halls  of  the  various  State  capitals  and  elsewhere,  lobbying  for  their 
interests  and  endeavoring  to  obstruct  the  laws  wherever  they 
could,  and  to  prevent  the  appointment  of  capable  men  on  the  com- 
mission that  would  see  that  the  rights  of  the  public  were  protected. 

Now,  I  think  that  is  a  statement  that  ought  not  to  go  unchallenged, 
as  I  say,  because  it  is  far  from  the  fact.  The  trouble  is  that  the 
appointing  power,  as  a  rule,  where  the  commissions  are  appointed — 
in  many  of  the  States  they  are  elected — but  where  they  are  appointed, 
I  believe  the  public-service  corporations  are  more  interested  than 
anyone  else  to  have  clean,  able,  upright  men  on  the  commission, 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       851 

because  it  is  to  their  best  interests  to  have  men  of  that,  character, 
yet  in  all  cases  the  trouble  with  the  appointing  power  is  the  politi- 
cian. He  is  always  there  to  see  that  a  politician  or  someone  who  is 
selected  by  the  politician  is  put  on  the  commission,  because  it  is  con- 
sidered a  political  plum. 

Xow,  that  is  the  fact  as  distinguished  from  what  the  governor  said, 
and  I  think  you  will  find  that  if  you  keep  the  politician  away  from 
the  appointing  power  you  will  have  no  trouble  in  getting  good  men. 

But  there  is  this  further  fact  to  be  considered:  It  is  difficult  to 
get  a  competent  man  unless  he  happens  to  be  of  independent  means 
to  be  willing  to  assume  the  burdens  of  public-service  commissioner, 
because  he  does  not  like  to  be  hounded  and  blackmailed,  if  you 
please — accused  of  everything  in  the  calendar,  and  work  himself 
night  and  day  to  do  the  best  he  can. for  his  State,  with  the  knowledge 
all  the  time  that  a  change  in.  the  political  power  or  the  expiration 
of  his  term  of  office  means  that  he  goes  forth  without  honor. 

And  what  is  the  result  ?  His  innermost  pride  is  affected,  because  he 
feels  that  if  he  has  done  his  duty  well,  the  least  reward  that  he  could 
have  would  be  a  reappointment  to  that  office,  and  3rou  will  find  that 
that  is  very  seldom  done..  I  did  not  have  an  opportunity  to  meet 
that  experience,  but  I  presume  I  might  have  had  it,  just:  the  same 
as  many  other  men  have  had  it;  and  that  is  the  reason  why  it  should 
be  eliminated  from  politics.  If  you  have  a  competent  man  there, 
keep  him  on  the  job.  That  is  what  I  was  taught  in  the  good  old  days 
in  New  England,  where  I  came  from,  in  eastern  Xew  England — that  if 
there  was  a  good  man  in  the  office  he  was  kept  there  as  long  as  he 
lived,  and  if  he  was  not  good  he  was  thrown  out,  and  that  applies 
to  the  public-service  commissions. 

Mr.  WARREN.  That  is  the  practice  of  our  public-service  commis- 
sion, I.  am  happy  to  say,  in  Massachusetts,  with  very  few  exceptions. 

Mr.  CARR.  I  would  not.  like  to  have  the  public  feel  that,  in  these 
days  at  least,  the  public-service  corporations  were  using  their  efforts 
all  the  time  to  prevent  good  men  from  getting  office,  or  that  they 
spent  their  time  in  the  halls  of,  the  legislature  trying  to  frame  up 
laws  for  their  benefit,  because  it  is  not  so;  and  I  know,  because  I 
have  represented  corporations. 

Mr.  WAKKEN.  I  agree  with  you  absolutely  on  both  of  those  propo- 
sitions. 

That  is  all,  Mr.  Chairman. 

Commissioner  SWEET.  What  is  your  business  now,  Mr.  Carr? 

Mr.  CAKK.  I  am  in  the  steel  business. 

Commissioner  SWEET.  In  Pittsburgh? 

Mr.  CARR.  Pittsburgh. 

Commissioner  SWEET.  You  are  not  connected  with  any  street-rail- 
way enterprise? 

Mr.  CARR.  I  have  no  interest  in  any  street  railway. 

Commissioner  SWEET.  You  know  something  about  the  Pennsyl- 
vania Commission,  I  suppose? 

Mr.  CAKR.  Nothing  whatever,  except  by  hearsay. 

Commissioner  SWEET.  Is  it  not.  generally  conceded  that  they  have 
a  good  commission  up  in  Pennsylvania? 

Mr.  CARR.  I  have  no  knowledge  of  it. 

Commissioner  SWEET.  You  made  a  comparison  between  the  horse- 
car  days  and  the  electric-car  days? 


852       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CARR.  Yes,  sir. 

Commissioner  SWEET.  And  I  think  you  said  that  for  a  nickel,  in 
the  horse-car  days,  a  man  could  ride  approximately  3  miles. 

Mr.  CARR.  If  he  went  from  one  end  of  the  road  to  the  other. 

Commissioner  SWEET.  If  he  went  from  one  end  of  the  road  to  the 
other? 

Mr.  CARR.  Yes,  sir. 

Commissioner  SWEET.  He  was  entitled,  if  he  wanted  to,  to  ride  3 
miles  for  a  nickel? 

Mr.  CARR.  Yes. 

Commissioner  SWEET.  And  after  the  roads  were  electrified,  he 
could  ride  about  12  miles  for  a  nickel? 

Mr.  CARR.  Yes. 

Commissioner  SWEET.  From  the  standpoint  of  the  rider  on  the 
street-cars,  that  would  seem,  certainly,  that  he  was  getting  about  4 
times  as  much  for  his  nickel  under  the  electric  system  as  under  the 
horse-car  system? 

Mr.  CARR.  He  was  getting  a  great  deal  more  than  4  times  as  much, 
because  he  was  getting  a  better  service  in  the  way  of  equipment  and 
time  and  every  other  respect. 

Commissioner  SWTEET.  But  in  miles  of  travel,  he  was  getting  4 
times  as  much? 

Mr.  CARR.  In  miles  of  travel,  he  was  getting  4  times  as  much,  if  he 
wanted  that. 

Commissioner  SWEET.  If  he  wanted  it. 

Mr.  CARR.  Yes. 

Commissioner  SWEET.  Now,  I  would  like  to  call  your  attention  to 
the  other  side  of  that  question — not  from  the  standpoint  of  the  street- 
car patron  or  rider  on  the  street-car,  but  from  the  standpoint  of  the 
company  operating  under  the  two  systems.  What  would  be  the  rela- 
tive expense  to  the  operating  company  to  run  the  3  miles  of  horse 
car  or  12  miles  with  electric  power? 

Mr.  CARR.  I  do  not  know  that  I  ever  saw  any  statistics  on  horse-car 
traffic.  I  could  not  say  how  much  it  might  cost  them.  It  is  all 
figured  out  in  car-miles,  in  passenger-miles. 

Commissioner  SWEET.  From  that  standpoint,  the  difference  would 
not  be  anything  like  it  would  be  from  the  standpoint  of  the  rider  on 
the  street-car;  would  it? 

Mr.  CARR.  The  cost? 

Commissioner  SWEET.  Yes. 

Mr.  CARR.  I  would  say  that  the  cost  of  the  12  miles  on  an  electric 
line  would  be  certainly  more  than  4  times  as  much  as  3  miles  of 
horse-car  line. 

Commissioner  SWEET.  Then,  the  cost  per  mile  of  electric  power 
•would  be  greater  than  the  cost  per  mile  of  horsepower  ? 

Mr.  CARR.  Oh,  there  is  no  question  about  that.  There  is  no  ques- 
tion about  it. 

Commissioner  SWEET.  So  that,  from  the  standpoint  of  the  street- 
railway  company,  then,  more  than  4  times  as  much  would  be  fur- 
nished for  the  nickel  than  in  the  horse-car  days  ? 

Mr.  CARR.  Absolutely. 

Commissioner  SWEET.  So  that,  then,  from  both  standpoints — the 
standpoint  of  the  rider,  he  would  get  more  than  4  times  as  much  for 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       853 

his  nickel,  and  from  the  standpoint  of  the  company,  which  would 
furnish  more  than  4  times  as  much  for  the  nickel — there  would  seem 
to  be  a  tremendous  change  after  the  roads  were  electrified? 

Mr.  CARR.  In  what  way? 

Commissioner  SWEET.  I  say,  from  both  standpoints. 

Mr.  CARR.  Well,  there  would  hardly  be  any  comparison  as  be- 
tween the  two. 

Commissioner  SWEET.  The  company  is  furnishing  four  times  as 
much  for  the  nickel,  and  the  rider  would  be  getting  four  times  as 
much  for  the  nickel. 

Mr.  CARR.  He  certainly  would;  and  of  course  it  should  be  borne 
in  mind  that  the  capital  invested  per  mile  was  almost  nothing  in 
the  horse-car  days  in  comparison  with  the  electric  roads. 

Commissioner  SWEET.  So  that  when  the  street  railroads  of  the 
country  were  changed  over  from  the  horse-car  system  to  the  electric 
system,  there  really  was  no  logic  or  fairness,  when  you  come  right 
down  to  it,  real  inherent  justice,  in  maintaining  the  nickel  fare; 
was  there  ? 

Mr.  CARR.  Well,  there  was  in  some  respects,  and  I  think  in  many 
respects  it  worked  satisfactorily,  and  the  companies  did  get  a  fair 
return  on  their  capital,  because,  with  better  equipment  and  more 
speedy  operation  and  larger  cars,  they  were  able  to  carry  a  great 
many  more  passengers  per  car-mile,  and  in  that  way  they  were  able 
to  increase  their  earnings  per  car-mile;  but  it  was  the  constant 
growth  of  the  main  body  or  the  company — that  is,  the  constant  ex- 
tension of  tracks,  here  and  there  and  elsewhere,  to  meet  the  expand- 
ing development  of  the  community  that  began  to  pull  the  companies 
down.  It  reached  a  certain  peak,  and  then  it  passed  over  that  peak, 
on  the  way  down.  It  began  to  give  more  and  more  and  more  for  less 
money,  and  then  the  transfer  system  came  in  on  top  of  that  in  many 
places.  For  instance,  in  the  city  of  Albany  they  did  not  have  any 
transfers  until,  I  think,  after  1905.  They  even  had  to  go  to  the 
legislature  to  get  transfers  in  the  city  of  Albany. 

Commissioner  SWEET.  Would  it  be  a  fair  statement  to  say  that 
from  the  inception  of  the  electric  street  railways,  there  had  been  a 
constantly  increasing  service,  without  a  proportionate  increase  of 
remuneration  ? 

Mr.  CARR.  Absolutely.  The  nickel  fare  was  in  force  in  the  State 
of  New  York,  as  I  recall  it,  as  far  back  as  1848.  I  may  be  wrong 
in  my  history,  but  I  went  into  the  thing  very  exhaustively,  and  it 
has  been  on  the  books  for  a  great  many  years,  originating  in  the 
city  of  New  York. 

Commissioner  SWEET.  And  no  jump  was  taken  when  the  roads 
electrified  ? 

Mr.  CARR.  Yes. 

Commissioner  SWEET.  But  from  that  time  on,  if  I  understand 
you  correctly,  there  has  been  a  tendency,  as  the  roads  have  ex- 
tended out  and  made  lateral  lines  and  have  given  transfers — there 
has  been  a  continuous  tendency  to  give  more  and  more  and  more  for 
the  nickel? 

Mr.  CARR.  Absolutely. 

You  have*here  the  reports  of  the  New  York  Commission,  and  if 
you  are  interested  in  connection  with  your  investigation  here  to 


854       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

read  the  opinion  sometime  that  I  wrote  in  the  Huntingdon  case,  you 
will  find  a  history  of  fares  in  the  State  of  New  York,  going  back 
as  far  as  1848 — and  I  do  not  know  but  what  it  is  longer — showing 
how  the  legislature,  at  different  times,  created  corporations,  street 
railway  corporations,  and  fixed  the  fare  when  the  charter  was 
granted.  That  case  gives  the  history  of  street  railways  in  the  State 
of  New  York,  and  it  is  very  illuminating,  showing  that  even  in 
the  old  days  it  was  considered  that  a  universal  fare  was  not  really 
intended  to  be  universal,  if  there  were  other  conditions  that  made 
it  desirable  to  fix  a  different  fare,  and  the  mere  fact  that  that  was 
stuck  into  the  statute  in  later  years  was  not,  to  my  mind,  with  the 
intention  that  every  street  railroad  throughout  the  State  of  New 
York  and  the  city  and  the  municipality  should  be  limited  to  a 
nickel  fare,  no  matter  how  much  it  might  extend  its  lines  in  that 
community,  but  the  courts  have  held  it  was  so,  provided  that  they  put 
it  in  the  franchise. 

Commissioner  SWEET.  It  is  quite  evident  from  what  you  say  that 
you  have  been  quite  a  student  of  this  question  for  a  number  of 
years. 

Mr.  CAKR.  Well,  many  who  have  been  in  the  public-utility  busi- 
ness can  answrer  that  better  than  I  can.  They  know.  I  have  been 
in  it  a  good  part  of  my  life,  and  until  I  quit  the  New  York  Commis- 
sion I  made  a  speciality  of  it. 

Commissioner  SWEET.  Well,  it  would  be,  perhaps,  immodest  for 
you  to  admit  what  I  have  just  said,  but  it  is  quite  evident  that  that 
is  the  fact  just  the  same,  and  on  that  supposition  I  want  to  ask  you 
this:  During  the  period  of  your  acquaintance  with  the  street-railway 
companies  have  you  observed  a  tendency  to  antagonism,  a  sort  of 
conflict,  between  the  general  public  and  the  street  railways  on  the 
one  side,  trying  to  get  more  and  more  for  the  nickel,  and  on  the 
other  side  in  trying,  perhaps,  in  a  defensive  attitude,  to  prevent  the 
public's  carrying  it  too  far? 

Mr.  CARR.  I  think  you  will  find  that  this  has  been  the  experience, 
that  the  initiative  in  the  development  of  the  street  railways  has  usu- 
ally come  from  the  corporation,  which  has  showed  a  disposition  to 
develop  and  extend  its  lines.  In  some  instances,  the  initiative  has 
been  taken  by  the  community,  but  in  most  instances  I  think  you  will 
find  that  the  initiative  came  first  from  the  corporation,  and  then 
there  was  a  struggle  for  a  franchise.  I  do  not  say  that  there  has 
been  antagonism,  because  I  do  not  think,  in  the  average  instance, 
there  has  been  antagonism.  The  people  have  wanted  the  street-rail- 
way lines  extended,  and  unless  there  was  a  good  deal  of  politics  in- 
volved, as  a  rule  the  franchise  for  the  extension  was  granted.  In 
the  good  old  days  when  there  was  a  good  deal  of  graft,  so  the}7  say — 
I  don't  know  anything  about  that — in  connection  with  the  street 
railway  franchises;  but  that,  as  a  rule,  wfas  in  the  initial  stage 
of  the  development  and  before  the  road  had  been  built,  not  so  far  as 
related  to  extensions,  but  the  existing  road.  The  municipalities 
usually  endeavored  to  throw  as  many  conditions  around  the  construc- 
tion of  an  extension  or  a  new  line  as  they  possibly  could,  but  ordi- 
narily they  set  forth  in  the  franchise  the  conditions  that  are  set 
forth  in  the  statutes ;  and  I  think  you  will  find  throughout  the  State 
of  New  York  that  the  bulk  of  the  franchises  that  have  been  granted 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       855 

in  the  past  25  years,  outside  of  the  greater  city,  do  not  embody  much 
more  than  the  conditions  attached  to  the  franchise  than  are  eon- 
tamed  in  the  statute  itself. 

Commissioner  SWEET.  You  have  alluded  to  the  political  pressure 
that  is  brought  to  bear  upon  the  appointing  power  with  regard  to 
State  commissions.  Under  the  plan  advocated  by  ex-Gov.  Foss  of 
public  ownership  have  you  any  reason  to  think  there  will  be  any  less 
pressure  brought  to  bear  upon  the  appointing  power  in  connection 
with  the  choice  of  managers  and  thousands  of  others  who  would  be 
outside  of  the  civil  service  or  a  great  number  who  would  be  employed 
in  connection  with  street-railroad  operation? 

Mr.  CARR.  I  firmly  believe  that  public  ownership  in  this  country 
will  never  be  successful,  so  long  as  we  have  our  present  form  of 
government. 

Commissioner  SWEET.  You  think  that  those  charged  with  the  duty 
of  appointing  would  have  pressure  brought  to  bear  upon  them  to 
such  an  extent  that  they  would  appoint  political  friends? 

Mr.  CARR.  Well,  they  might  not  appoint  a  political  friend  so  much 
as  they  would  appoint  men  that  they  were  urged  to  appoint  by  po- 
litical friends,  and  then  what  would  be  the  incentive  ?  The  average 
man  that  holds  a  political  job  knows  that  sooner  or  later  he  is  going 
to  get  out. 

Commissioner  SWEET.  That  is  all. 

Commissioner  MEEKER.  How  about  public  regulation  under  our 
present  system ;  is  it  possible  to  work  that  ? 

Mr.  CARR.  I  think  public  regulation  can  work,  and  it  has  worked 
veiT  well.  Of  course,  it  has  its  evils. 

Commissioner  MEEKER.  We  have  heard  some  pretty  severe  bumps 
handed  to  it  to-day. 

Mr.  CARR.  Of  course,  you  have  always  to  consider  that  some  of  the 
people  that  do  the  bumping  also  have  their  grievances. 

In  1907,  when  the  New  York  Commission  was  formed,  I  might  say 
that  a  great  many  people  with  whom  I  was  associated  were  opposed 
to  it,  but  I  was  very  much  in  favor  of  it,  because  I  felt  I  saw  what 
was  coming,  and  I  tried  all  I  could  to  help  make  it  a  law  in  my  feeblo 
way,  and  I  believe  if  you  would  put  it  to  a  vote  of  the  public-service 
companies  in  the  State  and  ask  them  whether  they  would  go  back  to 
the  old  days,  they  would  tell  you  that  they  would  prefer  to  have  the 
regulation  exactly  as  they  were  having  it  to-day.  Now,  I  may  be 
wrong,  but  that  is  what  they  have  told  me. 

Commissioner  MEEKER.  What  is  the  difference  between  the  politics 
that  affects  the  public  regulators  to-day  and  the  politics  that  would 
affect  the  public  operators  in  case  of  public  ownership  and  operation, 
or  the  public  regulators  under  public  ownership  and  private  opera- 
tion? 

Mr.  CARR.  Well,  all  I  can  speak  for  is  the  commission  I  was  with. 
We,  in  the  words  of  the  President,  adjourned  politics.  We  elimi- 
nated politics  entirely  from  our  operations. 

The  CHAIRMAN.  Is  it  not  true,  Mr.  Carr,  that  although  some  of 
the  public  service  commissioners  may  be  politicians,  and  they  may 
be  appointed  for  political  purposes,  yet,  when  it  comes  to  the  ques- 
tion of  appointing  their  expert  men.  their  expert  rate  men,  engineers, 
etc.,  they  always  look  for  the  best  men  in  the  field  that  can  be  se- 
cured? 


856       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CARR.  I  think  that  it  true. 

The  CHAIRMAN.  And  is  it  not  also  true  that  these  public  commis- 
sioners very  generally  respect  the  recommendations  and  follow  the 
recommendations  of  their  expert  forces  in  matters  coming  before 
them  ? 

Mr.  CARR.  I  think  it  is. 

The  CHAIRMAN.  Is  not  that  the  answer  to  the  situation?  ' 

Mr.  CARR.  It  is  largely,  except  that  I  do  not  like  to  see  a  man  in 
a  regulating  position  that  relies  on  his  subordinates  for  his  knowl- 
edge or  for  his  action.  I  think  a  man  who  is  a  commissioner  and 
holds  that  important  position  should  be  the  man  that  takes  the  re- 
sponsibility. 

The  CHAIRMAN.  Oh,  sure.  There  is  evidence  on  both  sides;  but 
where  there  is  a  conflict  of  testimony  he  has  to  pay  a  good  deal  of 
attention  to  the  recommendations  made  by  the  men  he  hires  and  who, 
in  his  judgment,  he  can  absolutely  depend  upon. 

Mr.  CARR.  That  is  absolutely  true. 

Commissioner  MEEKER.  Would  it  work  any  differently  under  public 
ownership?  Is  the  difference  really  one  of  decree  or  one  of  the  size 
of  the  job,  or  is  there  some  sort  of  difference  between  public  owner- 
ship and  public  regulation? 

Mr.  CARR.  Well,  that  is  a  very  difficult  question  for  me  to  answer. 

Commissioner  MEEKER.  Well,  you  have  had  more  particular  ex- 
perience on  that  particular  point  than  anybody  that  has  yet  appeared 
before  us.  You  have  served  on  a  public-service  commission,  and  you 
have  been  actually  engaged  in  operating  public  utilities,  as  I  under- 
stand. 

Mr.  CARR.  Well,  there  is  a  difference,  as  you  can  readily  see.  If 
there  was  a  question  of  public  ownership,  what  would  enter  into  it? 
What  would  be  the  function  of  the  regulator  then?  And  what 
would  bring  up  the  questions  as  to  regulation;  who  would  bring 
them  up  ? 

Commissioner  BEALL.  Is  it  not  one  of  the  answers,  Mr.  Carr,  that 
in  a  large  or  fairly  large  city,  instead  of  five  commissioners  or  three 
or  seven,  or  whatever  it  may  be,  you  have  a  certain  commission  of 
regulators,  and  they  perhaps  employ  thousands  of  men? 

Mr.  CARR.  Yes. 

Commissioner  BEALL.  Each  one  of  those  thousands  of  men  have 
members  of  their  family  and  friends  who  are  all  pulling  for  their 
relative's  advance,  so  that  the  men  who  regulate  under  municipal 
control  would  be  harassed  by  people  wanting  some  friend  appointed 
or  his  pay  increased,  or  some  favor  granted,  and  that  is  a  hundred 
times  more  influence  than  there  would  be  in  the  case  of  a  public 
service  commission,  is  not  that  true? 

Mr.  CARR.  Yes ;  I  think  that  would  be  so. 

Commissioner  BEALL.  That  is  just  one  basis  of  the  difficulty  ? 

Mr.  CARR.  The  whole  thing  is  so  interwoven  that  when  you  make 
an  analysis  of  it,  it  opens  up  such  a  tremendous  subject  that  it  is 
extremely  difficult  for  me  to  say  what  would  or  would  not  happen. 
I  draw  my  conclusions  from  my  observations. 

Commissioner  BEALL.  Well,  is  it  not  true  that  if  you  were  on  a 
commission  and  were  running  a  property,  for  instance,  for  a,  large 
city,  instead  of  having  just  one  assistant  secretary  to  appoint,  as 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       857 

happened  at  one  time,  there  might  be  a  thousand  positions  to  be 
filled? 

Mr.  CARR.  That  would  all  depend  upon  how  large  the  community 
was. 

Commissioner  BEALL.  Well,  I  am  considering  everything,  of 
course — conductors  and  motormen,  and  clerical  force. 

Commissioner  MEEKER.  You  may  have  civil  service  with  public 
ownership  and  operation. 

Mr.  CARR.  Civil  service  is  all  right,  as  far  as  it  goes,  as  long  as  it 
gets  the  man  to  do  the  work  he  is  supposed  to  do,  but  he  does  not 
seem  to  have  the  initiative  that  he  does  when  he  works  for  a  private 
corporation 

The  CHAIRMAN.  You  are  excused,  Mr.  Carr. 

Mr.  WARREN.  I  am  much  obliged  to  you,  Mr.  Carr. 

STATEMENT  OF  MR.  RICHARD  SCHADDELEE. 

Mr.  WARREN.  Will  you  give  your  full  name,  Mr.  Schaddelee  ? 

Mr.  SCHADDELEE.  Richard  Schaddelee. 

Mr.  WARREN.  Are  you  in  the  street-railway  industry  ? 

Mr.  SCHADDELEE.  Yes,  sir. 

Mr.  WARREN.  And  what  position  and  with  what  company  ? 

Mr.  SCHADDELEE.  Well,  I  have  the  general  supervision  of  the  man- 
agement of  several  street-car  companies  and  interurban  companies. 

Mr.  WARREN.  Where  are  they  located  ? 

Mr.  SCHADDELEE.  They  are  located  in  Illinois,  in  Ohio,  and  in 
Michigan. 

Mr.  WARREN.  Is  there  a  public-utilities  commission  or  regulating 
commission  in  each  of  those  States? 

Mr.  SCHADDELEE.  No ;  only  in  Illinois  and  Indiana.  Well,  there  is 
one  in  Michigan  also,  but  the  commission  of  Michigan  has  no  juris- 
diction of  rates  of  utilities,  except  where  there  are  no  existing  fran- 
chises. 

Mr.  WARREN.  And  have  you  any  existing  franchises  in  connection 
with  your  companies  in  Michigan? 

Mr.  SCHADDELEE.  Well,  we  have  no  street  railways  in  Michigan; 
only  interurbans.  Now,  in  Michigan,  the  legislature  has  not  the 
power  to  regulate  the  rates  of  interurban  railroads. 

Mr.  WARREN.  The  commission  has  not? 

Mr.  SCHADDELEE.  No,  sir;  because  the  constitution  of  Michigan  has 
a  provision  that  does  not  permit  the  legislature  to  delegate  to  any 
commission  the  power  to  regulate  the  charges  for  the  transportation 
of  persons. 

Mr.  WARREN.  Then  we  will  drop  Michigan. 

Mr.  SCHADDELEE.  Yes. 

Mr.  WARREN.  Because  that  is  not  in  the  case.  Now,  in  Illinois  the 
commission  has  authority  to  regulate  rates? 

Mr.  SCHADDELEE.  Yes,  sir. 

Mr.  WARREN.  And  in  Indiana  it  has  authority  to  regulate  rates? 

Mr.  SCHADDELEE.  Yes,  sir. 

Mr.  WARREN.  Have  you  had  occasion  to  appear  before  both  of 
these  commissions  on  matters  of  rate  regulation? 

Mr.  SCHADDELEE.  Yes,  sir. 

IOOC430— 20 55 


858       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  WARREN.  More  than  once  ? 

Mr.  SCHADDELEE.  Yes,  sir. 

Mr.  WARREN.  And  what  has  been  your  experience  with  the  regu- 
lation of  rates  in  each  of  those  States?  Take  them  up  in  any  order 
you  please,  with  particular  reference  to  the  length  of  time  that  it 
lias  taken  to  get  decisions,  and  anything  else  that  you  think  ought  to 
be  called  to  the  attention  of  this  commission. 

Mr.  SCHADDELEE.  Well,  Mr.  Warren,  I  have  prepared  a  paper  here 
wherein  I  cover  that.  Possibly  I  had  better  read  that  to  the  commis- 
sion. Then  they  will  know  just  what  the  experience  has  been.  Other- 
wise we  might  have  repetition  here. 

Mr.  WARREN.  Well,  if  it  is  not  long.  If  it  is,  I  would  like  to  ask 
you  to  summarize  it,  taking  the  prominent  features  of  it.  You  can 
do  it  better  than  I. 

Mr.  SCHADDELEE.  Well,  I  think  I  can  read  it  here,  and  I  think 
everybody  will  know  something  about  our  experience  and  also  some- 
thing about  our  ideas  about  commission  regulation. 

Mr.  WARREN.  All  right ;  you  may  go  right  ahead. 

Mr.  SCHADDELEE.  Mr.  Chairman  and  members  of  the  commission, 
I  have  never  held  public  office.  I  do  not  aspire  to  have  public  office. 
Hence,  I  will  address  myself  to  you  and  not  to  the  proletariat  on  the 
floor,  because  they  know  more  about  these  matters  than. I  do. 

Mr.  WARREN.  I  hope  you  are  not  reflecting  on  any  fellow-citizens 
of  mine  from  Massachusetts,  Mr.  Schaddelee.  [Laughter.] 

Mr.  SCHADDELEE.  During  February,  1918,  the  President,  the  Sec- 
retary of  State,  and  the  Comptroller  of  the  Currency  of  the  United 
States  issued  an  open  letter  urging  the  various  rate-regulating  bodies 
to  give  prompt  and  adequate  relief  to  the  utilities  under  their  juris- 
diction, where  need  for  relief  was  reasonably  shown.  The  primary 
purpose  of  these  appeals  by  the  Government  was  to  enable  these 
utilities  to  function  efficiently  and  adequately  in  response  to  the 
enormous  increased  demand  for  utility  service  caused  by  the  condi- 
tions created  by  the  war.  The  Government  realized  the  vast  im- 
portance of  this  in  its  prosecution  and  winning  of  the  war. 

Previous  to  this  time  the  utilities  as  a  whole  had  patriotically  and 
enthusiastically  responded  to  the  demands  for  increased  service  and 
facilities,  and  many  had  strained  their  credit  to  or  beyond  the  break- 
ing point  in  raising  the  vast  sums  needed  for  additional  service, 
facilities,  and  equipment.  The  interests  of  the  investors  were  rele- 
gated as  of  secondary  importance  to  the  winning  of  the  war  and  to 
patriotic  duty. 

In  August,  1918,  a  street-car  company  filed  with  a  State  com- 
mission a  rate  schedule  providing  for  a  6^-cent  car  fare  to  replace  the 
existing  5-cent  fare.  After  a  so-called  valuation  of  the  visible  physi- 
cal assets  of  the  company  by  the  engineers,  a  long-drawn-out  audit  of 
the  books  by  the  auditors,  and  after  several  hearings  the  commission 
finally  decided,  on  July  9,  1919,  that  the  company  did  not  need  relief. 

Mr.  WARREN.  When  was  the  petition  filed  ? 

Mr.  SCHADDELEE.  The  petition  was  filed  in  August,  1918. 

Mr.  WARREN.  That  was  about  11  months  back? 

Mr.  SCHADDELEE.  Yes;  a  little  over  11  months.  Thus  the  idea  of 
promptness  of  this  commission  in  a  decision  in  one  year's  time  from 
filing  of  application,  and  its  idea  of  adequate  relief  is  no  relief  at 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       859 

all.  This  is  given  merely  as  a  very  recent  illustration  of  the  failure 
of  some  commissions  to  be  responsive  to  even  national  emergencies. 
The  street  railway  company  in  question,  however,  spent  during  1917 
and  the  first  six  months  of  1918  a  quarter  of  a  million  dollars  for 
new  cars  and  additional  equipment  to  take  care  of  the  war  needs  of 
the  community,  which  resulted  in  the  manufacturers  being  able  to 
take  on  all  war  contracts  secured.  The  company  considered  the  needs 
of  the  Government  and  the  community  first,  trusting  in  the  fairness 
and  justice  of  the  commissions  to  give  it  prompt  and  adequate  relief 
in  the  matter  of  rates.  Some  commissions'  laws  make  it  mandatory 
for  the  commissions  to  inquire  into  the  reasonableness  of  rates  and 
the  conditions  of  utilities,  on  their  own  initiative,  while  others  em- 
power the  commissions  to  initiate  investigations.  I  do  not  know 
of  a  single  case  where  a  commission  has  ever  exercised  this  initiative 
power. 

The  failure  of  commissions  and  other  rate-regulation  bodies  to  ad- 
equately protect  utilities  and  grant  them  the  relief  necessary  to 
enable  them  to  maintain  good  and  adequate  service,  as  exemplified 
by  the  present  condition  and  future  prospects  of  the  electric  rail- 
way's is,  in  my  opinion,  due  to  the  personnel  of  these  commissions, 
their  manner  of  appointment,  and  the  influences  they  are  subject  to 
much  more  than  the  laws  themselves.  The  object  of  the  people  in 
passing  these  laws  through  the  legislatures  of. the  various  States 
was  to  insure  the  public  good  and  adequate  service  at  rates  reason- 
able and  fair  to  both  the  customers  of  and  the  investors  in  these 
utilities.  Ultimately,  a  fare  that  is  not  adequate  or  fair  to  the 
utility  is  not  fair  or  adequate  to  the  public,  for  the  reason  that 
an  inadequate  fare  results  ultimately  in  inadequate  service  and 
facilities. 

I  am  sure  the  American  people  desire  that  the  utilities  serving 
them  shall  be  empowered  to  collect  a  charge  or  fare  that  will  enable 
them  to  earn  their  fair  and  reasonable  operating  expenses,  taxes, 
depreciation,  etc.,  and  in  addition  a  sufficient  rate  of  net  return 
on  their  investment  to  make  the  investment  in  street  railways  at- 
tractive to  the  investor.  The  people  know  that  only  on  that  basis 
will  the  street  railways  be  able  to  extend  and  improve  their  prop- 
erties, and  have  them  keep  pace  with,  or  abreast  of,  the  growth  of 
the  communities,  and  the  increasing  demands  of  the  public  for  more 
adequate  and  superior  service. 

Previous  witnesses  have  given  your  committee  a  comprehensive 
statement  of  the  present  deplorable  conditions  existent  in,  and  the 
even  more  alarming  future  confronting  the  electric-railway  industry. 
They  have  reviewed  the  many  factors  that  are  responsible  for  this 
present  status. 

The  program  committee,  as  I  understand  it,  desires  me  to  analyze 
the  basic  reasons  as  to  why  the  various  regulating  bodies,  especially 
the  State  commissions,  have  failed  to  accomplish  the  objects  for 
which  they  were  created,  viz : 

First.  To  regulate  these  companies  in  such  a  manner  as  to  enable 
them  to  continue  to  render  reasonable  and  satisfactory  service  to 
the  public. 

Second.  To  enable  them  to  obtain  the  monev  needed  to  make  ex- 
tensions and  improvements  required  by  the  growth  of  the  communi- 
ties and  the  increasing  use  of  service  by  the  public. 


860       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Third.  To  enable  them  to  earn  a  reasonable  return  on  their  invest- 
ment. 

Of  all  the  factors  to  which  the  present  critical  condition  of  the 
electric  lines  has  been  attributed  there  is  only  one  against  which  the 
commissions  can  not  afford  us  protection.  This  single  exception  is 
the  competition  of  the  private  automobile,  and  this  factor  is  the  one 
that,  in  my  opinion,  is  least  responsible  for  our  critical  illness.  The 
automobile  has  fastened  the  riding  habit  on  the  public,  has  accus- 
tomed it  to  rapid  transit  and  thus  has  been  rather  beneficial  to  us 
than  otherwise. 

The  electric  lines  which  I  am  connected  with  or  have  knowledge  of 
are  collecting  more  street-car  fares  now  than  ever  before.  Our  gross 
business  is  very  satisfactory  and  will  continue  to  increase  if  we  re- 
ceive enough  money  to  restore  our  credit  with  the  investors. 

The  electric  railways  are  not  sick  and  will  not  die  by  reason  of 
being  economically  or  evolutionarily  obsolete,  or  superannuated,  nor 
by  reason  of  natural  decay.  If  these  were  the  causes  of  our  illness, 
or  if  we  were  threatened  with  extinction  by  a  superior  mode  of  loco- 
motion that  can  better  perform  our  functions  under  the  same  restric- 
tion as  to  fares,  and  under  the  same  requirements  as  to  service,  taxes, 
etc.,  then  in  that  case  it  would  be  useless  to  ask  or  request  for  relief. 
For  no  private  interests  can  successfully  resist  real  economic 
evolution. 

Electric  railways  are  now  more  necessary  to,  and  enter  more  inti- 
mately into  the  social  and  industrial  life  of  our  urban,  suburban,  and 
interurban  population  than  ever  before,  even  if  a  small  percentage  of 
this  population  is  not  now  as  exclusively  dependent  upon  electric- 
railway  transportation  as  it  was  10  or  20  years  ago. 

The  automobile  has  been  a  great  factor  in  relieving  congestion  in 
cities  by  encouraging  suburban  and  interurban  residence.  These 
people  feel  that  the  automobile  makes  them  independent  of  the  elec- 
tric lines,  yet  they  will  use  them  habitually,  using  their  car  or  our 
cars  as  their  convenience  or  caprice  dictates. 

No,  gentlemen,  the  present  critical  illness  and  the  impending  death 
of  the  electric  lines  are  not  due  to  natural  causes. 

We  are  ill,  even  unto  death,  entirely  by  reason  of  an  artificial  cause 
and  that  is :  Insufficient  financial  nourishment. 

If  you  agree  with  me  so  far,  especially  as  to  my  diagnosis,  then  you 
will  also  agree  with  me  that  there  are  two  remedies  that  can  effect  a 
permanent  real  cure,  viz : 

First.  An  adequate  increase  in  the  quantity  of  our  financial  nour- 
ishment, or, 

Second.  An  adequate  decrease  in  our  output  of  energy,  which 
means  in  our  service. 

A  cure  is  possible  by  an  adequate  increase  in  our  fares  alone,  but  if 
a  decrease  in  service  is  to  be  employed  as  a  remedy,  it  must  be  admin- 
istered in  combination  with  an  increase  in  fares  in  order  to  effect  a 
real  cure. 

A  man  who  suffers  from  lack  of  sufficient  food  does  not  need  medi- 
cine. He  needs  a  sufficient  quantity  of  food.  That  is  what  we  need 
and  must  have  if  we  are  to  survive. 

State  commissions  were  established  because  the  people  were  dis- 
satisfied with  the  results  of  utility  operation  under  franchise  restric- 
tions or  under  regulation  by  local  municipal  councils. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       861 

The  people  did  not  enjoy  the  spectacle  of  these  franchises  or  the 
regulating  ordinances  of  their  councils  being  made  and  dictated 
largely  by  local  political  and  factional  interests.  The  American 
people,  especially  the  American  worMngmen,  are  intelligent  and  have 
a  passionate  desire  for  fairness,  justice,  and  fair  play,  and  they  can 
be  depended  upon  to  be  on  the  side  of  right  and  justice  once  they 
thoroughly  understand  the  merits  of  a  controversy  or  proposition. 

They  do  not  like  to  see  a  purely  economic  problem,  affecting  their 
personal  and  vital  interests,  degenerate  into  a  political  problem  and 
become  a  political  football. 

Whatever  the  intent  or  motives  were  of  the  legislature  who  enacted 
these  laws,  I  am  convinced  that  I  have  stated  accurately  the  motives 
and  intent  of  the  large  majority  of  the  people. 

The  people  knew  that  the  political  manhandling  of  utility  prob- 
lems nearly  always  inflicted  injustice  upon  either  the  public  or  upon 
the  utility  and  often  upon  both. 

They  were  convinced  that  no  modus  vivendi  could  be  thus  estab- 
lished that  would  be  fair  and  equitable  to  both  parties. 

Regulation  of  utilities  was  n-eessary,  the  people  felt,  not  only  for 
their  own  protection  but  also  for  the  protection  of  the  utilities. 

The  people  were  convinced  that  such  regulation  must  be  done  by 
men  possessing  the  experience,  education,  judicial  temperament,  in- 
tegrity of  character,  and  absolute  fearlessness  necessary  to  intelli- 
gently and  justly  exercise  such  regulatory  power.  Therefore,  the 
people  established  these  State  commissions  with  practically  unlim- 
ited power  and  authority  over  the  utilities. 

I  am  sure  that  your  committee  is  now  convinced  that  these  com- 
missions as  a  whole  have  wholly  failed  to  live  up  to  expectations  and 
the  intent  of  the  people  in  establishing  said  commissions. 

Inasmuch  as  the  commissions  were  given  unlimited  authority,  they 
must  now  assume  full  responsibility  fqr  their  failure.  Xo  man 
accepting  authority  can  escape  or  deny  responsibility.  The  one 
implies  the  other. 

We  must  now  examine  into  the  reasons  of  the  failure  of  these 
commissions  to  attain  the  object  for  which  they  were  established. 

The  CHAIRMAN.  The  commission  feels  that  it  will  derive  just  as 
much  benefit  from  your  testimony  if  you  will  file  your  statement. 

Mr.  SCIIADDELEE.  All  right. 

The  CHAIRMAN.  And  then  just  tell  us  briefly  what  your  experi- 
ences have  been  in  dealing  with  the  commissions. 

Mr.  SCIIADDELEE.  All  right.    That  is  very  satisfactory. 

The  CHAIRMAN.  I  think  that  will  work  out  very  well  and  give 
you  a  double  whack  at  it. 

The  statement  continues  as  follows: 

Before  doing  so,  allow  me  to  emphasize  that  throughout  my  entire  paper  I 
have  in  mind  those  companies  that  are  well  operated,  economically  managed, 
and  honestly  financed.  It  is  not  my  intent  to  hold  the  commissions  responsible 
for  utility  companies'  ills  that  are  due  to  inefficient  management  or  reckless 
financing. 

The  results  of  these  must  he  borne  by  the  companies  themselves,  and  it  is 
the  duty  of  the  commissions  to  see  that  the  people  are  not  made  to  suffer  from 
them.  If  there  are  any  such  companies,  I  am  sure  they  are  very  few  in  number 
and  need  not  be  considered  here. 

The  failure  of  the  commissions  to  function  effectively  is  due  to  many  and 
widely  different  causes. 


862       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

All  commissions  have  done  some  good  work  and  there  are  many  able, 
conscientious,  capable,  and  fearless  members  on  these  commissions. 

I  have  no  grudge  against  any  individual  member  of  a  commission  nor  are 
my  criticisms  or  remarks  addressed  to  the  commissioners  as  individuals. 

I  am  considering  each  commission  as  a  separate  body  and  all  the  commis- 
sions together  as  one  unit. 

Also,  I  am  convinced  that  the  failure  of  the  commissions  can  not  be  laid  at 
the  door  of  any  individual  commissioner.  We  are  not  dealing  in  personalities. 
We  are  dealing  with  complete  governmental  bodies  or  departments,  if  you  will. 

The  main  reason  for  the  failure  of  the  commissions  to  function  effectively 
is  the  fact  that  they  have  not  been  immune  from  political  influence  as  the 
people  expected  they  would  be. 

This  summer,  in  at  least  two  States,  to  my  personal  knowledge,  numerous 
bills  were  introduced  to  either  abolish  these  commissions  or  otherwise  to 
greatly  curtail  their  power.  In  one  State  the  commissioners  were  compelled 
to  defend  themselves  against  the  most  ridiculous  charges  prepared  against 
them  by  municipal  officials  and  contemptible,  self-seeking  politicians. 

The  mayor  of  one  city  bitterly  and  unjustly  attacked  the  commissioners, 
and  then  sought  reelection  as  mayor  shortly  afterwards,  appealing  to  the 
people  to  vote  for  him  and  he  would  see  to  it  that  the  commission  would  be 
abolished,  that  car  fares  would  not  be  raised,  etc. 

In  the  primaries  this  man  was  snowed  under,  being  the  low  man  of  three 
candidates.  Which  indicates  how  the  people  feel  about  these  matters. 

These  commissioners  are  but  human.  As  a  rule  they  like  to  retain  their 
positions,  and  under  the  conditions  cited  they  can  not  be  expected  to  make 
purely  judicial  decisions,  without  fear  or  favor. 

If  they  are  to  function  effectively,  they  must  be  absolutely  removed  from 
political  influence  and  they  must  be  secure  in  their  tenure  of  office  as  long  as 
they  execute  their  duties  ably,  justly,  and  fearlessly. 

Under  present  conditions  the  commissions  have  no  backbone,  they  have  no 
courage,  they  are  not  free  agents.  They  are  much  more  influenced  by  what 
the  local  politicians  and  officials  are  saying  than  by  what  the  people  are 
thinking. 

They  hear  the  vaporings  of  designing  politicians,  but  they  do  not  know 
what  the  people  are  thinking. 

The  local  politicians  themselves  are  usually  entirely  wrong  as  to  what  the 
people  desire  in  these  matters,  as  they  are  much  more  influenced  by  what 
50  people  tell  them  than  by  what  50,000  people  do  not  tell  them.  The  great 
majority  of  the  American  people  do  not  spend  their  time  telling  local  poli- 
ticians what  their  ideas  are  on  these  subjects. 

The  local  politicians  are  usually  wrong  in  their  interpretation  of  the 
people's  attitude  on  these  matters  and  the  commissioners  are  unduly  in- 
fluenced by  the  local  politicians. 

The  commissions  show  by  their  actions  and  decisions  that  they  are  con- 
sciously or  unconsciously  dominated  by  the  theory  that  their  duties  are  much 
more  largely  toward  the  people  than  toward  the  company,  and  that  the  people 
established  them  mainly  as  rate-reducing  bodies  instead  of  rate-regulating 
bodies. 

Rate  increases  were  practically  unknown  before  the  war  and  the  habit  of 
reducing  rates  like  other  habits  is  not  easy  to  break. 

Rate  reductions  have  been  made  with  more  alacrity  than  rate  increases. 

Reduced  rates  are  put  in  effect  for  indefinite  periods.  Rate  increases  are 
authorized  for  one  year  or  for  six  months,  and  the  companies  are  required 
to  file  quarterly  or  monthly  statements  with  the  commissions  and  with  the  mu- 
nicipalities, so  that  as  soon  as  the  company  shows  its  head  above  water,  a 
properly  administered  kick  will  again  submerge  it. 

These  conditions  have  paralyzed  all  incentive  to  economy  in  the  utility 
business,  and  no  staple  financial  conditions  can  be  created  until  they  are 
remedied. 

The  biggest  handicap  to  a  utility  is  to  appear  before  a  utility  commission 
with  a  record  and  data  showing  effective  operation  and  careful,  economical 
management. 

You  will  receive  verbal  commendation  but  a  lower  rate  than  another  com- 
pany not  so  well  operated  or  managed. 

There  is  really  now  no  incentive  to  economy,  nor  any  incentive  to  spend 
efforts  and  money  to  stimulate  expansion  of  the  business. 

If  you  spend  money  in  improved  equipment  to  effect  material  economics  in 
operation,  and  thus  increase  your  rate  of  return  over  the  6  per  cent  or  7  per 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION,       863 

cent  allowed  you,  the  commission  will  eventually  confiscate  this  excess  and 
maybe  more,  and  will  also  confiscate  part  of  the  capital  you  have  invested  to 
procure  these  economics,  fixing  a  so-called  depreciated  value  on  the  property 
representing  this  capital. 

In  applications  for  increased  fares  or  rates  the  commissions  examine  too 
much  in  the  past  and  not  enough  in  the  future  or  present. 

They  are  willing  to  base  their  decisions  on  anticipated  decreases  in  the  cost 
of  labor  and  material,  but  never  on  anticipated  increases  in  the  cost  of  these 
items. 

They  apparently  do  not  realize  that  a  man's  condition  during  the  last 
year  or  last  five  years  does  not  affect  his  need  for  prompt  treatment  and 
relief  if  he  is  sick  now.  If  a  man  is  hungry  to-day  you  can  not  withhold  food 
from  him,  while  you  spend  six  months  or  longer  investigating  whether  he 
had  sufficient  food  during  the  last  year  or  last  five  years. 

Yet.  that  is  the  usual  method  of  commission  procedure.  That  was  the  basis 
of  the  decision  I  mentioned  at  the  beginning  of  my  paper. 

Neither  they  nor  the  War  Labor  Board  seem  to  understand  that  there  is  a 
physical  law  which  is  also  an  economic  law,  viz,  that  the  total  outgo  can  not 
be  in  excess  of  the  income.  That  is  the  reason  we  denied  the  right  of  the  War 
Labor  Board  to  fix  the  wages  we  shall  pay  unless  they  or  some  other  authority 
can  at  the  same  time  regulate  our  income  to  enable  us  to  pay  the  increased 
wages. 

Yet  my  sympathies  are  all  with  our  workingmen.  They  have  been  and  are 
now  in  the  same  position  as  we  are,  or  nearly  so. 

The  local  authorities  and  the  commissions  must  be  made  to  realize  that 
if  they  withhold  prompt  and  adequate  relief  from  us,  they  are  also  withhold- 
ing prompt  and  adequate  relief  from  our  workingmen  and  all  of  our  employees. 

They  must  be  made  to  realize  that  commodity  prices  have  not  yet  reached 
the  top,  and  that,  under  our  economic  system,  the  price  of  labor  follows  the 
upward  trend  of  commodities  and  does  not  precede  it,  while  on  the  downward 
trend  the  reverse  is  true.  So  we  are  facing  increases  in  the  cost  of  labor ; 
labor  must  have  and  is  entitled  to  increases,  and  both  the  people  and  their 
representatives,  as  well  as  labor  itself  must  recognize  that  the  real  em- 
ployers of  labor  who  must  pay  these  increased  wages  are  the  patrons  of  these 
utilities. 

The  duties  of  commiasions  to  the  utilities  and  to  the  people  are  not  fulfilled 
if  they  allow  them  enough  to  keep  the  breath  of  life  in  them ;  if  they  allow 
them  not  enough  to  live  and  too  much  to  die. 

They  must  be  liberal  in  the  rate-making  basis  they  fix  for  them,  liberal  in 
the  rate  they  allow  them ;  prompt  in  granting  relief  where  reasonably  shown 
it  is  needed,  and  then  exact  first-class  service  and  aJl  necessary  improvements 
and  extensions. 

The  utilities  and  capital  will  respond  to  this  kind  of  a  program  and  the 
people  will  support  it.  The  fact  that  a  commission  decides  that  a  6  per  cent 
or  7  per  cent  investment  is  reasonable  does  not  compel  an  investor  to  accept 
that  view  and  cause  him  to  invest  his  money  on  that  basis. 

Commissions  have  apparently  acted  on  the  theory  that  if  they  say  a  6  per 
cent  or  7  per  cent  is  reasonable  that  this  became  law  to  the  Investor. 

Neither  the  commissions,  nor  the  legislatures,  nor  Congress,  nor  the  courts, 
nor  the  President,  can  compel  the  flow  of  capital  in  directions  where  capital 
does  not  desire  to  go. 

This  is  also  nn  economic  Inw  that  the  commissions  must  take  cognizance  of 
and  act  upon.  The  solution  of  our  problem  lies  in  the  establishment  of  mutual 
confidence  between,  not  only  the  people  and  the  utilities,  but  also  between  the 
commissions  and  the  people.  The  spirit  of  mutual  confidence  must  pervade  the 
relations  of  all  fhese  three  parties. 

If  both  the  companies  and  the  commissions  will  cultivate  closer  relations 
with  the  people  and  take  them  into  their  confidence  our  problems  will  be  finally 
solved  and  solved  right. 

I  have  great  confidence  in  the  common  people  and  their  high  sense  of  .justice 
and  fair  piny,  but  very  little  in  the  political  demagogues  that  infest  every  com- 
munity in  H  more  or  less  degree,  either  holding  or  aspiring  to  office. 

Where  there  Is  real  antagonism  on  the  part  of  the  people  against  the  utilities, 
the  blame  can  be  put  usually  on  political  demagogues  or  on  the  companies 
themselves,  or  on  both. 

The  politicians,  demagogues,  nnd  newspapers  often  succeed  in  inciting  hos- 
tility In  the  people  against  Certain  utilities  when  there  is  no  real  reason  for 


864       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

such  hostility.     This  Is  because  they  talk  to  the  people  very  much  ami  the 
utilities  talk  to  the  people  very  little. 

The  utilities  and  the  commissions  are  more  influenced  by  the  politicians  than 
by  the  people,  because  the  people  in  these  matters  are  inarticulate,  while  the 
politicians  are  very  much  articulate. 

Mr.  WARREN.  What  was  the  name  of  the  company  that  you  refer 
to,  Mr.  Schaddelee  ? 

Mr.  SCHADDELEE.  Of  the  railway  company  ? 

Mr.  WARREN.  Yes. 

Mr.  SCHADDELEE.  They  were  the  Tri-City  Eailway  Co.  of  Illinois 
and  also — there  are  two  companies  involved,  although  they  are  owned 
by  the  same  people,  the  Moline  Eastern  &  Rock  Island  Traction. 

Commissioner  BEALL.  Were  you  with  the  company  when  it  was  the 
old  Davenport,  Rock  Island  &  Moline? 

Mr.  SCHADDELEE.  No. 

Commissioner  BEALL.  Now  called  the  Tri-City  ? 

Mr.  SCHADDELEE.  No.  There  are  two  companies  existent  now.  I 
am  talking  about  two  companies  now. 

Commissioner  BEALL.  The  Tri-City  used  to  be  the  Davenport, 
Rock  Island  &  Moline,  years  ago. 

Mr.  SCHADDELEE.  That  was  before  I  had  any  connection  with  it. 

Mr.  WARREN.  How  long  have  you  been  connected  with  these  com- 
panies ? 

Mr.  SCHADDELEE.  We  have  owned  those  companies  since  1912. 

Mr.  WARREN.  And  the  commission  to  which  you  referred  was  the 
Illinois  Commission? 

Mr.  SCHADDELEE.  Yes. 

Mr.  WARREN.  Have  you  had  any  other  similar  experience  with  the 
Illinois  Commission  involving  what  seemed  to  you  unreasonable  de- 
lay in  a  rate  question  ? 

Mr.  SCHADDELEE.  Yes.  We  have  had  questions  of  increased  rates 
on  gas  and  electricity  that  were,  in  our  opinion,  unnecessarily 
delayed. 

Mr.  WARREN.  How  long  were  they  delayed  ?  I  mean  how  long  did 
it  take  to  get  the  decision  from  the  time  you  filed  the  petition  ? 

Mr.  SCHADDELEE.  Well,  I  do  not  remember  in  the  gas  case.  It  must 
have  been  over  six  months. 

The  CHAIRMAN.  Has  that  been  during  the  war  time  ? 

Mr.  SCHADDELEE.  Yes. 

The  CHAIRMAN.  Is  it  not  a  fact  that  most  all  gas  and  electric  and 
railway  utilities  have  been  applying  for  increased  rates  from  the 
Illinois  Commission  and  other  commissions  during  the  war? 

Mr.  SCHADDELEE.  Yes,  sir ;  a  good  many  of  them  have. 

The  CHAIRMAN.  And  do  you  know  whether  they  have  been  simply 
overwhelmed  with  the  number  of  applications  and  hearings  ? 

Mr.  SCHADDELEE.  That  is  true. 

The  CHAIRMAN.  In  view  of  that  fact,  do  you  think  that  they  have 
been  unduly  tardy  in  making  the  decisions  in  which  3rou  have  been 
interested  ? 

Mr.  SCHADDELEE.  Yes,  sir.  I  believe  that  under  the  emergency  ex- 
isting that  the  utilities  commissions  could  very  well  and  properly 
have  got  us  rates  without  going  into  all  this  question  of  physical 
valuation,  and  in  this  case  they  spent  months  and  months. 

The  CHAIRMAN.  Did  the  Illinois  Commission  make  a  valuation  of 
your  properties  before  they  decided  it  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       865 

Mr.  SCHADDELEE.  Yes. 

The  CHAIRMAN.  In  the  war  times? 

Mr.  SCHADDELEE.  Yes. 

The  CHAIRMAN.  In  each  case? 

Mr.  SCHADDELEE.  Yes. 

The  CHAIRMAN.  How  long  did  it  take  them  to  fix  the  value  of  your 
property  ? 

Mr.  SCHADDELEE.  Well,  we  had  our  hearing  in  our  railway-fare 
case  completed  in  about  six  months,  and  then  it  took  them  six  months, 
apparently,  to  digest  the  information  and  write  up  the  opinion. 
Xow,  the  question  is,  you  know :  What  would  you  think  of  a  doctor 
who  would  take  a  year  for  him  to  find  out  whether  you  were  sick 
or  not  when  you  applied  for  relief  and  medicine  ? 

The  CHAIRMAN.  What  relief  did  the  commission  grant  you  ? 

Mr.  SCHADDELEE.  None  at  all ;  and  the  reason  they  did  not  grant  us 
relief,  they  found  that,  during  the  last  five  years  and  during  the 
calendar  year  1918,  taking  the  year  as  a  whole,  that  we  had  been 
in  fairly  good  condition. 

The  CHAIRMAN.  Had  you  laid  up  a  large  surplus? 

Mr.  SCHADDELEE.  No;  not  a  surplus;  but  they  said  that  we  had 
earned — the  first  thing  they  did,  they  reduced  our  valuation.  They 
cut  down  the  depreciation  that  their  own  engineer  had  figured  and 
gave  us  2  per  cent  depreciation  on  a  street-railway  company.  And 
notwithstanding  the  present  high  cost  of  materials  and  lat>or;  and 
of  course,  by  sufficiently  reducing  the  depreciation  allowance  and  re- 
ducing the  valuation  of  the  property,  you  know,  you  can  always 
finally  arrive  at  a  figure  where  you  earn  nothing  on  it. 

Now  I  tell  you,  I  don't  blame  these  commissioners  so  very  much 
for  that;  but  the  trouble,  you  know,  with  these  commissioners  is 
that  they  are  not  secure  in  their  tenure  of  office.  In  my  opinion  these 
commissions  can  never  function  properly  unless  they  are  ap- 
pointed for  life  like  Supreme  Court  judges  are,  so  they  will  not  be 
afraid  of  losing  their  job.  Unless  they  are  financially  independent 
they  can  not  help  but  be  subject  to  local  political  influence,  and  in 
my  opinion  these  commissioners  as  a  rule,  as  bodies,  are  much  more 
influenced  by  what  they  hear  from  local  politicians  than  what  they 
can  learn  from  a  stack  of  evidence  you  present  to  them  a  mile  high. 

The  CHAIRMAN.  Is  it  true  that  there  was  a  very  considerable 
agitation  sprung  up  in  Illinois  during  the  last  year  for  the  abolish- 
ment of  the  commission,  due  to  the  large  number  of  increased  fares 
that  they  had  granted  to  the  companies  ? 

Mr.  SCHADDELEE.  No;  I  do  not  believe  that  had  so  much  to  do  with 
it.  There  has  not  been  so  much  increase  in  fares.  The  only  thing 
they  have  given  us  is  a  small  increase  in  gas  rates  and  no  increase 
in  street-railroad  rates  at  all.  No ;  the  trouble  with  the  commissions 
down  there  is  some  of  the  contemptible  politicians  and  demagogues 
who  had  made  unwarranted  charges  and  attacks  against  some  of  the 
members  of  that  commission  which  were  entirely  untrue  and  false. 
And  I  want  to  say  that  those  commissioners  were  called  upon  to 
defend  themselves  before  the  Legislature  of  Illinois  against  those 
charges  of  these  men.  These  men  are  not  free  agents  in  considering 
the  question  of  regulation  any  more. 


866       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Another  thing,  in  Illinois  there  is  to  be  a  constitutional  convention 
next  October,  and  the  home-rule  advocates  are  just  laying  for  that, 
and  their  idea  is  to  frame  that  constitution  in  such  a  way  as  to 
abolish  the  commission;  and  the  commissioners  know  that,  and  are 
afraid  they  are  going  to  lose  their  jobs. 

The  CHAIRMAN.  The  home-rule  people  are  going  to  insist  upon 
franchises  with  a  maximum  fare  of  5  cents;  are  they  not? 

Mr.  SCHADDELEE.  I  do  not  know  about  what  their  idea  of  the 
maximum  fare  is  to  be  at  all.  But  now  that  is  the  situation.  You 
can  not  blame  them.  You  take  a  man  that  is  not  financially  inde- 
pendent, with  a  fairly  decent  job,  and  a  family  to  support;  he 
knows  that  if  he  does  his  duty  fearlessly  he  is  in  danger  of  losing 
his  job  by  the  machinations  of  those  politicians.  You  can  not 
blame  him  if  he  is  a  little  bit  careful  about  the  exercise  of  his  power. 
I  would  not  blame  him  very  much.  But  that  is  the  proposition. 
You  have  to  put  these  men  in  for  life,  in  my  opinion,  and  it  would 
be  still  more  desirable  if  you  could  appoint  men  on  these  commis- 
sions if  they  were  from  some  other  State. 

Mr.  WARREN.  Your  remedy  would  be  to  appoint  them  from  an- 
other State  for  life  and  the  opposition  want  to  abolish  them  alto- 
gether ? 

Mr.  SCHADDELEE.  Altogether;  yes,  sir. 

Mr.  WARREN.  Which  do  you  think  is  more  likely  to  prevail? 

Mr.  SCHADDELEE.  Well,  I  am  not  telling  you  which  is  more  likely 
to  prevail.  I  am  just  telling  you  something  of  the  things  that  are 
necessary  if  you  are  going  to  have  courageous  and  fair  and  just 
regulations. 

Mr.  WARREN.  Supposing  that  you  can  not  get  the  appointment  for 
life,  is  there  any  other  suggestion  you  could  make  that  would  pro- 
duce what  you  consider  a  more  satisfactory  situation? 

Mr.  SCHADDELEE.  Well,  it  is  pretty  hard  to  suggest  any  other  way 
than  by  removing  the  political  factor. 

Mr.  WARREN.  Are  they  appointed  by  the  governor? 

Mr.  SCHADDELEE.  Yes. 

Mr.  WARREN.  They  are  not  elected  by  the  people? 

Mr.  SCHADDELEE.  No ;  they  are  appointed  by  the  governor. 

Mr.  WARREN.  What  is  their  term  ? 

Mr.  SCHADDELEE.  I  think  their  term  is  four  years,  as  I  remem- 
ber it. 

Mr.  WARREN.  Now,  this  is  the  Illinois  Commission  you  are  dis- 
|  cussing? 

Mr.  SCHADDELEE.  Yes. 

Mr.  WARREN.  Have  you  had  any  other  street-railway  case  before 
that  commission  ? 

Mr.  SCHADDELEE.  No. 

Mr.  WARREN.  How  about  Indiana — 'have  you  had  any  rate  case 
there? 

Mr.  SCHADDELEE.  We  had  electric  rate  cases  there,  but  no  street- 
railway  cases  in  Indiana. 

Mr.  WARREN.  What  was  your  experience  there? 

Mr.  SCHADDELEE.  Well,  our  experience  has  been  a  good  deal  like  it 

has  been  in  Illinois ;  that  the  first  thing  when  you  tell  them  you  are 

{  sick  they  say,  "  We  will  have  to  investigate  and  see  whether  that  is  is 

true  or  not."    Then  it  takes  them  a  long  time  to  find  out  whether  you 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       867 

are  sick  or  not;  and  in  the  meantime  the  patient  is  getting  worse  all 
the  time  and  it  takes  more  medicine  to  make  him  well  again,  and  the 
longer  you  wait  the  worse  it  gets. 

Mr.  WABSEN.  Have  you  had  any  rate  cases  in  any  of  these  States 
during  the  war  in  which  relief  was  given  you  without  any  valuation 
and  appraisal? 

Mr.  SCHADDELEE.    No. 

Mr.  WARREN.  You  had  had  an  appraisal  in  every  case? 

Mr.   SCHADDELEE.    YeS. 

Mr.  WARREN.  Could  you  tell  this  commission  what  the  shortest 
time  was  in  which  any  decision  was  rendered  ? 

Mr.  SCHADDELEE.  Well,  I  do  not  remember,  but  I  am  sure  we  never 
had  any  decision  in  less  than  six  months'  time. 

Mr,.  WARREN.  Nothing  less  than  six  months? 

Mr.  SCHADDELEE.  Xo. 

Mr.  WARREN.  Is  there  anything  else  you  want  to  suggest  apart 
from  what  is  in  your  paper  ? 

Mr.  SCHADDELEE.  Yes.  There  are  some  things  I  would  like  to  call 
to  the  attention  of  the  honorable  commission. 

One  of  the  wrong  policies  of  these  commissions,  you  know,  is  the 
fact  that  when  they  are  asked  to  increase  the  rates  they  are  concerned 
a  whole  lot  with  the  past  but  very  little  with  the  future,  and  very 
little  with  the  present.  Now,  you  know  a  man's  present  needs  are 
practically  not  influenced  by  his  past  condition.  Because  a  man  was 
a  millionaire  six  years  ago,  if  he  is  hungry  to-day  he  has  got  to  have 
food  now,  and  the  fact  that  he  was  a  millionaire  two  or  three  years 
ago  will  not  appease  his  hunger  now.  They  do  not  realize  that, 
apparently.  They  also  do  not  seem  to  realize  the  very  simple  eco- 
nomic law,  which  is  also  a  physical  law,  that  the  outgo  can  never 
exceed  the  income.  But  they  seem  to  have  the  idea  that  the  public 
utility  men  are  much  smarter  than  anybody  else  and  that  thev  can 
evade  those  laws. 

There  are  some  things  that  were  said  here  that  I  do  not  agree  with, 
and  I  just  want  to  give  you  gentlemen  some  other  ideas  and  some 
new  ideas  about  a  few  things. 

You  have  heard  a  lot  about  the  jitney  competition.  Well,  we  have 
had  jitney  competition  in  past  years,  too,  and  the  only  reason  that  we 
had  that  competition  is  because  the  politicians  and  the  public  officials 
allowed  those  jitneys  to  compete  with  us  on  an  uneven  and  unfair 
basis.  I  am  not  afraid  of  jitney  competition  if  you  put  on  those 
jitneys  the  same  burdens  you  put  on  us;  not  a  bit.  I  told  one  of 
our  council  when  they  had  the  jitney  competition  up,  I  says,  "  I  will 
stop  the  street-cars  for  a  month  if  you  say  so,  and  let  the  jitneys  do 
all  the  business.  Then  we  will  stop  the  jitneys  a  month  and  we  will 
do  it  all.  You  can  be  your  own  judge  as  to  which  is  the  better  mode 
of  transportation. 

You  know  what  we  want  is  justice  and  fairness,  and  jitneys  or  any 
other  mode  of  locomotion  is  a  revolutionary  mode  over  our  system 
of  transportation.  We  can  not  prevent  that  going  into  effect.  There 
is  no  private  enterprise  that  can  oppose  or  retard  to  any  extent  the 
working  of  an  evolution  in  transportation.  We  might  just  as  well 
lay  down,  but  I  do  not  want  to  lay  down  unless  the  competition  is 
fair. 


868       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  Is  there  any  regulation  of  jitneys  there? 

Mr.  SCHADDELEE.  Well,  the  court  has  regulated  them  out  of  busi- 
ness. 

Mr.  WARREN.  The  courts  have? 

Mr.  SCHADDELEE.  Yes;  and  that  is  another  thing  where  the  com- 
mission failed  to  do  its  plain  duty  under  the  law.  The  Illinois  law 
says  that  nobody  engaged  in  the  transportation  of  persons  in  Illinois 
can  engage  in  that  unless  they  first  have  a  certificate  of  convenience, 

Mr.  WARREN.  From  the  commission  ? 

Mr.  SCHADDALEE.  Yes,  sir ;  and  that  is  the  duty  of  the  commission — 
to  enforce  that  law.  They  never  made  any  effort  to  enforce  it. 
Finally  we  got  them  after  long  work,  and  after  keeping  at  it  all  the 
time;  they  finally  issued  an  order  teljing  them  to  desist.  Do  you 
suppose  they  desisted?  Not  a  bit.  They  increased.  They  did  not 
care  for  it —  they  were  nothing  but  a  lot  of  outlaws — and  as  long  as 
they  could  operate  as  outlaws  they  could  stay.  The  minute  they 
were  compelled  to  abide  by  the  law  they  could  not  live.  Any  outlaw 
can  live  as  long  as  nobody  interferes  with  him. 

Mr.  WARREN.  What  did  you  do — go  to  the  court  and  get  an  order 
to  enforce  the  commission's  order? 

Mr.  SCHADDELEE.  Yes;  we  got  a  blanket  order.  I  do  not  know  if 
any  court  has  ever  issued  an  order  of  that  kind,  but  we  got  it.  And 
there  are  no  jitneys  now  and  there  won't  be  any  more  down  there. 
If  they  do  come,  we  will  take  care  of  them. 

The  CHAIRMAN.  Do  you  not  think  it  was  a  good  thing  for  the 
people  to  be  fed  on  jitneys  for  a  while  so  as  to  have  the  full  experi- 
ence? 

Mr.  SCHADDELEE.  Well,  I  had  no  objection  to  their  being  fed,  but 
we  had  objection  to  the  nourishment  to  feed  them  being  withdrawn 
from  us;  that  is  what  we  objected  to.  Those  jitneys,  you  know,  in 
the  wintertime  when  the  snow  was  on  the  ground — there  would  be  2 
feet  of  snow  on  the  ground  and  the  jitneys  would  not  run  until 
we  had  cleared  the  snow  from  the  streets,  and  then  the  jitneys  would 
go  right  ahead  of  our  street-cars  and  take  all  our  business  away  from 
us,  and  then  they  say  the  street-car  company  has  a  competitor.  That 
is  a  fine  competitor,  that  is. 

Now,  another  fallacy  that  a  lot  of  people  seem  to  be  laboring  under 
is  that  the  people  of  the  United  States  are  opposed  to  increased  rail- 
way fares,  increased  gas  and  electric  rates.  There  is  no  such  thing 
at  all ;  it  is  not  true  at  all.  They  are  not  opposed  to  it.  The  poli- 
ticians are  opposed  to  it.  We  had  a  case  or  a  popular  election  to 
get  a  6-cent  fare,  and  carried  it  in  Grand  Rapids,  Mich.  I  am  not 
connected  with  the  railways  there  and  have  no  interest  except  to  pay 
my  fare  when  I  use  their  cars ;  but  the  commission  down  there  hap- 
pened to  have  some  courage,  and  when  the  company  made  application 
for  an  increased  street-car  fare  they  had  a  perfect  right  to  pass  the 
buck  on  to  the  people,  but  they  said,  "  No,  the  price  of  coal  has  been 
raised,  the  price  of  everything,  of  furniture,  of  meat,  of  bread, 
everything  has  been  raised,  and  the  people  did  not  have  to  vote  on 
that.  The  utilities  did  not  have  a  vote  when  the  price  of  coal  was 
raised,  not  at  all."  So  this  commission  said,  "  Well,  why  should  this 
poor  street-car  company  go  to  the  people  and  have  the  people  vote 
whether  they  shall  have  an  increase  ?  "  So  they  said,  "  We  will  do  it 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       869 

ourselves,"  and  passed  an  ordinance  giving  the  street-car  company 
a  6-cent  fare.  All  right.  Then  some  of  these  municipal-ownership 
fellows  got  busy ;  they  started  a  petition.  They  wanted  to  have  that 
under  the  referendum  provision  of  the  Grand  Rapids  home  charter 
referred  to  the  people,  but  they  could  not  get  enough  people  to  sign 
it,  so  they  dropped  their  petition. 

Commissioner  BEALL.  No ;  they  reduced  the  fare,  did  they  not  ? 

Mr.  SCHADDELEE.  No ;  that  was  later  on.  The  present  commission 
has  had  some  changes  since  that  happened  last  fall.  I  live  in  Grand 
Rapids.  I  know  what  is  happening  in  Grand  Rapids. 

Now  another  thing  I  want  to  tell  you.     In  Cadillac 

Mr.  WARREN.  When  you  refer  to  the  commission  in  Grand  Rapids 
do  you  mean  the  State  commission? 

Mr.  SCHADDELEE.  No. 

Commissioner  BEALL.  This  was  the  State  commission.  They  re- 
duced it  afterwards. 

Mr.  SCHADDELEE.  For  a  month  only,  as  a  trial. 

Commissioner  BEALL.  Well,  we  do  not  know  what  it  will  be. 

Mr.  SCHADDELEE.  Well,  I  know  what  they  did.  They  said  it  was 
for  a  month,  they  were  going  to  try  the  5-cent  fare  in  order  to  see 
whether  the  theory  that  under  a  5-cent  fare  people  would  ride  much 
more  often  would  be  true,  or  the  increased  riding  would  compensate 
enough  to  take  care  of  the  earnings  that  they  got  under  a  6-cent  fare. 
That  is  what  they  are  trying  out.  They  are  going 

Mr.  WARREX.  Was  this  the  same  commission  that  raised  it? 

Mr.  SCHADDELEE.  Well,  it  was  somewhat  the  same  commission, 
but  there  have  been  sorae  changes  which  have  taken  place. 

Mr.  WARREX.  There  has  been  an  election  between? 

Mr.  SCHADDELEE.  Well,  there  has  not  been  an  election,  but  there 
are  commissioners  down  there  and  they  have  some  rights  among 
themselves  to  change  the  powers  of  the  commission.  One  of  the 
men  who  is  quite  dominant  down  there  has  always  been  opposed  to 
public-utility  companies,  and  I  think  he  is  responsible  for  it.  But 
the  people  would  not  sign  in  sufficient  numbers  to  have  it  subjected 
to  the  referendum. 

We  had  another  experience  in  Cadillac,  Mich.,  where  we  had  a 
franchise  for  $1  gas.  A  year  ago  the  people  voted  us  a  new  fran- 
chise for  30  years  giving  us  25  per  cent  increase  in  gas  rate,  and  we 
carried  that  franchise  9  in  favor  to  1  against  that  franchise.  That 
gives  another  indication  how  the  people  think  about  it.  And  last 
week,  or  two  weeks  ago,  the  city  commission  of  Cadillac  gave  us 
another  25-cent  increase  in  gas  rate,  passing  an  ordinance  giving  us 
another  25-cent  increase  in  gas  rate,  and  the  commission  had  adver- 
tised and  invited  everybody  who  was  opposed  to  giving  us  another 
increase  to  appear  before  the  commission  and  voice  their  objections 
to  it;  and  when  they  had  their  meeting  there  was  one  man  appeared, 
and  he  had  no  objections,  so  they  passed  it. 

The  American  people — you  know,  I  have  an  awful  lot  of  faith  in. 
the  American  people.  If  you  leave  them  alone,  the  American 
people  will  never  knowingly  do  an  injustice  to  you  or  anyone  else. 
And  if  the  idea  of  the  commissions  is  that  the  way  they  have  treated 
these  utilities  is  in  line  with  the  desires  of  the  American  people,, 
then  I  say  that  that  is  a  libel  on  the  American  people.  The  Ameri- 
can people  are  all  right,  but  when  they  are  debauched  by  a  lot  of 


870       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

designing  politicians  who  are  used  to  having  too  much  vocal  exer- 
cise and  not  enough  physical  exercise  then  there  is  no  telling  what 
those  American  people  may  do;  but  they  will  never  do  you  an  in- 
justice knowingly  or  designedly — I  don't  believe.  They  have  never 
done  it  to  me. 

Now,  we  had  here  in  the  Michigan  Legislature — I  want  to  relate 
to  you  some  of  my  experiences  there  and  my  views  on  that  in  op- 
position to  some  other  views  I  have  heard  here  expressed.  In  Michi- 
gan, the  interurbans  were  confronted  with  the  fact  that  they  were 
limited  to  2  cents  a  mile  under  the  State  law  that  was  passed  many 
years  ago,  so  that  the  only  way  that  those  interurbans  could  get 
relief  was  by  a  direct  action  of  the  legislature  itself.  When  the 
legislature  met  last  fall  we  went  down  to  Lansing — I  went  down 
to  Lansing,  and  that  was  the  first  time  I  had  ever  been  in  the  State 
Capitol  in  Lansing.  We  had  operated  utilities  for  many  years  in 
that  State,  and  it  was  with  great  deprecation  that  I  went  down  there 
to  talk  to  these  men.  But  when  I  came  there,  the  first  thing  I  saw  at 
night  was  a  sign  in  big  electric  letters,  "  Welcome."  That  shows 
you  how  they  received  me.  Well,  later  on  I  found  that  the  "  wel- 
come "  was  meant  for  the  soldiers,  but  it  encouraged  me  anyhow. 

Well,  I  went  right  to  the  legislature.  I  appeared  before  the  house 
committee,  and  everybody  said,  "  You  can  not  pass  a  2.5-cent  fare  or 
any  increased  fare  through  this  legislature  against  these  home-rule 
men.  It  can  not  be  done."  When  I  said  that  we  intended  to  pass  a 
2.5-cent-fare  law  and  also  intended  to  have  the  legislature  relieve 
us  from  some  of  these  franchise  contracts,  you  know,  like  1.5  cents 
and  2  cents,  they  said  that  could  never  be  done ;  but  it  has  been  done, 
and  it  is  done  now,  and  the  legislature  not  only  pussed  the  2.5-cent 
law  in  Michigan  with  a  great  majority  in  both  house  and  senate, 
but  they  have  also  passed  a  law7  specifically  repealing  all  these  fran- 


chises and  what  they  call  contractual  provisions. 
When  I  was  talkin 


g  to  the  house  committee  they  said,  well  they 
were  all  convinced  that  we  needed  the  relief,  the  interurbans  did, 
but  they  said  it  would  be  impossible  to  pass  that  law  and  abrogate 
and  void  those  contracts.  Well,  I  says,  "That  is  schoolboy  talk. 
For  if  you  say  that  we  need  the  relief,  if  you  are  convinced  of  that, 
then  it  is  your  duty  to  give  it  to  us.  And  now  you  say  you  propose  to 
pass  a  law  that  will  make  it  impossible  for  us  to  get  that  relief." 
Now,  you  know  no  sensible  men  would  talk  that  way,  and  they  were 
sensible  men  and  they  put  it  through. 

Now  those  men  needed  information,  and  we  gave  them  informa- 
tion and  I  did  not  apologize  to  anybody  for  appearing  on  the  floor 
of  that  legislature,  and  I  don't  intend  ito  do  so  either.  It  was  our 
duty  to  protect  our  investors,  and  no  man  need  to  be  ashamed  of 
going  to  any  legislature  to  protect  his  company  and  the  interests 
that  are  entrusted  to  him.  It  is  his  duty  to  do  it  and  no  legislature 
will  be  mad  at  you  if  you  do  it;  don't  you  worry  about  that.  They 
all  listened  to  me  and  they  got  a  lot  of  information ;  and  that  is  what 
they  needed  and  that  is  what  the  commissions  need.  Here  is  what 
they  have  said :  They  say  the  public-utility  people  must  get  in  closer 
touch  with  the  people.  That  is  true,  but  the  commissions  must  get 
in  closer  touch  with  the  people  and  not  listen  so  much  to  the  vaporing 
of  those  politicians,  but  listen  to  the  people  themselves. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       871 

We  had  an  occasion  in  Rock  Island  where  the  mayor,  who  had 
been  mayor  for  many  years,  so  many  at  least  that  my  memory  is 
not  long  enough  to  remember  when  he  was  not — but  he  had  been 
mayor  for  a  good  many  years,  and  he  was  the  main  man  in  attacking 
this  company  because  we  had  an  application  asking  for  increased 
.rates,  and  he  attacked  it  most  violently.  Then  he  had  to  run  for 
mayor  and  he  was  on  the  platform  that  "  if  you  will  elect  me  I  will 
see  that  the  street-railway  company  gets  no  increase  of  fare  and  no 
increase  in  electric  rates  and  no  increase  in  anything,  and  that  they 
will  spend  a  lot  of  money  in  extending  the  line/'  That  is  the  kind  of 
a  platform  he  ran  on.  And  in  the  primaries  he  was  low  man  of  three 
men  running.  That  shows  you  how  the  people  resent  that.  The  peo- 
ple are  changing  their  minds  about  some  of  these  things.  If  you 
can  convince  the  people  that  you  are  honest,  that  you  are  true  to 
them,  that  you  are  running  your  business  in  an  economical  way  like 
every  business  ought  to  be  run,  and  if  they  believe  that  they  will 
stand  by  you.  But  I  want  to  say  it  is  a  very  hard  thing  to  make  them 
believe  that  sometimes,  and  the  reason  it  is  hard  to  make  them  be- 
lieve that  is  because  a  lot  of  the  other  fellows  are  telling  them  just 
the  opposite  way,  and  it  is  true  that  these  men  talk  very  much  to 
the  public  and  usually  the  utilities  people  talk  very  little  to  the  pub- 
lic, so  they  get  a  whole  lot  more  in  their  ears  from  the  other  side 
than  they  do  from  the  public-utilities  side. 

Mr.  WARREN.  Is  there  anything  else  on  your  list  about  street  rail- 
ways that  you  want  to  call  to  the  commission's  attention  ? 

IVIr.  SCHADDELEK.  There  are  some  other  items  I  can  touch  upon. 
Our  street-car  business  is  not  going  to  pot,  yoii  know.  The  people 
are  more  dependent  upon  street-car  transportation  than  ever  before, 
and  I  think  the  automobile  has  been  a  lot  of  help  to  us  on  that.  The 
automobile  has  given  people  the  habit  not  to  walk,  and  that  is  the 
reason  they  use  street-cars  when  automobiles  are  available.  Our 
gross  business  is  all  right.  We  have  no  doubt  about  our  gross  busi- 
ness, but  what  we  need  is  a  higher  rate  of  pay  for  the  business, 
because  we  are  not  like  the  Jews — that  can  run  a  big  business  at  a  loss 
because  they  do  so  much  of  it. 

Another  reason  a  good  many  street-railway  companies  are  not  yet 
in  bankruptcy  is  due  to  the  fact  that  there  are  some  strong  holding 
companies  standing  back  of  them  and  they  are  putting  the  credit 
behind  those  companies;  that  is,  they  are  holding  a  lot  of  them  up, 
and  if  they  were  standing  on  their  feet  there  would  be  a  whole  lot 
more  bankrupts  than  there  are  now.  That  is  another  thing  you  have 
to  consider. 

In  regard  to  municipal  ownership,  I  might  say  this.  You  know 
that  this  gentleman  this  morning — I  was  afraid  he  was  going  to  be 
so  enthusiastic  that  he  was  going  to  advocate  municipal  ownership 
of  his  own  business,  but.  as  usual,  he  stopped  before  that  But  he 
is  not  very  radical.  Lenine  and  Trotsky  are  very  much  more  radical 
than  he  is.  They  are  not  only  advocating  municipal  ownership  of 
our  business  but  of  his  business  and  also  of  his  Automobiles. 

Mr.  WAKREX.  Who  is  advocating  that? 

Mr.  SniADDELEE.  Lenine  and  Trotsky.  He  is  not  radical  at  all 
compared  to  those  men.  They  would  take  his  nine  automol »iles. 

Another  fallacy  that  is  prevalent  among  even  the  railway  men  is 
that  people  ride  because  it  costs  a  nickel  and  that  if  it  costs  more  than 


872       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

a  nickel  they  are  not  going  to  ride.  Have  you  ever  heard  of  an 
American  citizen  foregoing  a  convenience  because  it  cost  more?  I 
never  have.  The  effect  of  the  increased  cost  of  the  ride  is  going  to 
be  very  short  lived  in  my  opinion.  If  you  gentlemen  give  ns  the 
increased  rates,  we  will  take,  chances  on  the  people  not  riding. 

In  conclusion,  I  mention  just  this  to  your  honorable  commission- 
there  are  a  lot  of  things  I  might  talk  about,  but  there  is  no  use  in 
making  it  too  long — but  here  is  one  thing  I  might  put  up  to  you : 
I  think  we  will  all  agree  that  a  5-cent  fare  was  a  fair  rate  generally 
five  years  ago  and  that  was  generally  five  years  ago  an  accepted 
street-car  fare.  All  right;  the  people  paid  that  and  nobody  kicked 
about  that.  Now  I  think  anybody  will  agree,  without  any  examina- 
tion of  physical  properties,  books,  or  anything  else,  that  if  you  start 
from  the  basis  that  5  cents  was  fair  five  years  ago  that  the  estab- 
lishment of  a  6  or  7-cent  fare  at  the  present  time  generally  through- 
out the  whole  country  would  be  just  as  fair  and  would  not  be  any 
more  unfair  now  that  the  5-cent  fare  was  five  years  ago.  And  if  you 
gentlemen  could  through  your  influence  persuade  these  commissions 
or  these  legislatures  to  establish  now  generally  a  6  or  7-cent  fare  as 
a  maximum  fare,  and  then  let  the  people,  the  patrons  of  any  of  these 
companies,  who  object  to  that  and  think  that  is  too  high,  lot  them 
go  to  their  commissions  and  ask  them  to  investigate  whether  it  is  too 
high  and  lower  it  if  it  is ;  and  if  the  companies  are  not  satisfied  with 
the  6  or  7  cents,  if  it  is  established,  if  they  feel  it  is  not  correct,  then 
let  them  go  to  the  commission  and  ask  for  a  higher  one.  But  if  you 
could  do  that  you  could  give  at  least  some  prompt  general  relief  to 
the  general  situation. 

Mr.  WARREN.  I  forgot  to  ask  your  position  with  this  street-railway 
company.  Did  you  state  it? 

Mr.  SCHADDELEE.  Well,  I  am  vice  president  and  general  manager 
of  the  United  Light  &  Railways  Co.,  which  controls — 

Wr.  WARREN.  You  have  been  with  the  company  since  1912? 

Mr.  SCHADDELEE.  I  have  been  with  the  company  since  its  organiza- 
tion and  I  have  been  in  the  public-utility  business  since  1891. 

Mr.  WARREN.  Have  you  been  in  the  street-railway  and  public- 
utility  business  since  1906  ? 

Mr.  SCHADDELEE.  I  have  been  connected  with  the  street-railway 
business  since  1906. 

Mr.  WARREN.  Do  you  know  whether  the  street-railway  fares  of  the 
companies  with  which  yon  have  been  connected  have  been  extended 
so  as  to  include  a  longer  ride  since  you  have  known  them  ? 

Mr.  SCHADDELEE.  Yes. 

Mr.  WARREN.  Rather  generally  has  that  been  so  ? 

Mr.  SCHADDELEE.  Yes,  and  the  old  street-cars  have  been  scrapped 
and  new  ones  bought 

Mr.  WARREN.  I  do  not  care  about  that,  but  I  wanted  to  cover  the 
distance  they  could  ride. 

Mr.  SCHADDELEE.  Yes. 

Mr.  WARREN.  Either  by  building  lines  or  giving  transfers  and. by 
merging  different  lines? 

Mr.  SCHADDELEE.  Yes. 

Mr.  WARREN.  That  is  all. 

(Witness  excused.) 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       873 

STATEMENT  OF  MR.  HENRY  J.  PIERCE. 

Mr.  WARREN.  Your  name? 

Mr.  PIERCE.  Henry  J.  Pierce,  Seattle,  Wash. 

Mr.  WARREN.  Are  you  interested  in  any  street  railways  now  ? 

Mr.  PIERCE.  No,  sir. 

Mr.  WARREN.  How  long  since  von  have  been? 

Mr.  PIERCE.  I  severed  my  connection  with  the  street  railroad  busi- 
ness in  1909 ;  10  years  ago. 

Mr.  WARREN.  And  before  1909  with  what  street  railway  com- 
panies were  you  connected? 

Mr.  PIERCE.  I  was  president  for  some  years  of  the  International 
Railway  Co.  of  Buffalo,  which  serves  western  New  York  with  street 
railroad  transportation.  I  Avas  also  president  of  the  Netherlands 
Tramways  Corporation,  which  owned  and  operated  several  street 
railroads  in  Holland — in  Haarlaem,  one  from  Haarlaem  to  Amster- 
dam and  from  Amsterdam  to  Zantfoordt. 

Mr.  WARREN.  I  understand  you  have  suggestions  to  make,  and  that 
you  can  state  them  more  quickly  without  my  questioning  you.  Is 
that  so? 

Mr.  PIERCE.  Yes. 

Mr.  WARREN.  Will  you  gc  ahead? 

Mr.  PIERCE.  Mr.  Chairman  and  members  of  the  commission,  while 
I  have  not  been  in  the  street-railroad  business  for  10  years,  as  I  have 
said  in  reply  to  Mr.  Warren,  and  while,  to  use  a  quotation  of  Mr. 
Quackenbush  this  morning,  what  I  am  to  say  for  that  reason  is  "  old 
stuff,"  yet  at  the  same  time  I  have  kept  in  pretty  close  touch  with  my 
friends  in  the  street-railroad  business,  more  especially  so  because  of 
the  great  interest  I  took  in  it  previous  to  1909,  and  I  have  some  sug- 
gestions \vhich  I  wish  to  convey  to  you,  very  briefly. 

These  suggestions  relate  only  to  the  city  street  railroads  of  the 
country  and  not  to  the  subways  and  elevated  of  New  York  or  to  the 
interurban  roads. 

For  over  a  quarter  of  a  century  the  people  who  have  ridden  on 
street-cars  have  been  accustomed  to  pay  the  5-cent  fare  and  they 
have  come  to  believe  that  5  cents  is  the  value  and  the  proper  value 
of  a  street-car  ride.  And  when  attempts  have  been  made  to  raise 
the  fare  to  6,  7,  8,  or  9  cents  the  public  have  resented  it,  there  is 
not  any  question  about  that.  I  ride  on  the  street-cars  myself  and 
have  ridden  on  the  street-cars  in  cities  where  the  fare  had  been  raised, 
and  I  know  there  is  a  lot  of  resentment  on  the  part  of  the  public 
because  they  do  not  understand  it.  They  have  been  educated  along 
the  lines  of  a  o-cent  rate.  Therefore  if  it  is  a  possible  thing  to  keep 
the  street-car  fare  at  5  cents  it  should  be  done.  I  am  inclined  to 
think  that  it  can  be  done  through  some  readjustment  of  the  relations 
that  now  exist  and  which  have  existed  between  the  municipalities 
and  the  street-railroad  corporations,  and  it  is  along  those  lines  that 
I  wish  to  convey  these  suggestions  to  you. 

I  would  have  the  fare  a  straight  5-cent  cash  fare,  no  tickets.  I 
would  abolish  transfers  absolutely.  I  would  have  the  municipalities 
remit  all  taxes  and  I  would  have  the  municipalities  do  the  paving. 
If  that  is  not  enough — I  think  it  would  bo  enough  in  very  many 
cases  to  settle  these  difficulties,  these  very  serious  difficulties  which 
1GOC430— 20 56 


874       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

confront  this  industries — but  if  it  were  not  sufficient  then  I  would 
charge  an  extra  5-cent  fare  outside  of  a  central  zone  3  miles  in 
diameter. 

I  would  then  allow  the  street-car  company  8  per  cent  upon  its 
investment,  and  by  its  investment,  I  mean  its  cost  in  money  that  they 
have  invested,  not  in  any  event  to  be  greater  than  reconstruction 
cost,  and  in  that  cost  I  would  include  as  a  matter  of  fairness  what 
might  be  termed  the  replacements  of  obsolescence  in  machinery  and 
equipment  which  had  been  made  necessary  through  improvement  of 
the  art. 

In  1890  the  horse  street-cars  were  scrapped  and  the  electric  opera- 
tion of  street-cars  was  begun.  But  the  motors  were  small,  the  rails 
were  light,  the  street-cars  were  small.  In  1895  the  original  electrical 
equipment  had  pretty  much  all  to  be  scrapped — it  was  obsolescent. 
Better  machinery  and  better  equipment  had  come  in.  It  had  to  be 
replaced.  The  same  thing  took  place  along  about  1900  to  1902.  The 
street  railroads  have  had  to  be  rebuilt  about  three  times. 

Now,  those  who  have  invested  in  street-railroad  securities  should 
not  be  penalized  on  that  account,  and  any  money  which  has  not  been 
returned  to  them  which  they  have  still  invested  in  the  property 
through  replacements  of  that  kind  should  be  included  in  the  value 
upon  which  they  are  entitled  to  earn. 

Then  I  would  have  all  money,  all  further  surplus  beyond  that  8 
per  cent,  go  back  into  the  city  treasury. 

I  believe  that  in  this  way  this  difficulty  would  be  solved.  I 
believe  that  the  street-car  companies  could  finance  and  refinance 
their  property.  I  think  that  they  could  deal  with  the  bankers.  I 
think  that  the  people's  interests  would  be  protected,  the  investors' 
interests  would  be  protected  and  everybody  would  be  treated  fairly. 
I  do  not  think  any  other  way 

The  CHAIRMAN.  The  general  complaint  here  for  the  past  10  days 
is  that  a  5-cent  fare  will  not  even  pay  operating  costs. 

Mr.  PIERCE.  Yes. 

The  CHAIRMAN.  How  are  you  going  to  pay  8  per  cent  on  the  capi- 
tal and  turn  something  over  to  the  others  with  a  5-cent  fare  ? 

Mr.  PIERCE.  Through  the  abolition  of  transfers,  through  the  aboli- 
tion of  taxes,  and  through  the  municipality's  paying  for  the  paving, 
and  if  that  is  not  enough,  through  the  5-cent  extra  fare  outside  of  a 
3-mile  zone,  Mr.  Chairman.  I  do  not  think  it  is  right,  anyway,  for 
the  street-car  company  to  pay  for  paving  in  the  street,  because  these 
streets  or  roads  came  down  to  us  from  the  olden  times  as  the  king's 
highway  through  which  the  people  might  ride  and  walk.  The  street- 
car is  the  poor  man's  vehicle,  and  I  suppose  90  per  cent  of  the  people 
who  ride  on  street-cars  are  not  well  enough  off  to  own  horses  and 
automobiles,  therefore  they  have  to  ride.  But  the  man  who  has  a 
horse  or  an  automobile  may  go  through  streets  without  paying  taxes. 
I  think  it  is  only  fair  in  any  event  that  the  paving  should  be  clone 
by  the  city. 

Now,  the  only  alternative  to  this,  to  my  mind,  would  be  for  the 
municipalities  to  take  over  and  operate  the  street  railroads  of  the 
country.  That  I  consider  un-American.  That  I  should  very  much 
dislike  to  see. 

I  think  the  function  of  government  is  to  govern  and  regulate,  not 
to  own  or  operate  public  utilities.  I  have  lived,  in  all,  perhaps  10 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       875 

years  of  my  life  in  Europe.  I  have  ridden  on  their  railroads  which 
were  operated  by  government  or  by  municipalities,  and  I  tell  you 
that  I  have  met  a  good  many  czars  and  a  good  many  kaisers  on  those 
cars.  They  do  not  treat  the  people  with  the  courtesy  that  our  pri- 
vately operated  street  railroads  and  railways  treat  them  here.  It 
is  un-American  and  I  am  totally  opposed  to  it  and  hope  we  will  never 
see  it  in  this  country. 

I  think  that  is  all,  Mr.  Chairman  and  gentlemen,  that  I  have  to 
say. 

Mr.  WARREN.  Mr.  Pierce,  I  am  afraid  your  factors  would  not  be 
sufficient  if  the  census  figures  are  reliable ;  and  assuming  that  the  re- 
mission of  the  taxes  and  these  burdens,  although  they  would  furnish 
relief,  did  not  prove  sufficient,  then  I  understand  that  your  principle 
would  be  instead  of  trying  to  raise  the  fare  by  a  flat  increase  in  the 
5-cent  territory  as  at  present  to  6,  7,  or  8  cents,  and,  as  has  been  done 
in  Boston,  to  10  cents,  you  would  divide  the  territory  into  two  parts  ? 

Mr.  PIERCE.  I  would. 

Mr.  WARREN.  You  would  contract  the  5-cent  territory  to  a  section 
of  about  2|  or  3  miles — 3  I  think  }TOU  said — in  radius. 

Mr.  PIERCE.  I  would. 

Mr.  WARREN.  And  in  the  rest  of  the  present  o-cent  territory  you 
would  make  a  new  5-cent  fare  ? 

Mr.  PIERCE.  Yes. 

Mr.  WARREN.  So  that  the  10-cent  fare  would  apply  to  the  longer 
ride  and  the  shorter  ride  would  remain  as  at  present  at  5  cents, 
whether  in  the  inner  or  the  outer  zone  ? 

Mr.  PIERCE.  Yes. 

Commissioner  GADSI>EN.  What  you  really  suggest  is,  in  addition  to 
relieving  the  companies  of  these  imposts,  instead  of  raising  the  price 
you  would  cut  down  the  ride  ? 

Mr.  PIERCE.  Yes. 

Commissioner  GADSDEX.  Just  a  commercial  proposition? 

Mr.  PIERCE.  Yes. 

Commissioner  GADSDEX.  Instead  of  a  merchant  raising  the  price 
of  his  goods  he  gives  you  less  of  them? 

Mr.  PIERCE.  Yes;  and  then  in  abolishing  transfers,  as  I  recall,  in 
1909,  and  previous  to  that,  about  45  per  cent  of  the  street-car  rides 
in  Buffalo  were  on  transfers,  and  that,  of  course,  would  help  a 
great  deal,  the  abolition  of  the  transfer. 

Mr.  WARREN.  Your  suggestion,  as  a  matter  of  fact,  is  very  much 
like  what  the  city  of  Springfield,  Mass.,  has  tried  with  very  satis- 
factory results  and  very  little  loss  of  riding,  confirming  your  im- 
pression. I  am  very  much  obliged  to  you. 

(Witness  excused.) 

STATEMENT  OF  MR.  FREDERICK  DE  BERARD. 

Mr.  WARREN.  Your  full  name? 
Mr.  DE  BERARD.  Frederick  B.  De  Berard. 
Mr.  WARREN.  You  reside  in  New  York? 
Mr.  DE  BERARD.  I  do. 

Mr.  WARREN.  Will  you  tell  the  commission  your  connection  and 
experience  ? 


876       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  DE  BERARD.  I  am  director  of  research  for  the  Merchants' 
Association  of  New  York.  My  function  is  the  study  and  examina- 
tion on  behalf  of  the  association  of  the  very  numerous  economic 
questions  of  all  kinds  that  come  before  them  for  consideration,  for 
the  information  of  their  various  committees.  My  work  involves 
investigation  and  study  of  the  legislation  which  is  proposed  at 
Albany,  much  of  that  which  is  proposed  at  Washington  and  very 
many  of  the  larger  business  affairs  of  the  city.  We  take  no  cogni- 
zance whatever  of  political  questions,  except  as  they  are  inseparably 
connected  with  economic  questions.  I  have  been  engaged  in  that 
work  for  22  years. 

Mr.  WARREN.  And  have  you  any  interest  in  or  connection  with 
street  railway  companies  or  any  street-railway  company  ? 

Mr.  DE  BERARD.  None  whatever;  nor  with  any  public  utility  of 
any  kind. 

Mr.  WARREN.  Have  you  had  occasion  for  the  Merchants'  Asso- 
ciation to  study  this  street-railway  question  in  its  relation  to  the 
community  ?  * 

Mr.  DE  BERARD.  I  have  given  considerable  study  to  the  street- 
railway  question,  but  in  connection  with  other  public  utilities  of 
various  kinds  and  in  connection  with  the  general  study  of  the  rail- 
way situation. 

Mr.  WARREN.  Including  the  steam  railway  situation? 

Mr.  DE  BERARD.  The  steam-railroad  situation. 

Mr.  WARREN.  And  have  you  arrived  at  any  conclusions,  Mr. 
De  Berard,  particularly  with  reference  to  street  railways  which  you 
think  would  be  of  interest  or  help  to  this  commission  ? 

Mr.  DE  BERARD.  I  have  given  particular  attention  to  the  relative 
merits  of  private  and  commercial  operation  of  all  classes  of  public 
utilities,  the  principles  which  govern  them  all  being  substantially 
identical,  and  conclusions  that  may  be  reached  as  to  one  will  apply 
with  practically  equal  force  to  all  the  others. 

Commissioner  GADSDEN.  Before  you  go  into  that,  you  are  a  mem- 
ber of  the  public-utilities  committee  of  the  United  States  Chamber 
of  Commerce? 

Mr.  DE  BERARD.  I  am. 

Commissioner  GADSDEN.  And  that  committee  has  had  hearings  on 
street-railroad  questions — public  hearings;  has  it  not? 

Mr.  DE  BERARD.  Yes. 

Commissioner  GADSDEN.  Some  three  or  four? 

Mr.  DE  BERARD.  I  have  attended  those  various  hearings  and  have 
received  the  benefit  of  the  knowledge  of  numerous  gentlemen,  tech- 
nical experts,  and  students  of  economics  who  have  appeared  before 
that  committee. 

The  Merchants'  Association  in  the  latter  part  of  1916  directed  me 
to  make  a  careful  study  of  the  question  of  government  ownership,  by 
reason  of  the  fact  that  that  subject  was  to  be  considered  by  the  New- 
lands  Commission  in  connection  with  legislation  which  was  then 
proposed  for  the  rehabilitation  or  change  in  form  of  management 
of  the  railroads  of  the  country. 

I  prepared  a  rather  extensive  monograph  as  the  result  of  the  pro- 
tracted study  which  I  gave  to  that  subject,  in  which  I  developed 
somewhat  fully  the  principles  relative  essentially  to  efficiency  and 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       877 

economy  as  between  private  ownership  and  governmental  ownership. 
That  was  embodied  as  a  part  of  a  report  adopted  by  the  Merchants* 
Association  and  filed  with  the  Newlands  Commission,  in  which  re- 
port the  association  took  very  strong  ground  against  government 
ownership,  specifically  of  railroads  at  that  time,  but  as  against  gov- 
ernment ownership  in  any  form  of  public  utilities. 

More  recently,  in  the  early  part  of  this  year,  another  special  com- 
mittee composed  of  men  of  very  high  business  and  professional  at- 
tainment was  appointed  by  the  association  to  reexamine  the  subject 
and  to  report  whether  in  view  of  the  changes  brought  about  by  the 
war  there  was  any  reason  for  the  association  to  modify  the  previous 
position.  That  committee  made  a  further  careful  study  of  the  sub- 
ject in  which  my  work  was  requisitioned  and  likewise  made  a  report 
reaffirming  the  previous  position  of  the  association.  Botk  of  those 
have  been  printed  in  the  form  of  monographs  and  I  have  copies 
here  that  are  available  for  the  use  of  this  commission. 

Mr.  WARREN.  Have  you  given  any  attention  to  the  subject  of  the 
importance  of  street  railways  to  the  prosperh'y  and  development  and 
health  of  communities? 

Mr.  DE  BERARD.  The  Merchants'  Association  has  given  attention 
to  that  subject  but  has  not  made  it  the  subject  of  specific  study  ex- 
cept in  so  far  as  it  relates  to  the  industrial  prosperity  of  the  city 
of  New  York,  and  it  has  examined  into  the  question  to  some  extent 
with  relation  to  other  communities  to  supply  instances  for  use  in 
our  study  of  that  subject  in  New  York.  The  general  situation  de- 
veloped as  to  that  is  along  these  lines:  That  fully  efficient  local 
transportation  is  essential  to  the  welfare  both  social  and  industrial 
of  any  community.  It  is  essential  to  the  social  welfare  of  the  com- 
munity that  its  population  be  not  extremely  congested  but  that  it 
be  distributed  over  a  reasonably  wide  territory;  for  several  reasons, 
both  for  the  sanitary  and  social  well-being  of  the  inhabitants,  and 
likewise  for  the  industrial  prosperity  of  the  business  enterprises  that 
are  located  there,  in  order  that  they  may  be  located  in  the  outskirts 
and  at  the  same  time  have  reasonably  cheap  and  regular  and  efficient 
transportation  for  their  working  people  to  reach  their  places  of 
employment. 

The  public-service  commission  of  the  first  district  made  a  very 
considerable  study  of  that  subject,  particularly,  with  the  result  that 
its  policy  was  dircted  very  largely  toward  the  development  of  a 
radial,  as  distinguishd  from  a  longitudinal,  transportation  in  the 
city  of  New  York,  in  order  to  make  accessible  the  very  large  areas 
and  unimproved  lands  in  the  boroughs  and  in  the  outskirts  of 
Brooklyn  that  were  not  at  that  time  accessible,  and  therefore  were 
industrially  useless  because  the  working  population  could  not  obtain 
access  to  the  areas,  nor  on  the  other  hand  could  the  industries  obtain 
sites  in  the  congested  parts  of  the  city  at  a  reasonable  cost,  with  the 
result  that  industrial  enterprises  were  locating  in  other  cities  where 
the  economic  conditions  as  to  transportation  and  cheap  lands  were 
most  favorable. 

So  our  general  conclusion  on  that  subject — although,  as  I  have 
said,  it  has  not  been  the  subject  of  a  subject  report — our  general 
conclusion  in  connection  with  our  study  of  general  conditions  was 
that  efficient  and  regular  and  cheap  urban  transportation  is  indis- 
pensable to  the  welfare  of  any  growing  community. 


878       PROCEEDINGS  OF  FEDERAL  ELECTEIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  What  section  did  you  say  the  commission  had  given 
attention  to  in  order  to  reach  it  ? 

Mr.  DE  BERABD.  The  outlying  territory  in  the  Borough  of  Queens, 
which  is  very  largely  undeveloped  by  reason  of  its  lack  of  ef- 
fective transportation  facilities. 

Mr.  WARREN.  That  is  on  Long  Island ;  is  it  not  ? 

Mr.  DE  BERARD.  On  Long  Island,  and  large  areas  in  the  outskirts 
of  Brooklyn  which  could  not  readily  be  reached  for  the  same  reason. 

Mr.  WARREN.  Have  transportation  lines  been  built  to  that  ter- 
ritory ? 

Mr.  DE  BERARD.  A  new  system  of  subways  and  the  extensions  of 
the  elevated  lines  lying  in  the  Boroughs  of  Queens  and  Brooklyn 
were  built  for  that  specific  purpose,  for  the  purpose  of  bringing  into 
industrial,  and  domestic  use  for  habitation  areas  that  were  much 
nearer  the  center  of  Manhattan  than  were  otherwise  available. 

Mr.  WARREN.  Have  those  lines  been  put  in  operation,  or  some  of 
them  ? 

Mr.  DE  BERARD.  They  are  just  coming  into  operation  now.  They 
are  in  process  of  construction  and  the  construction  has  been  delayed 
by  the  war,  but  they  are  in  operation  to  a  considerable  extent  and 
probably  all  will  be  in  operation  within  the  coming  year. 

Mr.  WARREN.  And  those  lines,  as  I  understand  you.  have  been 
built  in  advance,  either  of  industrial  or  population  development 
merely  for  the  purpose  of  furthering  the  interests  of  the  city  in 
further  industrial  development  and  in  securing  housing  territory  for 
the  employee. 

Mr.  DE  BERARD.  That  motive  was  a  very  important  and  possibly 
a  controlling  motive,  but  not  the  sole  motive.  Of  course  in  laj'ing 
out  the  new  subways  they  had  to  have  regard  to  the  existing 
population  and  its  demands  for  better  and  further  transit;  but  like- 
wise studies  were  made  of  the  undeveloped  areas  and  several  of  the 
lines  were  run  into  territory  that  was  practically  undeveloped  at  that 
time. 

Mr.  WARREN.  And  almost  without  population? 

Mr.  DE  BERARD.  Well,  with  very  scant  population. 

Mr.  WARREN.  Yes,  I  mean  compared  with  New  York  generally. 

Mr.  DE  BERARD.  Yes. 

Mr.  WARREN.  And  that  was  done  largely  at  the  suggestion  of  the 
transit  commission  ? 

Mr.  DE  BERARD.  It  was  made  the  subject  of  a  very  careful  study 
particularly  by  Commissioner  Bassett,  who  visited  Europe  and  made 
a  personal  examination  and  very  careful  study  af  the  existing  transit 
system  in  the  principal  industrial  centers  in  Europe,  particularly 
those  that  are  supplied  with  more  modern  means  of  transportation. 
I  have  had  frequent  conversations  with  him  on  that  subject,  and 
although  I  speak  without  his  authority,  I  believe  that  I  reflect  the 
results  of  the  studies  which  he  made  and  which  were  an  important 
element  or  factor  in  determining  the  new  rapid  transit  routes  in 
which  the  cities  and  the  companies  are  investing  in  the  neighborhood 
of  $300,000,000. 

Mr.  WARREN.  Do  you  know  whether  it  was  proposed  to  transport 
people  to  and  from  that  territory  at  the  same  fare  as  elsewhere  ? 

Mr.  DE  BERARD.  The  question  of  advanced  rates  of  fare  had  not 
at  that  time  assumed  acute  proportions. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       879 

Mr.  "WARREN.  But  I  mean  was  the  idea  to  make  the  fare  the  same 
there  as  it  was  then  on  other  parts  of  the  system? 

Mr.  DE  BERARD.  I  can  not  speak  for  the  commission  in  that  re- 
spect, but  I  assume  that  it  was  tacitly  expected  that  a  5-cent  rate 
of  fare  would  continue  to  be  universal,  because  the  contracts  under 
which  the  new  subways  were  built 

Mr.  WARREX.  Were  to  be  5  cents? 

Mr.  DE  BERARD.  Were  to  be  5  cents.  That  is  one  of  the  considera- 
tions of  the  contract.  But  as  I  have  stated,  the  economic  fallacy  in- 
volved in  a  universal  5-cent  fare,  although  pretty  well  understood 
by  the  street-railroad  men,  had  not  assumed  any  very  important  pro- 
portions in  the  public  mind. 

Mr.  WARREN.  I  think  you  said  you  lived  in  New  York. 

Mr.  DE  BERARD.  I  do ;  I  live  in  Brooklyn. 

Mr.  WARREN.  And  you  have  been  a  long-time  resident  of  New  York 
or  Brooklyn? 

Mr.  DE  BERARD.  Thirty  years. 

Mr.  WARREN.  Do  you  happen  to  know,  as  a  resident  of  Brooklyn, 
whether  since  the  roads  were  electrified — do  you  remember  when 
they  were  changed  from  horse  cars  to  electricity  ? 

Mr.  DE  BERARD.  Yes. 

Mr.  WARREN.  Was  there  in  connection  with  that  change  or  follow- 
ing it  a  great  enlargement  of  the  possible  ride  which  a  passenger 
could  take  in  Brooklyn  ? 

Mr.  DE  BERARD,  Well,  I  have  not  made  any  personal  study  of 
that  aspect  of  the  case,  but  I  know,  and  I  believe  I  may  state  it 
for  a  generally  accepted  fact,  that  as  the  result  of  the  consolidation 
of  the  numerous  small  companies  in  the  eighties  or  early  nineties, 
the  length  of  haul  for  a  single  fare  was  very  greatly  increased, 
and  at  the  present  time  one  can  ride  on  the  surface  cars  from  the 
Battery  to  the  upper  part  of  Manhattan,  a  distance  of  13  miles,  for 
5  cents,  and  I  tliink  that  on  the  later  extensions  of  the  subway,  which 
reach  from  the  Battery  to  Yonkers,  some  18  miles. 

Commissioner  GAD'SDEN.  Twenty-nine  miles. 

Mr.  DE  BKRARD.  Is  it? 

Commissioner  GADSDEN.  There  is  an  advertisement  in  the  subway 
cars  about  riding  29  miles  for  a  nickel. 

Mr.  DE  BERARD.  Well,  they  have  recently  made  extensions  on  the 
south  ends  of  the  subways  which  penetrate  several  miles  into  Brook- 
lyn. I  have  not  had  occasion  to  go  into  that  specifically,  but  I  know 
that  in  former  years,  30  years  ago,  you  could  get  a  ride,  perhaps  the 
longest  possible  ride  over  a  single  line  of  5  or  6  miles. 

Mr.  \\  ARREN.  That  was  in  Brooklyn  or  New  York  ? 

Mr.  DE  BERARD.  Either. 

Mr.  WARREN.  Either? 

Mr.  DE  BERARD.  Yes;  I  do  not  think  you  could  get  a  6-mile  ride  in 
Brooklyn  at  that  time,  not  for  a  5-cent  fare. 

Mr.  WARREN.  So  that  there  has  been  an  immense  extension  of  the 
possible  riding  since  the  roads  were  electrified  25  or  30  years  ago? 

Mr.  DE  BKRARD.  Yes;  primarily  as  the  result  of  the  consolidation 
of  the  numerous  very  small  companies  that  were  attended  with  very 
gvave  financial  scandals,  but  which,  especially  since  the  reorganiza- 
tion of  the  companies,  have  been  u  very  great  addition  to  the  public 
convenience. 


880       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  So  much  so  that  even  if  a  10-cent  fare  were  now 
charged,  it  would  be  possible  to  ride  for  the  10  cents  much  further 
than  it  would  have  been  possible  to  ride  for  10  cents  under  the  old 
system  of  separately  operated  companies? 

Mr.  DE  BERARD.  I  think  that  is  true ;  but  as  to  the  exact  measure, 
we  are  very  likely  within  the  next  few  weeks  to  have  a  very  concrete 
object  lesson  in  New  York  by  reason  of  the.  dissolution  through  re- 
ceivership of  the  consolidation,  so  that  the  numerous  separate  lines 
will  each  be  charging  a  5-cent  fare  for  passage  over  their  lines;  so 
if  anybody  wants  to  go  by  the  surface  lines  from  the  Battery  to  the 
upper  part  of  the  island  he  will  have  the  privilege  of  paying  perhaps 
15  cents  where  he  now  pays  5. 

Mr.  WARREN.  Is  a  similar  separation  of  lines  threatened  in  Brook- 
lyn, do  you  know? 

Mr.  DE  BERARD.  Yes;  the  Brooklyn  system  is  made  up  of  quite  a 
number  of  separate  lines. 

Mr.  WARREN.  Whose  legal  existence  is  still  continued? 

Mr.  DE  BERARD.  They  are  under  lease  to  a  holding  company.  The 
holding  company  is  in  the  hands  of  a  receiver  and  the  underlying 
lines  have  just  likewise  gone  into  the  hands  of  a  receiver,  so  there 
is  likely  to  be  a  dissolution  of  the  companies  there. 

Mr.  WARREN.  And  the  benefit  secured  a  good  many  years  ago  may 
now  disappear? 

Mr.  DE  BERARD.  Yes. 

Mr.  WARREN.  I  think  that  is  all,  Mr.  Chairman,  that  I  want  to 
ask  Mr.  De  Berard. 

Mr.  DE  BERARD.  I  should  like  to  say  a  little  more,  gentlemen,  on 
the  subject  of  government  ownership,  if  you  care  to  listen  to  it. 

The  CHAIRMAN.  Five  minutes? 

Mr.  DE  BERARD.  Well,  I  can  say  a  little  in  five  minutes  but  I  can 
not  exhaust  the  subject. 

Commissioner  MEEKER.  Well,  you  have  a  pamphlet  here  on  the 
subject. 

Mr.  DE  BERARD.  In  view  of  what  Gov.  Foss  said  this  morning,  I 
do  not  think  his  statement  should  be  permitted  to  go  unchallenged. 
There  are  certain  assumptions  in  the  governor's  statement  which  to 
me  seem  entirely  unwarranted.  Like  most  advocates  of  govern- 
ment ownership,  he  assumes  that  such  ownership  is  the  haven  and 
the  relief  for  the  assumed  or  alleged  hardships  under  which  the 
public  is  suffering.  Personally  I  am  inclined  very  strongly  to  dis- 
count the  public's  statement  and  its  beliefs  as  to  the  extent  of  the 
hardships.  As  Mr.  Warren's  questions  have  indicated,  the  public 
have  very  substantially  benefited  during  recent  years  by  the  major 
operation  of  street-railway  lines — in  the  city  of  New  York,  at  any 
rate — through  consolidations  and  extensions  whereby  the  public  gets 
very  much  more  for  its  money  than  it  formerly  got.  There  are  un- 
doubtedly justified  complaints  as  to  service,  sporadic  here  and  there, 
but  those  are  subject  to  cure  by  the  existing  commissions. 

But  that  was  not  the  point  that  I  wanted  to  make.  I  do  not  think 
that  Gov.  Foss's  assumption  that  government  ownership  is  going  to 
effect  a  cure  for  any  evils,  whether  real  or  imaginary,  is  correct.  On  the 
contrary,  it  is  going  to  create  a  new  class  of  evils.  Whether  under  gov- 
ernment ownership  or  private  ownership,  the  operation  of  a  street  -rail- 
way is  a  business  undertaking  as  distinguished  from  a  political  func- 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       881 

tion,  and  whether  under  private  or  government  ownership,  it  must  be 
subjected  to  the  same  rules  that  prevail  in  well-managed  business  un- 
dertakings. It  must  meet  all  economic  costs  that  are  involved.  The 
public  must  pay  those  economic  costs  in  one  form  or  another.  So 
the  question  to  be  considered  is  whether  those  economic  costs  will  be 
less  under  government  ownership  than  they  will  under  private  owner- 
ship ;  whether  government  ownership  will  produce  equal  or  superior 
efficiency ;  whether  it  will  produce  equal  or  superior  economy.  And 
the  result  of  my  study  as  to  the  application  of  the  principles  that 
govern  both  cases  is  that  government  ownership  will  inevitably  and 
unescapably  result  in  greatly  increasing  the  economic  costs  of  oper- 
ating the  business  propositions  that  are  under  consideration. 

The  CHAIRMAN.  Have  you  set  forth  your  conclusions  and  the  rea- 
sons upon  which  you  base  them  in  this  pamphlet  of  yours  ? 

Mr.  DEBERARD.  Yes;  I  have  analyzed  the  question  with  consider- 
able fullness  there  and  have  given  such  illustrations  as  are  pertinent 
to  the  subject.  There  are  other  illustrations,  however,  which  could 
be  adduced,  which  will  show  the  uniform  inefficiency  of  government 
agencies  when  they  undertake  to  conduct  economic  undertakings, 
by  reason  of  the  fact  that  the  methods  that  are  inherent  in  political 
government  and  which  are  perfectly  sound  w:hen  applied  to  political 
government  do  not  apply,  are  not  adapted  and  can  not  be  adapted 
to  the  necessities  of  economic  undertaking.  Waste  and  inefficiency 
to  a  high  degree  are  inseparable  from  government  ownership,  pri- 
marily by  reason  of  the  method  of  selecting  the  personnel.  And  it 
comes  down  to  a  question  of  management,  and  under  the  methods 
of  political  selection  the  personnel  to  which  the  management  is 
entrusted  is  not. and  can  not  be  as  efficient  as  that  of  private  manage- 
ment, the  reason  being  that  the  motives  that  govern  the  selection  are 
different  in  the  case  of  private  management.  Those  motives  result 
in  the  retention  of  the  highest  capacity  of  trained  skill,  of  experience, 
or  long,  careful  and  constant  contact  with  the  particular  industrial 
problems  that  are  concerned  and  the  bringing  to  bear  upon  those  of 
the  highest  attainable  degree  of  professional  expert  ability.  Whereas 
in  the  case  of  government  selections,  other  motives  always  enter  into 
the  selection.  I  venture  to  say  that  Governor  Foss  would  not  apply 
to  the  management  of  his  own  private  business  the  method  of  selec- 
tion that  he  applied  to  the  selection  of  the  public  service  commis- 
sion of  the  State  of  Massachusetts.  If  he  did  so  apply  it  he  would 
not  be  running  a  factory  but  he  would  be  seeking  a  job. 

The  CHAIRMAN.  I  am  sure  we  would  be  very  glad  to  hear  you 
at  length  on  that,  but  the  commission  has  been  here  under  pretty 
steady  pressure  and  we  would  like  to  adjourn  now  until  10  o'clock 
to-morrow  morning. 

(Whereupon,  at  10  p.  in.  the  hearing  was  adjourned  to  Friday, 
July  25,  1919,  at  10  a.  m.) 

WASHINGTON,  D.  C.,  July  25,  1917. 
Met  pursuant  to  adjournment  at  10  a.  m. 
Present:  Parties  as  before. 

The  CHAIRMAN.  You  may  proceed,  Mr.  Warren. 
Mr.  WARREN.  Mr.  Chairman,  I  want  to  put  in,  if  I  may,  a  letter 
from  Mr.  Samuel  Insull,  of  the  Chicago  Elevated  Railways  who, 


882       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

owing  to  certain  situations  in  Chicago,  is  not  able  to  be  present  as 
lie  expected,  to  address  the  commission : 

CHICAGO  ELEVATED  RAILWAYS, 
OFFICE  OF  THE  CHAIRMAN  OF  EXECUTIVE  COMMITTEE, 

Chicago,  III^,  July  23,  1919. 
To  THE  FEDERAL  RAILWAYS  COMMISSION, 

Washington,  D.  C. 

GENTLEMEN  :  The  demands  for  increased  wages  by  the  employees  of  the  Chi- 
cago Elevated  lines  (of  whose  board  I  am  chairman)  has  produced  a  serious 
situation  in  this  city,  and  as  it  is  impossible  for  me  to  leave  here  to  appear 
before  your  commission,  I  should  like  to  set  forth  briefly  the  situation  in  re- 
gard to  this  property,  which  serves,  together  with  the  surface  lines,  the  trans- 
portation needs  of  the  second  largest  city  in  the  United  States. 

The  increased  cost  of  operation,  due  to  labor  and  material,  has  decreased 
the  earning  power  to  such  an  extent  that  the  Chicago  Elevated  lines  are  barely 
able  to  cover  the  interest  charges  on  the  underlying  companies.  The  Chicago 
Elevated  Collateral  Trust,  which  owns  the  stock  of  the  operating  companies, 
had  $14,000,000  notes  maturing  July  1,  1919,  which  could  not  be  refinanced  and 
on  which  we  were  unable  to  meet  the  interest  payment  due  on  the  same  date. 

The  Chicago  Elevated  lines  have  been  a  very  important  factor  in  the  develop- 
ment of  Chicago  and  have  never  earned  but  a  small  return  on  the  actual  money 
invested.  The  rising  costs  produced  by  the  war  have  not  been  offset  by  an  ade- 
quate increase  in  fare,  although  the  fare  was  increased  from  5  to  6  cents,  going 
into  effect  November  22,  1918. 

We  are  faced  with  the  problem  of  meeting  the  demands  of  the  men  for  a 
further  increase  in  wage  and'changed  working  conditions  at  the  present  time. 
The  condition  which  confronts  us  is  illustrative  of  the  electric-railway  industry 
throughout  the  countiy,  the  earning  power  being  curtailed  to  such  an  extent 
as  to  destroy  the  ability  of  the  companies  to  obtain  money  or  to  even  maintain 
the  integrity  of  their  present  securities. 

Your  commission  can,  I  feel  sure,  perform  a  signal  service  to  the  Nation 
as  a  whole  by  bringing  to  the  attention  of  the  public  the  present  deplorable 
conditions  obtaining  in  the  industry  and  by  recommending  as  an  immediate 
measure  of  relief  such  increase  in  fares  as  will  prevent  the  ruin  of  this  neces- 
sary public  utility  and  by  recommending  a  comprehensive  plan  for  readjust- 
ing relations  between  the  company  and  the  public  on  a  basis  that  will  secure 
good  service  for  the  public,  adequate  maintenance  of  the  physical  property,  and 
such  a  return  to  capital  as  will  attract  it  into  the  business. 
Yours,  truly, 

SAMUEL  INSTTLL,  Chairman. 

Mr.  WARREN-  I  should  like  to  call  Mr.  Pardee,  the  president  of  the 
association,  for  a  few  minutes  to  see  about  the  situation  of  the  smaller 
companies,  many  of  which  are  members  of  the  association  but, 
because  of  their  relatively  small  size,  are  unable  to  come  here  per- 
sonally to  state  to  you  their  condition,  which  is  very  serious. 

STATEMENT  OF  MR.  JOHN  H.  PARDEE. 

Mr.  PABDEE.  Mr.  Chairman,  I  have  been  requested  to  present  the 
question  of  the  small  railways,  as  there  are  a  large  number  of  them 
in  the  United  States.  Representatives  of  certain  groups  have  been 

E resent  here  and  they  have  prepared  a  little  statement  which  they 
ave  asked  me  to  present  to  you,  representing  the  small  roads : 

A  considerable  part  of  the  electric-railway  business  in  the  United  States  is 
located  in  the  smaller  cities. 

The  conditions  governing  the  operation  of  street  railways  in  these  smaller 
cities  are  in  general  identical  with  those  governing  the  operation  of  street  rail- 
ways in  the  larger  communities. 

There  are,  however,  some  inherent  differences  due  to  the  size  of  the  communi- 
ties served  which  make  the  electric-railway  problem  in  the  small  cities  particu- 
larly difficult.  Distances  of  travel  being  shorter  result  in  fewer  rides  per  capita 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       883 

of  population.  Also,  in  order  to  compete  with  other  methods  of  getting  about 
and  satisfy  demands  of  the  public  for  frequent  service  even  in  outlying 
sections,  it  is  necessary  to  operate  cars  on  a  more  frequent  schedule  than  is 
warranted  by  the  number  of  passengers  to  be  carried.  Under  the  traffic  con- 
ditions which  prevail  in  small  cities  it  seems  that  the  one-man  car  can  be  oper- 
ated to  particular  advantage.  All  the  suggestions  made  during  this  hearing  for 
the  general  relief  of  electric  railways  are  applicable  to  the  small  railways. 
Prompt  increase  in  rates,  relief  from  all  unjiist  burdens  and  service  requirements, 
prompt  action  by  public  authorities  on  applications  of  the  railway  company, 
cooperation  on  the  part  of  public  authorities,  labor  and  the  general  public  in 
the  institution  of  safety  cars  and  other  equipment  and  other  methods  which 
will  contribute  toward  the  solution  of  the  difficulties  now  being  faced  are  urged. 
Public  authorities  and  the  public  should  recognize  that  It  is  absolutely  neces- 
sary to  eliminate  all  unjust  public  and  franchise  requirements,  in  order  that  the 
rate  of  fare  may  be  kept  within  limits  which  permit  its  greatest  possible  use. 

Mr.  WARREN.  I  should  like  to  file  with  the  commission  a  copy,  not 
authenticated,  but  I  believe  it  to  be  correct,  of  the  State  of  New 
Hampshire  law  relating  to  the  exemption  from  taxation  of  public 
utilities,  if  I  may.  I  will  not  read  all  of  it,  but  I  want  to  read  section 
2,  which  applies  to  this  particular  matter  more  specifically. 

After  providing  that  any  company  may  apply  to  the  public-service 
commission  for  determination,  section  2  proceeds  as  follows : 

If  said  public-service  commission  shall  on  or  before  the  15th  day  of  September 
in  any  year  file  with  the  State  tax  commission  a  certificate  that  any  such 
street-railway  property  has  failed  during  the  preceding  calendar  year  or  later 
period  of  12  months  to  earn  sufficient  money  to  pay  its  operating  expenses  and 
fixed  charges,  including  taxes  and  excluding  interest  on  its  indebtedess,  and  to 
provide  for  the  necessary  repairs  and  maintenance  of  its  properties  and  adequate 
reserves  for  depreciation,  and  that  in  the  opinion  of  the  public-service  commis- 
sion such  property  is  incapable  during  the  current  calendar  or  fiscal  year  to  earn 
sufficient  money  to  pay  such  expenses  and  fixed  charges,  and  to  provide  for 
such  repairs,  maintenance,  and  depreciation ;  then  in  such  case  the  property 
and  estate  within  this  State  owned  or  operated  by  such  corporation  on  its 
ordinary  business  as  a  street  railway  shall  be  exempt  from  taxation  and  no  tax 
shall  be  assessed  against  the  same  for  the  tax  year  in  which  such  certificate 
Khali  be  filed. 

Then  there  is  a  provision  for  a  speedy  determination.     Section  3 : 

It  shall  be  the  duty  of  the  public-service  commission  to  determine  before  the 
10th  day  of  September  the  facts  upon  any  petition  filed  under  the  provisions  of 
this  chapter  prior  to  the  1st  day  of  May  in  any  year. 

I  will  hand  the  whole  statute  to  the  secretary. 

Commissioner  SWEET.  What  are  you  reading  from,  Mr.  Warren? 

Mr.  WAKREN.  This  is  a  copy  of  house  bill  No.  154,  State  of  New 
Hampshire,  and  I  understand  that  has  been  enacted. 

Commissioner  SWEET.  It  has  not  yet  become  a  law? 

Mr.  WARREN.  I  think  it  has  become  a  law.  I  think  we  should 
check  that  up  and  get  a  verified  copy  of  the  act,  but  we  will  put  this 
in  de  bene,  assuming  my  impression  is  correct. 

STATEMENT  OF  ME.  W.  E.  CREED. 

Mr.  WAR-KEN.  Your  full  name? 
Mr.  CREED.  W.  E.  Creed. 

Mr.  WARREN.  You  are  a  lawyer,  I  think,  Mr.  Creed  ? 
Mr.  CREED.  Yes. 

Mr.  WARREN.  Are  you  counsel  for  the  California  Trans-Bay  Elec- 
tric Railway  Association? 


884       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CREED.  For  the  San  Francisco-Oakland  Terminal  Railways,, 
•which  operate  the  traction  lines  in  nine  cities  on  the  east  side  of 
San  Francisco  Bay,  from  Oakland,  and  also  the  Trans-Bay  service 
between  Berkeley,  Alameda  and  San  Francisco. 

Mr.  WARREN.  Will  you  state  to  the  commission  the  electric-railway 
situation  in  California,  with  special  relation  to  the  regulation  and 
supervision  and  its  effect  in  this  emergency  ? 

Mr.  CREED.  I  speak  with  particular  reference  to  the  situation  on 
the  east  side  of  the  bay.  The  San  Francisco-Oakland  Terminal  Rail- 
ways operate  two  divisions :  One  division  known  as  the  key  divisionr 
which  runs  trains  connecting  with  the  ferry  system  which  carries 
passengers  to  and  from  San  Francisco,  Oakland,  Alamenda,  and 
Berkeley  and  outlying  territories  on  the  east  side  of  the  bay;  the 
other  division  is  known  as  the  traction  division  and  operates  traction 
lines  in  nine  cities  and  the  intervening  territory. 

The  position  of  that  company  is  worse  to-day  than  it  was  in  1914. 
In  1914  the  necessity  for  reorganization  was  seen  and  a  committee 
on  reorganization  appointed  and  the  work  of  reorganization  has 
been  going  on  ever  since,  the  delay  being  due  very  largely  to  the 
necessary  delay  in  securing  what  we  call  a  resettlement  franchise, 
there  being  a  great  many  negotiations  and  some  legislation  necessary. 

Now,  I  could  perhaps  best  state  the  situation  there  by  saying  the 
California  Railroad  Commission  in  August  of  last  year  granted  the 
traction  division  a  6-cent  fare,  an  increase  of  20  per  cent  over  the 
theretofore  fare  charged.  The  gross  revenue  of  the  traction  division 
was  approximately  $3,000,000  per  annum.  There  was  no  loss  of  short 
siders  as  the  result  of  that  increase  of  fare,  and  the  company  received 
at  the  rate  of  $600,000  per  annum  increase. 

Mr.  WARREN.  You  got  the  full  theoretical  increase? 

Mr.  CREED.  Yes,  substantially  the  full;  in  fact,  there  was  an  un- 
usual situation  there.  The  granting  of  that  increased  fare  was 
thrown  on  the  screens  in  moving  picture  theaters  and  was  cheered 
by  the  audiences  in  several  theaters. 

Now,  the  increase  from  labor  alone  in  two  years  has  been  over 
$600,000  in  the  two  divisions,  and  the  only  increase  in  revenue  which 
the  company  has  had  has  been  the  increase  from  5  to  6  cents  and  the 
10  per  cent  increase  in  the  key  division  fares.  Instead  of  a  10-cent 
one-way  fare,  they  now  have  11  cents,  and  instead  of  a  $3  commuta- 
tion rate  they  now  have  a  $3.30  commutation  rate — that  10  per  cent 
increase  coming  through  the  commission  to  meet  the  10  per  cent 
increase  given  to  the  railroads  and  to  put  the  key  division  on  a  par 
with  the  Southern  Pacific  Trans-Bay  service.  Of  course  in  addition 
to  that  labor  increase  there  has  been  the  increased  cost  of  materials 
and  the  increased  cost  of  power,  so  that  the  company  is  showing  less 
revenue  over  and  above  direct  operating  expenses  than  it  did  a  year 
ago  or  two  years  ago  or  four  years  ago.  Its  position  has  steadily 
.'decreased  in  strength. 

I  regard  the  situation  there  on  the  east  side  of  the  bay  as  extremely 
hazardous  for  the  continuance  of  the  service.  I  feel  the  death  rattle 
is  in  the  throat  of  those  companies  and  that  the  only  relief  which  will 
be  of  any  service  is  immediate  relief.  The  company  can  not  wait  for 
a  complete  final  and  perfected  solution.  It  must  have  more  money 
to  continue  that  service. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       885- 

The  difficulties  on  the  east  side  of  the  bay  under  which  the  com- 
pany has  struggled  are  common  to  all  of  California.  These  diffi- 
culties as  I  see  them  are,  first,  the  5J  per  cent  State  franchise  tax  on 
gross  revenues,  and  that  5^  per  cent  of  course  acts  as  a  reducer  of 
every  increase  in  revenue.  Secondly,  the  old  franchise  taxes — which 
we  call  under  the  Broughton  Act,  which  I  should  say  approximately 
averaged  around  2  per  cent — they  amount  to  1  per  cent  under  exten- 
sions, but  I  think  on  an  average  they  would  amount  to  2  per  cent,  tak- 
ing in  all  cases. 

Then  the  paving  tax.  This  situation  has  occurred  in  several  places 
in  California:  The  pavement  which  is  perfectly  good  for  10  years 
has  been  changed  by  the  municipal  authorities  to  very  high-class 
pavement.  The  pavement  being  ordered  is  the  very  best  class  of 
pavement.  Now,  that  has  resulted  in  abandonment  of  pavement 
which  had  been  paid  for  by  the  traction  companies,  the  investment  of 
a  far  larger  sum  of  money  in  the  most  modern  approved  pavement. 
That  has  been  a  very  serious  burden  to  the  traction  division  on  the 
east  side  of  the  bay,  and  also  to  the  key  division,  because  there  never 
was  any  reserve  to  take  care — call  it  depreciation  reserve  or  whatever 
you  want  to — of  that  abandonment  of  pavement  which  had  an  as- 
sumed life,  we  will  say,  of  10  years  to  run,  and  yet  it  has  been  re- 
placed by  more  expensive  pavement  and  an  absolute  loss  of  the  10 
years  of  service  of  the  old  pavement  borne  by  the  company,  and  it 
was  an  absolute  capital  loss. 

The  next  difficulty 

The  CHAIRMAN.  What  per  cent  of  your  operating  expenses  is  paid 
out  for  your  paving  requirements? 

Mr.  CREED.  I  have  not  looked  at  those  figures  for  some  time. 

The  CHAIRMAN.  I  wish  you  would  supply  it. 

Mr.  CREED.  I  can  get  them  and  will  have  them  filed. 

Commissioner  SWEET.  It  probably  would  vary  with  different  years. 

Mr.  CREED.  It  would  vary  with  different  years;  and  it  affects  the 
credit  of  a  company  so  to  have  these  big  blows  come;  there  is  no 
uniformity  in  it. 

The  next  difficulty,  as  I  see  it,  has  been  in  the  practice  out  there 
of  assessing  franchises  to  pay  for  public  improvements  like  street 
widening,  and  there  is  some  litigation  over  that;  but  at  any  rate  the 
right  is  asserted,  and  that  increases  the  taxes  unduly  and  there  must 
be  some  change  in  that. 

Another  difficulty  is  the  failure  to  more  rigidly  enforce  traffic 
regulations  with  regard  to  automobiles  and  cut  down  the  accidents. 
I  believe  that  with  a  more  strict  enforcement  of  traffic  regulations  in 
the  congested  areas  of  the  city  of  Oakland  that  the  expense  of  ac- 
cidents would  be  materially  cut  down.  I  do  not  think  that  traffic 
regulation  has  been  worked  to  as  high  a  degree  of  perfection  as  it 
ought  to  be. 

Commissioner  GADSDEN.  You  would  get  better  dispatch  on  your 
cars,  too,  would  you  not? 

Mr.  CREED.  Yes.  Another  difficulty — and  this  I  regard  as  a  very 
serious  one — is  the  demand  of  municipal  authorities  for  service 
beyond  the  revenue  on  particular  lines  and  the  refusal  to  permit  the 
abandonment  of  lines  which  have  not  been  justified,  thus  throwing 
a  burden  on  the  more  profitable  lines  and  a  burden  upon  the  system 


886       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

as  a  whole.  Because  the  traction  division  represents  the  consolida- 
tion of  some  9  or  10  companies  and  the  service  rendered  on  that 
side  of  the  bay  was  greatly  improved  by  this  consolidation.  The 
consolidation  involved  the  cost  of  many  heavy  abandonments,  but 
it  did  give  a  much  better  service  due  to  unity  of  operation  and  also 
a  better  service  for  less  money. 

Under  the  old  condition  there  people  sometimes  had  to  pay  20 
cents  to  get  where  they  can  now  get  for  5  cents  or  6  cents  under  the 
increased  rate.  That  was  a  tremendous  advantage  to  the  com- 
munity, and  the  community  has  built  up;  the  population  has  fol- 
lowed the  transportation  and  the  lines,  but  there  are  some  lines 
which  ought  to  be  abandoned,  and  I  think  the  insistence  upon  too 
.much  headway  on  lines  which  have  not  an  adequate  revenue  to  jus- 
tify it  is  a  serious  difficulty  there. 

In  a  general  way  I  have  pictured  the  situation  as  I  see  it.  I 
think,  too,  that — if  I  may  go  on  with  just  this  one  other  thought 
that  I  have — in  California  it  is  essential  that  there  be  an  adjust- 
ment of  the  entire  franchise  situation.  We  have  expiring  franchises 
with  forfeiture  clauses  in  them,  and  it  is  essential  to  the  reorganiza- 
tion of  the  San  Francisco-Oakland  Terminal  Railways,  and  that  is 
now  in  process  of  financial  reorganization,  that  the  company  have 
franchises  which  do  not  expire  on  definite  periods;  and  it  can  not 
be  soundly  reorganized  until  those  resettlement  franchises  are 
adopted.  The  community  has  already  at  a  public  election  expressed 
its  approval  of  the  idea  and  progress  is  being  made. 

The  CHAIRMAN.  What  is  the  maximum  life  of  a  franchise  under 
your  law? 

Mr.  CKEED.  Fifty  years  is  the  longest  they  have  had  on  that  side 
of  the  bay ;  some  20  and  some  25. 

Now,  I  feel  it  is  essential  if  that  service  is  going  to  continue  there, 
either  under  the  reorganization  committee  or  a  private  company  or 
under  a  receiver,  no  matter  who  is  going  to  be  responsible  for  it; 
that  there  be  immediate  relief  in  the  increase  of  income. 

Commissioner  GADSDEN.  How  much?     You  have  6  cents  now? 

Mr.  CKEED.  Yes,  but  I  do  not  believe  that  6  cents  is  going  to  carry 
the  situation. 

Commissioner  GADSDEN.  How  much  more  would  you  have  to  have 
in  Oakland? 

Mr.  CREED.  I  think  that  the  traction  company  will  require  7  cents, 
and  I  feel  that  the  key  division  must  have  an  increase  of  approxi- 
mately 5  cents  for  one-way  fares  and  a  commutation  rate  between 
$4  and  $5. 

Let  me  tell  you  about  that  commutation  rate.  The  average  haul 
by  rail  and  wyater  between  the  east  side  of  the  bay  and  San  Fran- 
cisco in  9  miles;  that  is  the  average.  Our  commutation  rate  has 
been  $3  up  to  the  10  per  cent  increase  put  in  by  the  Railroad  Admin- 
istration, not  applicable  to  us,  but  given  us  to  put  us  on  a  parity 
with  the  Southern  Pacific. 

Mr.  WARREN.  Three  dollars  would  mean  how  much  for  the  9-mile 
ride? 

Mr.  CREED.  Well,  very  close  to  half  a  cent  a  mile. 

The  CHAIRMAN.  What  do  you  mean  by  $3? 

Mr.  CREED.  Three  dollars  per  month. 


50ttVC>CEEDIXGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       887 

Commissioner  GADSDEN.  A  little  over  10  cents  a  day? 

Mr.  CREED.  A  little  over  10  cents  a  day.     It  is  5  cents  each  way. 

Mr.  WARREN.  You  mean  the  cash  fare  is  5  cents? 

Mr.  CREED.  No,  the  commutation  fare;  and  the  cash  fare  is  10 
cents  under  the  old  rate.  The  average  distance  is  9.1  miles. 

Mr.  WARREN.  And  that  includes  both  the  traction  line  and  the 
boat? 

Mr.  CREED.  Yes.  Now,  that  is  the  lowest  interurban  service  any- 
where in  the  country  that  I  know  of,  and  the  service  out  there  has 
been  in  the  past  as  good  as  any  in  the  country  and  it  was  equaled  by 
very  few.  Any  of  you  who  have  traveled  over  those  suburban  or 
trans-bay  lines  have  realized  it  is  a  very  high  class  of  service,  and 
yet  there  is,  say  in  round  numbers,  half  a  cent  a  mile  for  that  service. 

Mr.  WARREN.  Now  you  say  you  need  immediate  relief  by  way  of 
higher  fares,  and  I  should  think  you  did.  Why  can  not  you  get  it? 

Mr.  CREED.  Well,  our  commission  out  there  has  acted  with  com- 
mendable courage  with  regard  to  the  traction  company,  and  we  fin- 
ished the  case  which  involved  the  question  of  an  increased  fare  in 
July  or  about  the  1st  of  July  last  year,  and  in  August  the  commis- 
sion granted  the  6-cent  fare — on  the  14th  of  August.  We  have  not 
yet  gone  to  them  on  the  7-cent  fare,  but  we  have  pending  an  applica- 
tion for  an  increase  of  fares  on  the  key  division,  and  that  decision 
has  not  yet  come  down. 

Mr.  WARREN.  How  long  has  that  been  pending? 

Mr.  CREED.  Since  July  of  last  year. 

Commissioner  SWEET.  The  commission  you  speak  of  is  the  State 
public-utility  commission? 

Mr.  CREED.  Yes;  of  State-wide  jurisdiction. 

Mr.  WARREN.  They  have  jurisdiction  to  do  it? 

Mr.  CREED.  Yes;  they  have  met  the  situation  in  California  very 
well.  Of  course,  there  are  a  good  many  complications  in  connec- 
tion with  the  increase  in  the  trans-bay  fare.  The  question  is  what 
the  Southern  Pacific,  which  is  a  competing  service,  will  do,  and 
whether  the  Railroad  Administration  will  go  to  the  same  figure,  and 
also  the  question  of  whether  we  would  dare  to  operate  at  an  increased 
fare.  I  have  said  we  would ;  I  have  taken  that  position  very  frankly, 
and  I  do  not  recede  from  it.  I  would  rather  take  the  cream  of  the 
business,  which  we  would  get  at  a  higher  rate,  and  let  the  Southern 
Pacific  Company  go  on  at  a  lower  rate  than  to  continue  as  we  are. 
It  is  better  business  and  also  better  for  the  company. 

Mr.  WARREN.  Now  regarding  these  taxes  and  burdens  in  the  nature 
of  taxes  that  cost  you  money ;  suppose  they  were  all  removed,  that  you 
have  mentioned;  you  would  still  need  additional  fare,  or  not? 

Mr.  CREED.  Well,  that  would  depend  upon  what  the  purchasing 
power  of  the  dollar  is  going  to  be.  I  think  under  present  con- 
ditions we  would  need  a  higher  rate  of  fare  than  we  had  in  1014; 
yes.  But  the  removal  of  these  burdens  I  speak  of  would  be  a  very 
material  help  in  maintaining  fares  toward  the  old  standards  of 
fares — there  is  no  question  about  that. 

Mr.  WARREN.  Many  of  these  burdens  and  taxes  I  assume,  like  the 
5£  per  cent  tax,  are  imposed  under  statutes? 

Mr.  CREED.  Yes;  and  constitutional  provisions. 

Mr.  WARREN.  So  there  is  no  hope  of  any  immediate  relief  through 
that? 


888       PKOCEEDINGS  OF  FEDEEAL  ELECTRIC  RAILWAYS  COMMISSHJft. 

Mr.  CREED.  No ;  it  is  going  to  require  a  great  deal  of  study  to  work 
out  the  permanent  solution  for  the  railway  situation  there. 

Mr.  WARREN.  Could  any  substantial  portion  of  those  burdens  be 
immediately  removed  by  the  action  of  any  governmental  authority? 

Mr.  CREED.  No,  sir. 

Mr.  WARREN.  So  that  for  immediate  relief  those  may  be  dismissed 
from  consideration,  may  they? 

Mr.  CREED.  Yes. 

Mr.  WARREN.  And  that  brings  it  back  to  the  fare? 

Mr.  CREED.  Yes. 

Mr.  WARREN.  And  unless  the  relief  is  forthcoming  in  fares  you 
think  the  situation  is  a  very  serious  one 

Mr.  CREED.  Oh,  it  is;  I  know  it. 

Mr.  WARREN.  For  the  continuance  of  the  service? 

Mr.  CREED.  Yes. 

Mr.  WARREN.  What  in  your  opinion  could  this  commission  do  to 
assist  the  situation  of  these  companies,  assuming  that  it  wished  to 
assist  them? 

Mr.  CREED.  Well,  if  the  commission  has  the  power  they  could 
assist  us  by  seeing  we  get  more  revenue. 

Mr.  WARREN.  Well,  they  have  not  the  power  to  order  anything. 

Mr.  CREED.  I  know,  and  using  whatever  means  they  have  to  edu- 
cate the  people  generally  as  to  the  necessity  of  an  increase  in  fare 
to  save  the  situation.  Now  I 

Mr.  WARREN.  Let  me  ask  one  other  question  there.  You  have  de- 
scribed the  condition  of  the  two  particular  companies.  Is  it  practi- 
cally one  interest? 

Mr.  CREED.  Yes;  it  is  a  consolidation  of  a  trans-bay  service  and  a 
traction  service. 

Mr.  WARREN.  Should  you  say  to  this  commission  that  substantially 
that  represented  the  situation  over  the  State  ? 

Mr.  CREED.  I  think  so ;  yes.    I  think  it  does  in  Los  Angeles. 

Mr.  WARREN.  So  that  most  of  your  companies  are  in  need  of  some 
form  of  immediate  relief? 

Mr.  CREED.  Yes. 

Mr.  WARREN.  And  the  only  one  you  can  suggest  to  the  commission 
from  your  acquaintance  with  the  laws  and  the  situation  regarding 
franchises  in  California  is  an  immediate  relief  through  increased 
revenue  ? 

Mr.  CREED.  Yes.  There  is  one  other  thing  I  would  like  to  volunteer 
to  the  commission,  and  that  is,  I  think  it  would  be  desirable  if  the 
commission  could  make  some  studies  and  findings  regarding  the 
future  rate  fixing  policies  of  State  commissions  regarding  utilities 
in  general  or  street  railways. 

I  feel,  as  everyone  does,  that  it  is  desirable  to  have  compensation 
and  the  rate  of  fare  as  low  as  is  consistent  with  maintaining  the 
credit  and  service,  but  I  do  think  that  it  is  essential  that  a  rate-fixing 
policy  making  adequate  provision  for  depreciation  and  contingencies 
be  adopted.  I  think  it  requires  some  educational  work  to  do  that.  I 
think  it  particularly  desirable  in  particular  communities  that  there 
be  a  uniform  fare  over  a  considerable  period.  I  do  not  assume  that 
there  should  be  uniformity  of  fares  over  the  country  as  a  whole,  but 
I  think  it  desirable  that  there  should  be  no  fluctuation  in  charges  for 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       889 

public-utility  service  over  any  particular  number  of  years  in  any 
particular  zone  in  the  country.  The  only  way  to  accomplish  that,  it 
seems  to  me,  is  to  allow  these  companies  to  have  reserves  to  take 
care  of  the  fluctuation.  They  must  have  them.  I  believe  very 
strongly  in  State-wide  regulation.  I  believe  the  great  service  that 
that  has  clone  has  been  to  control  the  issuance  of  securities,  and  I 
think  it  was  essential  that  that  be  done,  but  I  think  the  tendency  in 
State-wide  regulation  has  been  to  require  companies  to  give  service 
substantially  at  cost.  That  is,  when  3rou  take  most  of  the  rate  cases 
which  have  been  decided  by  commissions,  you  find  they  build  up  the 
operating  expenses,  whatever  allowance  they  make  for  depreciation, 
bond  interest  and  the  dividends  to  the  stock  which  is  used  for  financ- 
ing, and  then  there  is  a  little  margin  or  surplus  over,  but  that  margin 
has  not  been  big  enough  to  take  care  of  fluctuations  in  conditions. 
And  I  feel  there  ought  to  be  very  careful  thought  and  study  given 
to  the  future  policy  with  reference  to  reserves  and  depreciation  re- 
serves for  public  utilities  and  particularly  street  railways. 

These  reserves,  of  course,  would  be  under  the  direct  control  of  pub- 
lic-utility commissions  and  would  be  in  the  nature  of  trust  funds 
and  their  disposition  could  be  controlled  by  public  authority. 

Mr.  WARREN.  That  relates  to  the  permanent  solution? 

Mr.  CREED.  To  the  permanent  solution,  I  am  talking  about.  I 
think  one  of  our  difficulties  has  been  that  we  have  not  had  those 
reserves.  Now  you  take  this  question  of  abandoning  a  street  which 
has  a  10  years'  life,  and  a  good  useful  life  of  10  years,  and  repre- 
sents, say '$200,000.  That  is  wiped  out  and  you  put  in  $500,000  in 
a  better  class  of  pavement.  If  you  had  a  reserve  to  take  care  oi; 
those  things  that  loss  would  not  occur,  and  it  seems  to  me  those  things 
are  a  part  of  the  cost  of  what  the  community  is  demanding  in  the 
way  of  service. 

Commissioner  MEEKER.  May  I  ask  «  question  there?  Would  you 
favor  building  up  a  reserve  sufficient  to  take  care  of  the  whole 
$200,000  which  is  abondoned  before  you  abandoned  the  old  pavement 
for  the  new  pavement  ? 

Mr.  CREED.  I  do  not  know  that  you  could  make  your  reserve — 
you  could  not  tell  what  the  public  authority  was  going  to  do;  but 
there  should  be  a  substantial  reserve  based  upon  an  intelligent  judg- 
ment of  what  was  likely  to  be  required ;  and  if  it  was  $400,000  or 
whatever  it  was,  the  companies  ought  to  be  reimbursed  for  that  out 
of  the  revenue,  out  of  the  business.  They  certainly  can  not  main- 
tain their  credit  and  stand  losses  of  that  sort  many  times. 

Now  you  see  the  utilities  have  been  running  on  a  fixed  revenue 
without  much  fluctuation  until  recently,  and  the  operating  end  of  it 
has  been  fluctuating  and  the  burdens  of  it  have  been  fluctuating 
against  them — or  not  fluctuating,  but  they  have  been  on  an  increas- 
ing scale. 

Mr.  WARREN.  They  have  been  fluctuating  up  all  the  time? 

Mr.  CREED.  Yes,  not  fluctuating  but  steadily  going  up.  In  other 
words,  I  feel  the  same  principles  would  govern  the  maintenance  of 
credit  of  a  utility  as  would  govern  the  maintenance  of  credit  of  any 
other  business  concern.  Take  the  life  insurance  companies:  they 
SHved  themselves  by  their  reserves,  and  I  remember  very  well  when 
those  reserves  were  very  bitterly  criticized;  but  yet  they  are  the  very 

100043°— 20 57 


890       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

thing  that  has  saved  those  companies  at  this  time.  And  it  was  with 
reluctance  that  they  were  allowed  to  retain  them. 

Commissioner  MEEKER.  The  reserves  should  be  sufficient  so  that 
the  major  portion  of  any  replacement  should  be  paid  for  immediately 
out  of  the  reserve :  is  that  your  idea  ? 

Mr.  CREED.  Yes,  sir. 

Commissioner  MEEKER.  And  the  fare  should  be  so  regulated  as  to 
give  a  sufficient  increment  to  reserve,  so  that  any  deficiency  not  im- 
mediately paid  for  out  of  reserve  could  be  speedily  made  up. 

Mr.  CREED.  Yes,  and  the  reserves  of  course  should  be  treated  as 
trust  funds,  quite  differently  from  the  other  funds  of  the  company. 
I  mean,  they  should  be  impressed  with  a  trust,  to  be  used  under  the 
regulatory  body;  and  if  these  reserves  built  up  higher  than  experience, 
showed  it  necessary,  they  should  be  used  for  additions  to  service 
which  were  not  capitalized  or  for  the  benefit  of  the  public.  But  the 
possession  of  those  reserves  is  a  protection,  it  seems  to  me  that  is  ab- 
solutely necessary,  or  in  lieu  of  that  you  have  to  have  something 
which  means  a  fluctuating  charge. 

Commissioner  MEEKER.  Is  not  that  one  of  the  vital  points  in  the 
permanent  solution  of  the  whole  thing? 

Mr.  CREED.  I  think  so;  yes. 

Commissioner  MEEKER.  And  is  not  a  great  deal  of  public  educa- 
tion needed  in  order  to  understand  just  plain  bookkeeping? 

Mr.  CREED.  Yes. 

Commissioner  MEEKER.  Or  which  is  sometimes  dignified  by  the 
term  accounting? 

Mr.  CREED.  Yes. 

Commissioner  MEEKER.  Is  it  not  true — I  will  put  it  that  way — • 
that  the  public  needs  to  be  educated  to  the  fact  that  these  reserve 
funds  are  not  the  private  property  of  the  traction  companies  but 
they  are,  as  you  have  expressed  it,  merely  held  in  trust? 

Mr.  CREED.  Trust  funds  for  the  protection  of  the  credit  and  the 
service  of  the  agency  performing  the  service,  is  my  idea. 

Commissioner  MEEKER.  And  that  should  be  taken  into  account  in 
any  cost-of-service  plan  adopted? 

Mr.  CREED.  Yes. 

The  CHAIRMAN.  It  has  been  generally  considered,  Mr.  Creed,  that 
the  California  Commission  has  been  a  very  efficient  body. 

Mr.  CREED.  It  has — I  feel  it  has. 

The  CHAIRMAN.  And,  in  studying  the  different  cases  that  have 
came  before  it,  it  has  attempted  to  work  out  economies  in  service  and 
secure  a  rate  which  would  bring  in  a  fair  return  upon  the  capital 
invested,  set  aside  a  proper  depreciation  fund  and  things  of  that 
kind.  Now  during  the  normal  years  did  not  its  practice  conform  to 
good  regulative  experience? 

Mr.  CREED.  I  think  so.  I  have  a  very  high  opinion  of  the  work 
of  the  California  Commission. 

The  CHAIRMAN.  And  did  not  the  utilities  have  a  very  fair  measure 
of  prosperity  in  that  State? 

Mr.  CREED.  I  think  so. 

The  CHAIRMAN.  The  difficulty  you  speak  of  has  largely  grown  out 
of  the  war? 

Mr.  CREED.  Yes. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       891 

The  CHAIRMAN.  With  the  rapidly  increasing  cost  of  labor  and 
wages? 

Mr.  CREED.  Yes. 

The  CHAIRMAN.  Now,  I  presume  it  has  been  quite  difficult  for  regu- 
lating commissions  to  meet  all  these  applications  for  advancing 
rates  because  the  prices  have  been  shifting  so  rapidly. 

Mr.  CREED.  It  has  been  extremely  difficult. 

The  CHAIRMAN.  Xow  the  question  you  mentioned  there  at  Oak- 
land: Your  railroad  is  in  competition  there  with  the  Southern 
Pacific  ? 

Mr.  CREED.  On  the  trans-bay  service;  yes. 

The  CHAIRMAN.  And  the  Southern  Pacific  is  being  guaranteed 
a  fixed  return  by  the  Government? 

Mr.  CREED.  Yes. 

The  CHAIRMAN.  And  that  particular  railroad  during  the  war 
period  has  been  actually  earning  its  guaranty,  has  it  not  ? 

Mr.  CREED.  You  mean  the  trans-bay  service?  The  trans-bay  serv- 
ice of  the  Southern  Pacific  has  been  operated— 

The  CHAIRMAN.  Xo;  I  mean  of  the  Southern  Pacific  as  a  whole. 

Mr.  CREED.  Well,  I  do  not  knoAv  of  my  own  knowledge  about  it, 
but  I  know  their  trans-bay  service  is  operated  at  a  loss  in  Oakland, 
and  the  balance  of  the  railroad  service  is  carrying  the  trans-bay  serv- 
ice with  which  we  are  in  competition.  But  the  Southern  Pacific  has 
been  doing  very  well  as  a  whole. 

The  CHAIRMAN.  The  real  problem  is  whether  the  Railroad  Ad- 
ministration can  increase  that  trans-bay  service  and  add  an  addi- 
tion to  the  burden  on  the  people  there  when  the  railroad  as  a  whole 
is  earning  a  good  deal  of  money? 

Mr.  CREED.  Yes. 

The  CHAIRMAN.  Can  you  operate  on  a  higher  basis  than  the 
Southern  Pacific  and  keep  the  travel  ? 

Mr.  CREED.  I  think  so.  I  think  there  are  some  territories  where 
we  are  not  in  competition.  We  lose  money  on  every  passenger  \ve 
carry,  and  if  we  carry  less  passengers  we  lose  less  money.  I  am 
not  afraid  to  do  it.  We  will  get  a  selected  business,  and  we  will 
not  lose  any  money  on  it.  We  can  give  certain  service  that  will 
appeal  to  people  and  they  will  pay.  We  have  some  business  out 
there. 

Xow,  there  is  just  one  other  thing.  You  were  speaking  about  the 
California  Commission,  and  I  think  this  thing  is  true  all  over  the 
country.  We  have  had  an  inconsistent  situtation  in  public  regula- 
tion, due  to  the  fact  that  the  commissions  came  into  existence  very 
largely  after  1907  and  they  found  utilities,  street  railroads,  and 
others  had  been  issuing  securities  on  that  theory,  you  see;  and  the 
commissions  came  in  and  took  control  of  the  issuance  of  securities 
and  they  fixed  rates  with  reference  to  companies  which  had  securi- 
ties issued  in  largo  part  on  a  different  theory  from  theirs,  on  the 
theory  on  which  the  commissions  themselves  issue  securities.  And 
I  have  always  thought  the  only  thing  to  do  was  to  treat  rate  fixing 
as  a  financial  question  purely  and  simply,  and  as  an  action  by 
public  authority  to  maintain  credit  and  service  and  that  if  they 
were  unwilling  to  support  the  securities  which  were  already  out — • 
in  other  words,  if  they  were  unwilling  to  permit  the  credit  of  the 


892       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

company  to  go  on — that  the  commissions  might  just  as  well  frankly 
force  reorganizations  in  those  securities  and  cut  down  the  securi- 
ties to  where  they  could  handle  the  thing  as  a  whole.  Now,  we 
have  had  that  inconsistency  in  regulation  which  I  think  has  been  a 
very  bad  thing.  I  found  it  in  several  other  classes  of  utilities  where 
we  have  had  securities  issued  and  put  out  in  good  faith  and  our 
credit  depended  upon  the  maintenance  of  revenue  to  support  those 
securities.  Now,  if  you  fix  rates  upon  an  entirely  different  theory 
and  do  not  kick  out  those  securities  you  have  an  entirely  different 
situation. 

The  CHAIRMAN.  The  California  Commission  has  sought  to  regu- 
late the  rates  so  as  to  bring  a  fair  return  on  the  value  of  the 
property  ? 

Mr.  CREED.  Yes. 

The  CHAIRMAN.  And  have  proceeded  to  value  the  property  in 
very  many  cases? 

Mr.  CREED.  Yes. 

The  CHAIRMAN.  Do  you  think  that  to  be  a  proper  basis? 

Mr.  CREED.  Yes;  I  approve  of  that;  but  I  think  it  is  merely  pro- 
ducing a  slow  death  to  go  on  without  removing  that  inconsistency. 

Commissioner  MEEKER.  Do  you  think  the  same  authority  should 
regulate  the  issuance  of  securities  that  regulates  rates? 

Mr.  CREED.  Yes,  sir. 

Commissioner  MEEKER.  Will  you  explain  why? 

Mr.  CREED.  Well,  because  the  credit  of  a  company  depends  upon 
what  it  earns  and  its  management;  and  it  requires  its  earnings  to 
pay  its  operating  expenses,  take  care  of  its  depreciation,  and  pay 
the  obligations  on  its  securities,  and  I  think  there  is  an  absolute 
close  connection  between  the  securities  out  and  the  revenue.  And 
I  would  go  even  further  than  that.  I  would  give  the  State  regulat- 
ing authorities  the  power  to  control  financial  structures  of  com- 
panies and  control  reorganizations.  If  you  are  going  to  have  regu- 
lation you  might  as  well  have  it  100  per  cent,  because  those  three 
things  are  so  intimately  connected  that  you  have  a  constant  struggle 
unless  you  have  cooperation  'in  the  issuance  of  the  securities,  ap- 
proval of  the  securities  already  out,  and  regulation  of  the  revenue 
in  harmony  with  those  securities. 

Commissioner  MEEKER.  It  has  been  stated  to  the  commission  that 
the  function  of  protecting  the  public  and  the  traction  company  was 
something  different  from  the  function  of  protecting  the  investors. 
You  think  that  there  is  no  conflict  there,  that  it  is  really  part  of 
one  function. 

Mr.  CREED.  I  do;  yes.  I  do  not  agree  with  that  other  theory.  I 
have  heard  of  it,  but  I  do  not  agree  with  it.  That  is  a  personal  view 
only  of  my  own.  I  think  we  have,  in  most  cases,  too  much  duplica- 
tion and  lapping  over.  I  think  the  more  consolidation  you  have  in 
regulation,  the  better. 

Mr.  WARREN.  That  is  all. 

Commissioner  SWEET.  I  Avant  to  ask  a  question.  How  is  .your 
State  commission  appointed  ?  By  the  governor  ? 

Mr.  CREED.  By  the  governor;  yes. 

Commissioner  SAVEE.T.  How  many  are  there  on  the  commission? 

Mr.  CREED.  Five,  and  several  examiners. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       893 

Commissioner  SWEET.  And  if  you  wanted  to  have  an  increase  of 
fares,  what  do  you  have  to  do? 

Mr.  CREED.  File  a  petition,  the  matter  is  set  for  hearing,  and  you 
have  a  hearing,  and  the  commission's  engineers  investigate  and 
make  a  valuation  of  the  road  and  you  present  evidence  orally  and 
in  writing;  the  usual  procedure. 

Commissioner  SWEET.  Pending  the  action  of  the  commission,  does 
the  old  rate  continue  ? 

Mr.  CREED.  Yes;  it  always  has  so  far  in  California. 

Commissioner  SWEET.  Do  you  know  what  the  arrangement  is  in 
Pennsylvania? 

Mr.  CREED.  What  is  that  ? 

Commissioner  SWEET.  Are  you  familiar  with  the  arrangement  in 
Penns}rlvania  in  that  regard? 

Mr.  CREED.  No;  I  am  not. 

Commissioner  SWEET.  Do  you  think  it  would  be  an  advantage  or 
better,  on  the  whole,  that  the  proposed  rate  should  be  the  one  that 
should  be  in  operation  while  the  matter  is  under  consideration  by 
the  commission? 

Mr.  CREED.  I  think  it  would  be  in  the  interest  of  both  the  company 
and  the  public  to  have  that  done. 

Commissioner  SWEET.  That,  as  I  understand  it,  is  the  Pennsyl- 
vania law. 

Mr.  CREED.  Yes. 

Commissioner  SWEET.  You  said  you  were  the  counsel  for  the 
companies  whose  business  you  have  been  describing. 

Mr.  CREED.  Yes — well,  I  handle  rate  matters  and  other  matters. 

Commissioner  SWEET.  Their  legal  adviser? 

Mr.  CREED.  Yes. 

Commissioner  SWEET.  Of  course,  you  recognize  the  fact  that  so 
far  as  the  trans-bay — I  think  that  is  what  you  call  it — the  across- 
the-bay  company  is  concerned,  that  nothing  could  be  done  legally, 
no  advice  or  suggestions  could  be  made  by  this  commission  that 
would  be  helpful,  so  far  as  competition  of  the  Southern  Pacific  is 
concerned?  That  is  an  entirely  outside  matter;  is  it  not? 

Mr.  CREED.  Well,  I  do  not  quite  understand  you,  Mr.  Commis- 
sioner. 

Commissioner  SWEET.  What  legal  authority  could  render  assist- 
ance in  a  matter  of  competition  between  two  private  corporations? 

Mr.  CREED.  If  the  Railroad  Administration  had  jurisdiction  of 
both  lines  it  could;  yes. 

Commissioner  SWEET.  Oh,  yes. 

Mr.  CREED.  But  it  has  not  jurisdiction  of  the  Southern  Pacific  lines 
now,  although  it  did  have  formerly. 

Commissioner  SWEET.  If  you  were  permitted  to  raise  your  rate  and 
should  raise  it  beyond  a  certain  point,  it  woidd  cut  off  a  very  large 
proportion  of  your  business  across  the  bay;  would  it  not? 

Air.  CREED.  Some. 

Commissioner  SWEET.  But  if  I  understood  you  right,  you  think 
even  that  would  be  better  than  the  present  situation? 

Mi-.  CIJK.ED.  Anything,  I  think,  would  be  better  than  the  present 
situation.  I^ct  me  loll  you  something.  Do  you  know  that  tlit-  key 
ciivibion  is  earning  less  than  one-half  of  i  per  cent  on  the  ruilroad 


894        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

commission's  valuation,  without  any  depreciation  fund  for  unmatured 
depreciation,  I  mean  depreciation  which  might  mature  in  the  future. 

Commissioner  SWEET.  Well,  that  situation  is  pretty  near  as  bad  as 
it  can  be. 

Mr.  CREED.  Xow,  there  is  no  question  of  capitalization  there  at  all. 
It  was  0.49  per  cent.  In  other  words,  it  is  just  barely  taking  in  the 
outgo. 

Commissioner  SWEET.  In  your  complaint  in  regard  to  street  pav- 
ing you  particularly  stressed  the  point  that  sometimes  the  railroad 
corporation  is  required  to  put  down  a  new  pavement  in  place  of  one 
that  lias  not  worn  out. 

Mr.  CREED.  Yes. 

Commissioner  SWEET.  Do  you  not  think  you  could  reasonably  go 
a  good  deal  further  than  that  and  claim  that  it  is  unjust  and  unfair 
and  unreasonable  for  a  street-railroad  company  to  be  required  to  <lo 
any  paving? 

Mr.  CREED.  Oh,  yes.  I  thought  I  did  that.  I  intended  to.  Of 
course,  that  is  a  relic,  as  everyone  knows,  of  old  days.  I  thought  I 
did  point  that  out. 

Commissioner  SWEET.  Well,  perhaps  you  did ;  but  I  did  not  hear  it. 

Mr.  CREED.  Yes ;  I  think  they  should  be  relieved  absolutely  of  that 
burden.  But  I  was  pointing  out  that  not  only  did  the  street  railway 
company  on  the  east  side  of  the  bay  have  the  burden  of  carry  ing.  the 
original  paving  but  it  has  also  had  thrust  upon  it  the  burden  of 
abandoning  a  pavement  before  it  is  worn  out  and  while  it  is  still 
in  serviceable  condition  to  make  way  for  some  municipal  notion  of  a 
new  kind  of  pavement,  costlier  and  better. 

Commissioner  SWEET.  Please  describe  this  5£  per  cent  tax  you 
spoke  of. 

Mr.  CREED.  That  is  a  constitutional  tax  of  the  State  of  California 
applicable  to  street  railways  which  is  called  a  State  franchise  tax  and 
amounts  to  5:}  per  cent  of  the  gross  revenue  from  operative  properties. 

Commissioner  SWEET.  Does  that  apply  to  other  public-service  cor- 
porations? 

Mr.  CREED.  It  applies  to  some  others,  yes ;  but  not  to  all. 

Commissioner  SAVEET.  What  others  ?     Light  ? 

Mr.  CREED.  Yes;  gas,  light,  and  power  companies  and  to  railroads. 

Commissioner  SWEET.  Steam  railroads. 

Mr.  CREED.  Yes.  It  does  not  apply  as  to  local  property.  It  does 
not  apply  to  water  companies,  for  certain  constitutional  reasons. 

Commissioner  SWEET.  Is  that  5|  per  cent  upon  the  entire  capital 
stock? 

Mr.  CREED.  No ;  on  the  gross  revenue. 

Commissioner  SAVEET.  On  the  gross  revenue  each  year? 

Mr.  CREED.  Yes;  on  the  gross  reA7enue  each  year.  Now  that  5| 
per  cent  is  not  the  only  tax.  If  the  company  has  any  nonoperating 
property  it  pays  in  addition  the  municipal,  county,  and  State  taxes 
upon  nonoperative  property. 

Commissioner  SAVEET.  But  if  the  property  is  in  actual  use  those 
factors  are  remitted  ? 

Mr.  CREED.  There  is  no  direct  tax  of  the  property  as  such,  Avhich  is 
operative  property. 

Commissioner  SAVEET.  You  mean  no  local  taxes? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       895 

Mr.  CREED.  Xo,  no  local.  That  is  of  long  standing.  There  was 
an  attempt  to  increase  that  at  the  last  session  of  the  legislature  in 
1919 — but  the  increase  was  not  made — or  there  was  a  suggestion 
made. 

Commissioner  SWEET.  Has  there  ever  been  any  attempt  made  in 
California  to  get  the  constitution  changed  with  regard  to  that  5£ 
per  cent  tax  on  gross  revenue? 

Mr.  CREED.  There  has  been  a  great  deal  of  discussion  about  it. 
I  do  not  know  that  you  can  say  an  attempt  has  been  made. 

Commissioner  SWEET.  There  is  no  sentiment  there  for  the  change  ? 

Mr.  CREED.  I  would  not  want  to  state  as  to  the  sentiment.  There 
might  be  some  doubt  as  to  whether  it  can  be  changed  now,  but  that 
sentiment  might  change.  I  think  this,  that  this  indirect  taxation 
we  have  had  in  California  has  been  a  very  bad  tiling;  I  will  be  per- 
fectly frank  about  it.  We  have  thrown  there  the  burden  of  taxa- 
tion on  large  corporations  through  this  State  franchise  tax,  and  that, 
theoretically,  is  in  lieu  of  all  State  taxation.  The  result  is  that  your 
taxes  are  removed  from  the  great  mass  of  the  people  and  the  cost  of 
government  has  run  up  very  rapidly,  just  as  some  of  us  predicted  it 
would  do,  but  that  is  quite  apart  from  what  we  are  discussing  here. 
Personally,  I  would  like  to  see  that  entire  system  of  taxation  re- 
moved and  have  taxes  brought  directly  home  to  the  bulk  of  the  peo- 
ple. 

Mr.  WARREX.  If  you  are  going  to  tax  the  car  rider  you  would 
rather  tax  him  so  he  would  know  he  is  being  taxed  rather  than 
through  his  car  fare? 

Mr.  CREED.  Yes. 

Commissioner  SWEET.  Just  one  general  question.  Do  you  see  any 
prospect  of  solving  your  California  problem  through  the  medium  of 
reducing  expenses — I  mean  for  immediate  relief? 

Mr.  CREED.  Well,  when  we  had  that  hearing  before  the  California 
Railroad  Commission  which  resulted  in  a  C-cent  fare  for  the  traction 
division  one  of  the  high  officials  of  the  Southern  Pacific  Railroad 
Co.  said, ;i  You  people  remind  me  of  the  ^ons  of  poor  men;  you  know 
how  to  economize  and  how  to  make  a  dollar  go  a  long  way." 

I  believe  that  that  company  is  operated  down  to  the  bare  bone. 
Their  executive  officers  are  paid  ridiculously  low  salaries,  and  so  is 
their  entire  office  force.  Their  salaried  people  are  paid  very  low 
wages  and  they  are  operating  on  as  low  a  cost  as  they  can  operate, 
except  that  the  skip-stop -plan  was  put  back:  we  had  that  during 
the  war  and  it  has  now  been  removed.  There  are  some  things  of  that 
sort  that  might  be  done:  and  the  installation  of  a  few  more  one-man 
cars  on  some  of  the  outlying  lines.  I  think  they  have  22  one-man 
cars  now.  Hut  the  economies  that  could  be  made  would  l>c  inconse- 
quential in  the  general  situation  if  you  maintain  the  service  that  the 
community  demands. 

Commissioner  SWEET.  Recognizing  the  fact  that  the  present  situa- 
tion requires  either  an  increase  of  income  or  a  decrease  of  expendi- 
tures, you  see  no  relief,  if  I  understand  you  right,  in  the  latter  and 
you  look  entirely  to  an  increase  of  income  for  relief? 

Mi-.  CREKD.  Yes. 

Commissioner  SWEET.  And  yon  think  that  the  proper  way  to  give 
that  relief  is  an  increase  of  farcsj^ 


896       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CREED.  Yes. 

Commissioner  SWEET.  As  quickly  as  it  can  be  done  ? 

Mr.  CREED.  Yes. 

Commissioner  SWEET.  And  in  your  judgment  that  would  give  im- 
mediate relief  pending  a  more  complete  and  thorough  readjustment 
of  the  situation  upon  conditions  that  exist  to-day  and  did  not  exist 
10  or  15  or  20  years  ago? 

Mr.  CREED.  Yes. 

Commissioner  SWEET.  Is  that  your  idea? 

Mr.  CREED.  That  is  my  idea  exactly. 

(Witness  excused.) 

STATEMENT  OF  MR.  HARLOW  C.  CLARK. 

Mr.  WARREN.  Your  full  name? 

Mr.  CLARK.  Harlow  C.  Clark. 

Mr.  WARREN.  Where  do  you  reside? 

Mi-.  CLARK.  New  York  City. 

Mr.  WARREN.  What  is  your  present  occupation? 

Mr.  CLARK.  I  am  the  editor  of  Aera. 

Mr.  WARREN.  That  is  a  street-railroad  journal? 

Mr.  CLARK.  Yes. 

Mr.  WARREN.  Circulating  among  street-railway  men  principally? 

Mr.  CLARK.  Yes. 

Mr.  WARREN.  How  long  have  you  been  editor  of  that  journal? 

Mr.  CLARK.  Since  1913. 

Mr.  WARREN.  What  was  your  occupation  before  that? 

Mr.  CLARK.  I  have  had  various  occupation. 

Mr.  WARREN.  I  mean  just  before  that. 

Mr.  CLARK.  Just  before  that  I  was  with  the  firm  of  Allen  &  Peck 
who  are  public-utility  operators,  for  about  a  year.  Before  that  I 
was  located  in  the  city  of  Syracuse,  where  I  was  secretary  of  the 
chamber  of  commerce  for  one  period  and  commissioner  of  public 
safety  for  another  period. 

Mr.  WARREN.  What  are  the  duties  of  the  commissioner  of  public 
safety? 

Mr.  CLARK.  In  New  York  State  in  the  cities  of  the  second  class 
they  have  single-headed  commissions.  The  commissioner  of  public 
safety  is  in  charge  of  the  police,  fire,  and  health  departments;  and 
in  the  city  of  Syracuse  I  was  in  charge  of  the  building  department 
and  the  bureau  of  gas  and  electricity. 

Mr.  WARREN.  So  that  your  duties  brought  you  more  or  less  in 
contact  with  the  public  utilities  of  the  city,  I  suppose? 

Mr.  CLARK.  Yes. 

Mr.  WTARREN.  And  as  the  editor  of  the  Aera  have  you  had  occasion 
to  make  a  study  of  this  question  of  the  actual  relation  of  street  rail- 
ways to  the  communities  which  they  serve  and  also  to  changes  in 
those  relations  which  might  be  desirable? 

Mr.  CLARK.  I  have  had  almost  continuous  study  of  it  from  the 
time  I  was  connected  with  Aera. 

Mr.  WARREN.  You  have  heard  all  the  testimony  which  has  been 
given  here  in  the  last  few  weeks? 

Mr.  CLARK.  Yes,  sir. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       897 

Mr.  WARREN.  And  you  have  discussed  it  with  various  street-rail- 
way men  at  different  times,  I  suppose? 

Mr.  CLARK.  Yes. 

Mr.  WARREN.  As  a  result  of  your  studies  and  perhaps  with  what 
you  may  have  heard  here,  have  you  formed  any  opinion  of  your 
own  as  to  the  probable  proper  solution  of  that  situation  and  of  any 
changes  in  the  situation  between  the  public  and  the  utilities,  so  far 
as  they  are  street  railways? 

Mr.  CLARK.  I  have,  and  I  put  them  on  paper  rather  briefly,  if  I 
may  be  permitted  to  read  them. 

Mr.  WARREN.  I  should  like  to  have  you  read  them  to  the  com- 
mission. 

Mr.  CLARK.  The  continued  furnishing  of  efficient  and  sufficient 
urban  and  interurban  transportation  is  a  recognized  vital  necessity 
of  modern  community  life. 

It  is  recognized  to  be  a  function  of  the  government  of  each  State  to 
provide  that  such  service  shall  be  performed. 

Heretofore  the  custom,  with  few  exceptions,  has  been  that  these 
necessary  facilities  should  be  provided  by  private  agencies,  with  the 
use  of  private  capital,  and  subject  to  such  regulations  by  govern- 
mental agencies  as  would  insure  that  the  service  should  be  con- 
tinuous, reasonable,  sufficient,  and  efficiently  rendered. 

To  provide  a  service  of  this  character  by  private  capital,  it  is  neces- 
sary that  the  terms  and  conditions  prescribed  by  the  authorities  shall 
make  such  investments  safe  and  enable  them  to  secure  a  return  which 
will  induce  private  capital  to  select  investment  in  the  utility  to  such 
an  extent  as  will  provide  the  necessary  funds  for  capital  purposes. 
Such  further  return  should  be  allowed  as  would  stimulate  the  operat- 
ing utility  to  the  greatest  measure  of  economy,  efficiency,  and  initia- 
tive, and  thus  insure  the  development  of  the  art  and  the  maintenance  of 
the  public  service  at  the  high  standard  demanded  by  the  American 
public;  otherwise,  private  capital  will  elect  to  seek  other  investments, 
the  standard  of  service  will  be  depreciated,  and  the  maintenance  and 
improvement  of  these  properties  will  have  to  be  provided  for  from 
State  or  municipal  sources,  and  deficits  in  operation  made  up  by 
taxation,  or  the  service  permitted  to  deteriorate  and  finally  terminate. 
As  the  last  alternative  is  impossible  in  modern  life,  the  actual  ques- 
tion is:  Shall  the  service  be  provided  by  the  use  of  private  capital 
or  by  the  use  of  public  credit  and  resources? 

As  existing  laws  and  conditions  in  the  different  States  dp  not  make 
a  general  adoption  of  the  principle  of  municipal  ownership  or  oper- 
ation feasible  at  this  time,  the  industry  must  be -conducted  by  the  use 
of  private  capital,  whatever  final  policy  the  public  may  adopt  in  this 
respect. 

This  is  feasible  if  the  following  suggestions  for  emergency  relief 
and  for  a  permanent  plan  are  followed: 

Emergency  relief:  Such  an  immediate  temporary  increase  in  the 
charges  for  transportation  (subject  to  revision  by  the  subsequent 
permanent  plan)  as  is  necessary  to  meet  the  present  crisis  and  to 
prevent  that  financial  disaster  which  is  imminent  to  a  large  majority 
rf  the  industry.  This  would  maintain  the  service  during  the  de- 
velopment and  formulation  of  the  permanent  plan  by  which  also 
any  suitable  revision  in  such  emergency  increase  could  be  made. 


898       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

Permanent  plan:  A  plan  for  the  permanent  conduct  of  the  busi- 
ness, under  State  or  municipal  regulation,  capable  of  automatically 
adjusting  itself  from  time  to  time  to  varying  conditions. 

The  machinery  for  such  permanent  plan  should  include: 

(a)  The  ascertainment  of  the  amount  upon  Avhich  the  enterprise 
should,  in  fairness  and  justice  to  both  the  investors  and  the  public, 
be  allowed  to  earn  a  return. 

(b)  The  establishment  by  the  authorities  of  a  system  of  charges 
for  service  by  which  rates  will  automatically  increase  or  decrease 
above  or  below  the  initial  rates  named  in  the  permanent  plan  by  a 
defined  method  and  schedule  so  as  to  yield  at  all  times  sufficient 
revenue  to  meet  all  the  payments  contemplated  by  the  plan,  including 
such  protective  reserves  as  should  be  established,  and  also  sufficient 
opportunity  for  participation  in  benefits  resulting  from  economy, 
efficiency,  and  initiative  to  induce  the  greatest  efforts  by  the  utility. 

(c)  Power  of  regulation,  either  by  State  or  municipal  authorities, 
in  respect  to  all  matters  affecting  conditions  and  character  of  service, 
including  extensions,  improvements,  and  betterments. 

(d)  The  utility  to  be  conducted  on  the  so-called  indeterminate 
franchise  principle  and  to  be  subject  to  such  regulation  as  may  be 
prescribed  by  law  in  respect  to  accounts,  to  capital  investments,  and 
other  matters. 

(e)  The  establishment  of  the  right  of  the  municipality  or  other 
governmental  agency  to  purchase,  as  shall  be  set  forth  in  the  plan, 
which  shall  in  particular  establish  the  price  or  the  method  of  ascer- 
taining the  price. 

(/)  All  special  taxes  and  all  special  charges  and  assessments  paid 
by  the  utility  are  in  fact  paid  by  the  car  rider,  being  a  part  of  the 
cost  of  transportation.  Car  riders  as  a  class  should  not  be  sub- 
jected, to  such  indirect  or  special  taxation  and  should,  so  far  as  the 
particular  circumstances  in  each  community  will  permit,  be  relieved 
therefrom. 

Mr.  WARREN.  How  important  do  you  think  it  is  that  these  com- 
panies should  be  afforded  emergency  relief  pending  the  determina- 
tion and  adoption  of  some  permanent  plan  for  establishing  their 
relations  to  the  public? 

Mr.  CLARK.  I  think  it  is  absolutely  essential.  I  think,  from  the 
testimony  brought  out  before  this  commission  and  from  a  general 
knowledge  of  the  situation,  it  is  apparent  that  a  crisis  exists  in  street 
railway  affairs;  that  this  crisis  is  in  the  nature  of  an  emergency  such 
as  is  provided  for  and  described  in  many  of  the  public-service  laws, 
and  in  which  the  commissions  are  authorized  to  waive  the  usual  provi- 
sions as  to  increasing  rates  and  make  an  emergency  rate.  I  believe 
that  this  emergency  should  be  considered  not  alone  as  affecting  the 
investors  in  the  properties,  but  particularly  as  affecting  the  public 
which,  in  my  opinion,  is  in  a  great  many  cases  threatened  with  an 
entire  loss  of  its  service  and  in  many  more  is  threatened  with  a  great 
deterioration  of  service. 

If  I  may  be  permitted  to  add  to  that  this  suggestion,  if  this  com- 
mission after  hearing  this  testimony,  representing  the  President  and 
the  Federal  Government,  should  declare  that  in  its  opinion  such  an 
emergency  as  I  have  described  exists,  it  would  have  a  tremendously 
helpful  effect  upon  public  opinion  and  public  sentiment  all  over  the 
country. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       899 

Mr.  WARREN.  And  that  you  say  is  a  result  of  your  study  of  the  at- 
titude of  the  public  toward  these  utilities? 

Mr.  CLARK.  Yes. 

Mr.  WARREN.  And  do  you  think  that  effect  would  result  not  only 
as  regards  the  public-service  commissions,  the  state  regulatory  bodies, 
but  also  as  regards  the  municipal  bodies^  in  those  cases  where 
the  authority  rests  with  the  municipal  authorities? 

Mr.  CLARK.  I  believe  it  would  have  a  very  great  effect. 

Mr.  WARREN.  That  is  all  I  want  to  ask,  Mr.  Clark. 

The  CHAIRMAN.  How  many  years  have  you  been  a  student  of  this 
problem  ? 

Mr.  CLABK.  Well,  indirectly  for  a  great  number  of  years.  While 
I  was  secretary  of  the  chamber  of  commerce,  there  were  a  great 
many  public-utility  problems  coming  up  to  which  I  gave  more  or 
less  attention,  but  directly,  since  I  became  connected  with  the  publi- 
cation Aera  in  1913. 

The  CHAIRMAN.  And  do  you  feel  that  your  experience  and  study 
qualify  you  to  outline  a  program  that  would  be  beneficial  to  the 
industry  ? 

Mr.  CLARK.  Why,  I  can  not  answer  that  question,  Mr.  Commis- 
sioner, without  appearing  immodest,  but  I  think  I  have  given  a 
great  deal  of  attention  to  the  matter.  I  think  I  have  a  fairly  good 
knowledge  of  the  facts. 

The  CHAIRMAN.  Do  you  believe  that  the  adoption  of  this  program, 
if  it  could  be  consummated,  would  give  the  immediate  relief  to  the 
utilities  which  they  need? 

Mr.  CLARK.  The  part  of  the  plan  which  discusses  the  emergency 
measures,  I  think,  would  give  the  emergency  relief  to  a  large  extent. 

The  CHAIRMAN.  And  do  you  think  that  the  permanent  plan  which 
you  have  outlined  would  be  one  upon  which  all  utilities  and  the 
public  could  safely  depend? 

Mr.  CLARK.  I  believe  so. 

The  CHAIRMAN.  Now,  as  to  the  emergency  relief,  you  have  got  to 
deal  with  State  commissions  or  with  municipal  authorities.  In 
many  cases  the  rate  is  fixed  either  by  law  or  by  contract.  How  do 
you  think  that  a  recommendation  by  this  commission  can  be  of  any 
assistance  to  utilities  where  they  are  dealing  with  municipal 
authorities? 

Mr.  CLARK.  Only  by  the  effect  that  a  pronouncement  coining  from 
a  board  of  this  character  would  have  upon  public  opinion  and  as 
ammunition,  as  it  were,  for  men  who  are  now  partly  convinced  that 
this  relief  should  be  granted  and  who  would  like  to  have  their  hands 
held  up  and  fortified. 

The  CHAIRMAN.  In  other  words,  a  report  from  this  commission 
could  be  used  as  sort  of  an  educational  medium? 

Mr.  CLARK.  Exactly. 

The  CHAIRMAN.  Do  you  know  if  there  have  been  many  increases 
in  rates  allowed  during  the  war  by  municipal  authorities? 

Mr.  CLARK.  I  know  of  a  number.  I  think,  if  it  would  interest 
the  commission,  that  we  have  a  study  of  that  question  made  and  can 
divide  the  total  number  of  increases  allowed  into  those  allowed  by 
commissions  and  thc.se  allowed  by  local  authorities. 

The  CHAIRMAN.  I  think  it  would  be  very  helpful  to  them  to  have 
that  in  the  record. 


900       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CLARK.  Well,  I  will  see  that  you  get  it. 

The  CHAIRMAN.  That  can  be  filed  as  part  of  your  testimony. 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  Generally  speaking,  have  you  found  the  muni- 
cipal authorities  fairly  receptive  in  these  rate  cases? 

Mr.  CLARK.  Why,  I  think  it  is  almost  impossible  to  make  any  gen- 
eral statement  to  that  effect.  In  some  cases  they  have  been.  I  know 
that  in  the  State  of  New  York,  with  which  I  am  perhaps  more  fa- 
miliar than  any  other  State,  in  the  cities  of  Albany  and  Utica,  which 
are  fairly  large  cities,  and  including  my  own  home  city  of  Syracuse 
and  several  others,  the  city  councils  have  waived  the  provisions  of 
their  franchise  and  allowed  the  public-service  commission  to  deter- 
mine a  higher  rate  of  fare. 

The  CHAIRMAN.  What  has  been  the  attitude  of  the  State  regulating 
commissions  in  the  States  Avhere  they  had  control  of  the  rates  during 
the  war  period? 

Mr.  CLARK.  I  think  generally  sympathetic,  Mr.  Commissioner. 

The  CHAIRMAN.  Have  they  in  a  large  majority  of  the  cases  granted 
the  applications  prayed  for  in  the  petitions? 

Mr.  CLARK.  I  think  so. 

The  CHAIRMAN.  Broadly  speaking,  the  industry  has  no  real  com- 
plaint of  the  service  given  by  the  State  commissions  during  the  war; 
Inn  it? 

Mr.  CLARK.  Only  so  far  as  delays  have  occurred,  Mr.  Commis- 
sioner, in  administering  the  law.  Whether  those  result  from  the 
perhaps  unnecessarily  cumbersome  procedure  or  not,  I  think  you  can 
only  discuss  in  individual  cases. 

The  CHAIRMAN.  Now,  with  respect  to  emergency  relief,  that  means 
«n  increased  rate? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  Is  it  your  thought  that  the  rate  should  be  estab- 
lished as  an  emergency  rate  for  a  certain  definite  period  of  time, 
leaving  to  the  municipality  or  a  State  commission  the  power  to  ex- 
tend that  time  upon  a  showing  made  by  the  industry  that  there  has 
not  been  a  sufficient  change  in  conditions  to  warrant  a  resumption  to 
the  basis  of  the  old  rate  ? 

Mr.  CLARK.  My  idea,  Mr.  Commissioner,  was  that  the  emergency 
rate  Avhich  might  be  put  into  effect  in  accordance  with  the  recom- 
mendations I  have  made  to  you  would  stay  in  effect  until  a  perma- 
nent plan  for  regulating  those  rates  should  be  adopted. 

The  CHAIRMAN.  So  it  is  not  an  emergenc}7  war  rate  that  you  want  ? 

Mr.  CLARK.  No. 

The  CHAIRMAN.  But  simply  a  rate  to  tide  oA^er  until  a  permanent 
solution  is  worked  out? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  Then  perhaps  your  word  "  emergency "  is  not 
strictly  accurate. 

Mr.  CLARK.  Well,  I  doubt  if  I  am  prepared  to  admit  that,  because 
I  think  that  this  emergency  is  going  to  continue,  at  least  until  a  per- 
manent plan  is  adopted. 

The  CHAIRMAN.  Well,  we  will  not  quibble  over  the  term,  Mr.  Clark. 

Mr.  CLARK.  Yes. 

Mr.  WARREN.  Some  of  us  think  the  emergency  is  increasing.  I 
received  a  Bcston  paper  this  morning  which  created  that  impression. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       901 

The  CHAIRMAN.  During  the  war  quite  a  number  of  commissions 
granted  emergency  relief? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  By  fixing  the  rates  for  a  definite  period? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  Subject  to  an  extension  on  the  showing  made  by 
the  industry  that  the  conditions  had  not  changed.  Would  not  that 
be  entirely  satisfactory  to  the  industry,  and  would  it  not  pacify 
public  feeling  a  good  deal  better  than  to  have  a  rate  put  in  without 
any  limited  time? 

Mr.  CLARK.  I  think  perhaps  so,  except  that  in  a  great  many  of 
those  cases — I  say  a  great  many,  at  least,  in  some  of  the  cases — the 
commissions  have  since  decided  that  their  powers  under  the  emer- 
gency act  of  the  constitution  have  ceased  by  the  signing  of  the  armis- 
tice and  that  they  are  now  without  the  power. 

The  CHAIRMAN.  What  commissions  have  so  ruled? 

Mr.  CLARK.  Well,  if  I  am  not  mistaken,  the  Indiana  Commission 
has  so  ruled ;  at  least,  the  increase  granted  to  the  Indianapolis  com- 
pany, if  I  am  not  mistaken,  was  withdrawn  because  of  that  reason. 

The  CHAIRMAN.  Well,  I  presume  they  have  construed  the  statute 
that  way. 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  Now,  when  you  come  to  your  permanent  plan, 
that  permanent  plan  suggests  either  State  or  municipal  regulation? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  You  have  given  a  good  deal  of  study  to  the  ques- 
tion of  regulation,  have  you  not? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  We  have  the  two  theories:  The  home-rule  theory 
and  the  State  regulation? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  Now,  in  your  judgment  should  regulation  be 
exclusively  in  the  municipality  or  in  the  State,  or  should  there  be 
some  soil  of  a  happy  middle  ground  whereby  you  can  work  out 
proper  cooperation  between  both? 

Mr.  CLARK.  I  think  the  advantages  of  the  two  systems  might  be 
stated  in  this  way,  that  when  you  have  State  regulation  it  is  more 
stable,  it  is  less  likely  to  be  affected  by  prejudice,  and  on  the  whole 
it  is  perhaps  fairer  both  to  the  company  and  to  the  public  in  the 
long  run.  That  when  you  have  municipal  regulation  such  as  is  ex- 
tant in  Cleveland,  you  secure  perhaps  a  greater  degree  of  coopera- 
tion from  the  public  than  you  do  when  the  State  commissions  arc  in 
charge  of  the  regulation.  I  believe  that  your  suggestion  would 
make  an  ideal  system  of  regulation  if  it  could  be  put  into  effect,  if 
some  way  of  combining  the  two  could  be  devised. 

The  CHAIRMAN.  Do  you  think  that  the  State  as  such  should  attempt 
to  regulate  the  service  within  a  village  or  city? 

Mr.  CLARK.  Well,  there  are  a  great  many  questions  entering  into 
that,  Mi-.  Commissioner. 

The  CHAIRMAN.  When  I  speak  of  service  I  refer  to  speed,  stops, 
and  to  the  ordinary  regulations  which  are  so  closely  identified  with 
the  welfare  of  the  city  itself. 

Mr.  CLARK.  In  a  modern  city  the  systems  extend  usually  beyond 
the  city  limits,  the  suburban  lines  are  part  of  the  city  system,  the 


902       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

interurban  lines  are  part  of  the  city  system.  The  authority  of  a 
city  regulatory  commission  would  cease  with  the  city  limits. 

The  CHAIRMAN.  Yes. 

Mr.  CLARK.  I  refer  particularly  to  Boston,  where  they  have  what 
I  think  is  known  as  the  metropolitan  district,  where  the  service  ex- 
tends for  miles  beyond  the  city  limits  of  Boston;  and  while  Boston 
city  has  no  particular  jurisdiction  over  those  communities,  it  is  really 
part  of  the  community  life  of  Boston;  and  service  on  those  proper- 
ties should  be  regulated  as  a  whole,  and  not  allow  the  city  of  Boston 
to  regulate  the  service  within  the  well-defined  limits  of  the  city 
itself  and  allow  the  other  municipalities  to  regulate  it  within  their 
limits;  there  should  be  some  general  regulation  of  that  system  Avhich 
would  make  it  mast  efficient  nnd  the  best  for  all  the  people  served. 

The  CHAIRMAN.  Well,  referring  now  to  this  Boston  situation,  do 
you  think  it  would  be  fair  to  the  public,  as  well  as  to  the  utility,  to 
permit  the  municipal  authorities  in  Boston  to  have  jurisdiction  over 
the  service  and  extensions  of  street -cars  subject  to  an  appeal  to  the 
State  commission  by  either  party? 

Mr.  CLAKK.  I  believe  that  in  that  particular  instance  it  would  not 
be  very  workable. 

The  CHAIRMAN.  Why  not? 

Mr.  CLARK.  For  the  reason  that  each  of  these  other  communities 
would  also  have  the  right  of  appeal  to  the  commission  and  that, 
as  I  say,  it  \\-ould  be  difficult  to  coordinate  the  entire  system  of  serv- 
ice to  one  whole  that,  would  most  efficiently  serve  all  the  commu- 
nities. I  think  it  might  be  possible  to  create  a  metropolitan  district 
which  would  have  that  right  of  an  appeal  to  the  public-service  com- 
mission. 

The  CHAIRMAN.  Do  you  believe  if  the  right  of  appeal  by  these  dif- 
ferent municipalities  to  the  State  commission  were  granted  it  would 
promote  confusion  and  delay  and  uncertainty  rather  than  stability? 

Mr.  CLARK.  I  am  inclined  to  think  so ;  yes,  sir. 

The  CHAIRMAN.  But  you  would  have  a  final  body  to  determine  the 
question? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  And  establish  the  general  rules  which  munici- 
palities must  obey? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  Now  would  not  that  result  finally  in  the  estab- 
lishment of  a  general  code  of  rules  for  the  service,  the  speed,  and 
stops  and  extensions  and  things  of  that  kind  which  would  be  con- 
trolling upon  municipal  authorities  and  thus  stabilize  the  whole 
industry  ? 

Mr.  CLARK.  Well,  I  am  not  an  operating  electric  official,  and  I  do 
r:(  1  believe  that  I  am  prepared  to  answer  that  question,  because 
it  seems  to  me  that  that  is  a  question  of  operation  and  a  very  se- 
rious question,  whether  any  code  or  standard  or  set  of  rules  could 
be  adopted  that  would  apply  indiscriminately  to  all  services  rendered 
under  various  conditions  and  in  various  cities. 

The  CHAIRMAN.  Well,  that  may  be  so. 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  But  generally  speaking  they  could  be  adopted? 

Mr.  CLARK.  I  suppose  general  principles  could  be  laid  down. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION".       903 

The  CHAIRMAN.  Now,  do  you  think  in  Boston  it  is  better  to  have 
the  State  commission  regulate  all  the  affairs  of  the  utility  ? 

Mr.  CLARK.  It  would  seem  to  me  that  in  that,  particular  situation 
it  would  be  better  either  to  have  the  State  regulate  them  or,  if  it 
were  possible  to  combine  the  territory  that  they  serve  into  some  dis- 
trict, to  have  such  a  district  regulate  them. 

The  CHAIRMAN.  Do  you  feel  that  the  Massachusetts  situation  is 
typical  so  that  it  could  be  applied  to  all  the  States  of  the  Union,  or 
is  it  rather  an  exception? 

Mr.  CLARK.  I  think  that  is  rather  exceptional. 

The  CHAIRMAN.  Then  we  have  to  look  somewhere  else  for  experi- 
ence that  will  enable  us  to  develop  a  plan  which  can  be  useful 
throughout  the  country? 

Mr.  CLARK.  Yes,  sir. 

The  CHAIRMAN.  Now  then  apply  the  same  questions  I  have  asked 
you  to  some  of  the  other  States.  Take  my  own — Minnesota.  Do  you 
think  that  plan  of  cooperation  would  work  there  ? 

Mr.  CLARK.  Between  a  State  commission  and  a  local  commission? 

The  CHAIRMAN.  And  the  city,  yes. 

Mr.  CLARK.  I  would  have  to  ask  a  question  first. 

The  CHAIRMAN.  Yes. 

Mr.  CLARK.  I  would  have  to  know  how  closely  the  system,  say, 
of  St.  Paul  and  Minneapolis  are  coordinated,  how  the  schedules  for 
instance  in  one  city  affect  the  scedules  in  the  other  city. 

The  CHAIRMAN.  You  have  got  several  corporations,  but  they  are 
all  owned  by  the  same  persons  and  they  intertwine  and  it  is  practi- 
cally one  service. 

Mr.  CLARK.  Would  it  be  possible  to  get  the  city  of  St.  Paul  and  the 
city  of  Minneapolis  to  agree  upon  one  regulating  commission  to 
regulate  the  service  on  both  systems? 

The  CHAIRMAN.  I  do  not  think  so. 

Mr.  CLARK.  I  am  rather  inclined  to  doubt  whether  such  a  plan 
would  be  feasible,  Mr.  Chairman,  in  that  particular  situation.  I 
believe  that  within  a  self-contained  community  that  it  would  be  en- 
tirely feasible. 

The  CHAIRMAN.  Do  you  not  think  that  there  is  a  very  strong 
sentiment  throughout  the,  country  in  favor  of  home  rule  of  these 
utilities? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  And  that  if  you  can  not  have  some  measure  of 
local  control  the  sentiment  will  demand  local  ownership  and  opera- 
tion? 

Mr.  CLARK.  I  might  say  in  regard  to  that  that  I  do  not  know 
how  far  a  sentiment  of  home  rule  goes  in  that  respect. 

The  CHAIRMAN.  Well,  it  is  mighty  strong  there. 

Mr.  CLARK.  Perhaps  in  Minnesota.  But  T  am  referring  particu- 
larly to  one  case  in  Xew  York  where  Gov.  Smith,  who  was  elected  on 
a  home-rule  platform  and  who  Avas,  I  understand,  an  ardent  advocate 
of  homo  rule,  vetoed  the  cost-of-service  bill  for  the  city  of  Buffalo 
on  the  ground  il  interfenvd  with  the  jurisdiction  of  the  public 
service  commission  and  withdrew  tho  Internntionl  Railway  of  Buf- 
falo from  the  jurisdiction  of  the  public-service  commission.  It  is 


904       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

evident  there,  in  the  mind  of  one  man  at  least,  that  the  two  theories 
are  not  incompatible. 

The  CHAIRMAN.  Speaking  for  the  industry,  of  course  you  have 
talked  to  a  great  many  men  in  this  business.  Does  it  prefer  State 
to  local  regulation? 

Mr.  CLARK.  I  do  not  believe  that  I  could  answer  that  question.  I 
know  a  very  large  number  of  men  who  prefer  State  regulation.  I 
know  a  few  men  who  prefer  local  regulation. 

The  CHAIRMAN.  But  the  industry  is  very  rapidly  growing  and 
expanding  from  city  to  city? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  One  corporation  may  utilize  the  streets  of  a  large 
number  of  cities? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  Does  not  that  in  and  of  itself  establish  the  fact 
that  you  have  got  to  have  a  central  organization  or  a  central  control 
over  the  rates  and  service  and  capitalization  of  these  industries? 

Mr.  CLARK.  Personally,  Mr.  Commissioner,  I  believe  that,  as  a 
mere  matter  of  economy  and  efficiency,  in  the  majority  of  cases 
State  regulation  is  necessary.  If  you  are  going  to  add  to  the 
burdens  of  the  street  railways,  which  are  very  large  at  the  present 
time,  the  additional  burdens  of  providing  the  machinery  for  regula- 
tion it  is  going  to  make  a  'considerable  difference  in  the  receipts  of 
the  companies. 

The  CHAIRMAN.  Now  your  paragraph  (a)  says:  "The  ascertain- 
ment of  the  amount  upon  which  the  enterprise  should  in  fairness 
and  justice  to  both  the  investors  and  the  public  be  allowed  to  earn 
a  return." 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  That  presupposes  that,  before  you  can  establish 
rates  and  stabilize  credit,  the  utility  as  well  as  the  public  must 
know  what  a  property  is  worth.  Of  course  the  general  scheme  to- 
day is  to  value  the  plant;  in  some  places  that  is  clone  simply  by 
agreement  with  municipal  authorities  and  in  other  cases  it  is  done 
by  the  State.  No\v,  looking  at  it  in  the  broad  way,  which  is  the 
best  method:  To  have  this  done  by  agreement  with  the  municipal 
authorities  or  to  have  the  State  investigate  the  property  and  fix 
the  value? 

Mr.  CLARK.  I  would  say  that  the  method  by  which  you  can  best 
invite  the  confidence  of  the  public  in  the  value  as  fixed  is  the  method 
that  should-  be  adopted. 

The  CHAIRMAN.  Now,  wyhich  of  those  methods  would  invite  that 
confidence  ? 

Mr.  CLARK.  Depending  upon  the  confidence  which  the  community 
has  in  the  public-service  commission.  I  have  no  doubt  that,  in 
States  where  the  public-service  commission  has  been  established  long 
enough  and  has  so  conducted  itself  that  it  is  firmly  fixed  in  the 
confidence  of  the  public,  a  valuation  of  the  property  made  up  by  it 
would  secure  exactly  what  I  said. 

The  CHAIRMAN.  Is  it  not  a  fact  that  the  State  commissions  are 
equipped  with  expert  engineers  and  statistical  men  who  are  qualified 
to  make  an  impartial  study  of  a  plant  and  to  fix  a  fair  valuation  bet- 
ter than  a  municipality,  which  must  go  into  the  market  and  purchase 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       905 

experts  and  engineers  to  make  a  proper  study  for  a  particular  pur- 
pose ? 

Mr.  CLARK.  Oh,  yes;  no  doubt  about  that. 

The  CHAIRMAN.  In  other  words,  is  there  not  a  larger  element  of 
fairness  in  having  the  State,  which  is  an  impartial  body,  determine 
the  value  of  the  plant  which  the  public  is  going  to  buy  rather  than 
have  a  particular  community  itself  do  that  thing? 

Mr.  CLARK.  Personally,  I  should  think  so;  yes. 

The  CHAIRMAN.  Then  you  would  generally  favor  valuations  made 
by  the  State  rather  than  by  municipal  authorities  for  these  agreed 
values? 

Mr.  CLARK.  Except  under  the  limitations  I  made  in  my  first  state- 
ment. 

The  CHAIRMAN.  Your  paragraph  (b)  suggests  a  scheme  of  rates 
which  will  automatically  increase  or  decrease  above  or  below  the 
initial  rates  according  to  operating  conditions? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  The  essence  of  that  plan  is  the  cost  of  service? 

Mr.  CLARK.  Yes.  I  believe  the  cost-of -service  plan  is  perhaps  a 
misnomer,  because  I  believe  that  ever  since  the  State  has  taken  over 
the  regulation  of  public  utilities,  the  theory  of  cost  of  service  has 
been  established.  I  do  not  know  what  else  to  call  the  plan — 

The  CHAIRMAN.  I  presume  that  paragraph,  or  the  suggestion  con- 
tained in  that  paragraph,  is  predicated  upon  the  experience  wrhich 
has  been  had  in  Cleveland,  Cincinnati  and  some  other  places  with 
what  is  known  as  the  cost-of-service  plan  ? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  From  your  study  of  the  industry  do  you  believe 
that  that  plan  produces  the  largest  degree  of  satisfaction  to  the 
communities? 

Mr.  CLARK.  I  am  inclined  to  think  so.  The  trouble  with  making 
an  answer  to  a  question  of  that  kind,  Mr.  Commissioner,  is  that  in 
no  instance  except  Cleveland  has  it  been  in  practice  long  enough  to 
get  a  true  reflex  of  public  opinion  on  it,  in  my  opinion. 

The  CHAIRMAN.  Well,  is  it  still  experimental? 

Mr.  CLARK.  Yes — well,  I  would  not  say  experimental,  no;  because 
it  has  proven  itself  in  Cleveland. 

The  CHAIRMAN.  It  has  proven  itself  to  be  very  effective  during  the 
rapidly  changing  operating  conditions  during  the  war? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  But  would  the  cost-of-service  plan  in  Cleveland 
give  real  satisfaction  during  a  normal  period  covering  a  good  many 
years? 

Mr.  CLARK.  As  I  remember  it,  it  was  put  into  effect  in  Cleveland 
in  1911  or  the  latter  part  of  1010  and,  as  near  as  I  can  judge,  so  far 
as  the  public  is  concerned  it  has  given  satisfaction  during  all  that 
period. 

The  CHAIRMAN.  But  considering  the  industry  as  a  whole,  there 
being  large  companies  as  well  as  small  companies  operating  in  large 
as  well  as  small  cities,  do  you  think  that  a  plan  by  which  the  State 
commission  should  have  the  right  to  fix  the  rates  upon  investigation 
or  upon  complaint  would  give  more  general  satisfaction  and  a  greater 
measure  of  security  to  capital  than  your  cost-of-service  plan  now 
used  in  Cleveland? 

160643°— 20 58 


906       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CLARK.  I  doubt  it,  Mr.  Commissioner,  because  I  believe  that 
the  fixing  of  a  rate  should  or  ought  to  be  a  matter  of  arithmetic. 
Your  expenses  are  so  much,  your  receipts  are  so  much,  and  those 
receipts  should  be  regulated  automatically  to  cover  your  cost.  Now, 
I  can  see  no  good  reason  why  that  should  be  left  to  the  judgment  of 
anybody,  having  decided  on  the  principles  or  the  elements  which  go 
to  make  up  your  service  or  your  cost  of  service. 

The  CHAIRMAN.  But  if  the  value  of  a  property  is  established  and 
built  up  as  extensions  and  betterments  are  added  to  it,  then  the 
commission  always  has  the  value  and  knows  what  the  base  must  be 
for  return  purposes? 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  It  simply  requires  a  study  of  the  operating  sheet 
to  determine  whether  or  not  you  must  have  an  increased  rate;  does 
it  not? 

Mr.  CLARK.  That  is  all. 

The  CHAIRMAN.  Then  the  value  having  once  been  established,  the 
commission  having  the  power  to  fix  rates  either  upon  its  own  motion 
or  upon  petition,  have  you  not  got  all  that  the  industry  needs? 

Mr.  CLABK.  No;  because  I  think  there  is  still  the  element  of  delay 
which  is  very  costly — costly'both  to  the  company  and  to  the  public. 

Th&  CHAIRMAN.  Don't  you  think  a  large  part  of  that  delay  grows 
out  of  the  fact  that  there  is  a  very  considerable  prejudice  against  the 
capitalization  of  companies  and  a  feeling  in  the  public  mind  as  well 
as  in  the  minds  of  many  of  the  commissioners  that  the  utilities  are 
trying  to  get  a  return  upon  a  lot  of  stock  which  is  either  fictitious  or 
not  represented  by  capital? 

Mr.  CLAEK.  I  think  that  is  probably  true. 

The  CHAIRMAN.  And  when  you  have  your  properties  valued  by  the 
State  have  you  not  removed  every  element  of  suspicion  against  the 
company  and  reduced  the  whole  proposition  to  a  plain  dollars  and 
cents  question  ? 

Mr.  CLARK.  Undoubtedly. 

The  CHAIRMAN.  And  will  not  that  result  in  expedition  in  the  de- 
termination of  these  rate  cases  ? 

Mr.  CLARK.  It  might. 

The  CHAIRMAN.  Don't  you  think  it  would  ? 

Mr.  CLARK.  Yes ;  I  think  it  would. 

The  CHAIRMAN.  Then,  don't  you  believe  that  as  far  as  the  industry 
is  concerned  you  are  entirely  safe  to  have  either  a  cost-of-service 
plan  or  a  scheme  of  State  regulation,  wherein  the  State  can  fix  the 
rates  ? 

Mr.  CLARK.  I  think  the  industry  as  a  whole  would  feel  very  much 
better  than  it  does  now  if  it  was  possible  to  conduct  State  regula- 
tion under  those  conditions,  but  I  doubt  if  it  would  feel  as  well  as  it 
would  under  an  automatic  system,  by  which  they  were  absolutely 
assured  of  these  increases  as  they  came  up,  and  in  which  situation 
the  judgment  of  no  man  or  no  set  of  men  intervenes. 

Mr.  WARREN.  May  I  interrupt  for  just  one  moment  there,  because 
I  think  it  1ms  a  bearing  on  that  Cleveland  experience.  Don't  you 
think  it  may  have  this  advantage,  Mr.  Clark,  that  as  to  any  auto- 
matic rate  the  public  knows  that  rate  will  depend  upon  demands  for 
service;  and  therefore  it  affects  just  what  the  utility  might  consider 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       907 

unreasonable  demands;  it  tends  to  restrict  unreasonable  demands,  be- 
cause the  rate  is  going  to  reflect  the  cost  of  this  extra  service? 

Mr.  CLARK.  I  think  that  is  undoubtedly  true. 

Commissioner  BEALL.  Mr.  Clark,  don't  you  think  that  one  of  the 
things  that  worries  the  investor  most  now  is  that  he  does  not  know 
what  he  is  going  to  get? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  BEALL.  And  don't  you  think  that  the  average  in- 
vestor would  infinitely  prefer  an  automatic  rate — that  is,  under 
well-prescribed  conditions,  where  it  is  not  left  to  the  judgment  or 
whims  or  views  of  any  men  or  any  board  of  men? 

Mr.  CLARK.  That  is  my  idea  exactly. 

Commissioner  BEALL.  And  he  wants  to  feel  sure  of  a  proper 
return  on  his  investment? 

Mr.  CLARK.  Yes. 

Commissioner  BEALL.  And  a  great  many  investors,  I  take  it,  feel 
that  they  can  not  leave  that  to  any  man;  they  must  know  what  the 
conditions  are. 

Mr.  CLARK.  I  think  that  is  true,  Mr.  Beall. 

Commissioner  BEALL.  I  do  not  know,  but  it  seems  to  me  that  the 
companies  would  infinitely  prefer  a  State  board  to  an  individual 
man. 

Mr.  CLARK.  Yes. 

Commissioner  BEALL.  I  do  not  think  there  is  any  room  for  argu- 
ment on  that,  under  the  general  conditions  pertaining  to  securities. 

The  CHAIRMAN.  Paragraph  (d)  suggests  an  indeterminate  fran- 
chise. One  of  the  large  difficulties  now  concerning  the  utility  is  the 
limited  franchise,  with  its  many  limitations, 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  How  many  States  to-day  permit  an  indeterminate 
franchise  ? 

Mr.  CLARK.  That  I  can  not  tell  you. 

The  CHAIRMAN.  Wisconsin  and  Indiana? 

Mr.  CLARK.  I  know  those  two. 

The  CHAIRMAN.  Do  you  know  of  any  others? 

Mr.  CLARK.  I  do  not.  I  think  that  information  could  be  obtained 
for  you,  though. 

Air.  WARREN.  Most  of  the  Xew  England  States, 

The  CHAIRMAN.  Most  of  the  Xew  England  States? 

Mr.  WARREN.  I  should  say  most  of  them. 

The  CHAIRMAN.  I  believe  Massachusetts  was  the  first  oi>e  to 
consider  it. 

Mr.  WARREN.  Yes;  unless  I  am  mistaken,  Maine,  Xew  Hampshire, 
Connecticut,  Massachusetts*  and  I  think  Rhode  Island,  too;  but  I 
am  not  sure. 

The  CHAIRMAN.  Of  course,  legislation  has  to  be  secured.  Do  you 
think  that  this  commission  would  be  performing  a  proper  service 
if  it  recommends  the  use  of  an  indeterminate  franchise? 

Mr.  CLARK.  Yes,  sir. 

The  CHAIRMAN.  Assuming  that  that  was  done,  should  the  report 
simply  contain  a  broad  statement  favoring  the  principle,  or  should 
it  suggest  the  reasons  why  the  indeterminate  form  of  franchise  is 
preferable  to  the  limited  franchise? 


908       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  CLARK.  I  think  a  discussion  of  the  subject  would  help  im- 
mensely, undoubtedly. 

The  CHAIRMAN.  Well,  are  there  any  substantial  objections  to  that 
form  of  franchise,  so  long  as  the  public  is  permitted,  at  any  time, 
to  purchase  the  plant  at  a  fair  value? 

Mr.  CLARK.  I  think  not. 

The  CHAIRMAN.  The  right  given  to  the  public  to  purchase  at  any 
time  would  not  affect  the  stability  of  the  credit;  would  it? 

Mr.  CLARK.  Depending,  of  course,  on  the  terms  under  which  they 
are  permitted  to  purchase.  I  think  that  is  a  matter  of  detail,  but 
we  have  got  to  assume  that  the  terms  of  purchase  as  set  forth  in 
the  franchise  are  fair  and  just. 

The  CHAIRMAN.  Well,  it  presupposes  the  purchase  on  a  fair  value. 

Mr.  CLARK.  Yes,  sir. 

The  CHAIRMAN.  Of  course,  no  investor  is  going  to  put  money  into 
securities  where  they  exceed  the  value  of  the  plant;  will  he? 

Mr.  CLARK.  No. 

The  CHAIRMAN.  If  he  does,  he  is  not  entitled  to  very  much  sym- 
pathy from  the  public  or  community? 

Mr.  CLARK.  No ;  I  do  not  believe  so. 

The  CHAIRMAN.  Then,  the  investor  would  be  entirely  protected, 
under  that  plan  ? 

Mr.  CLARK.  You  mean  if  a  paragraph  was  included  in  the  inde- 
terminate franchise  saying  that  it  could  be  purchased  at  a  fair  value  ? 

The  CHAIRMAN.  To  be  fixed  by  the  State. 

Mr.  CLARK.  To  be  fixed  by  the  State? 

The  CHAIRMAN.  Yes. 

Mr.  CLARK.  I  think  that  would  depend  again  on  the  confidence 
which  the  investor  had  in  the  particular  State  commission  in  which 
the  indeterminate  franchise  was  in  effect. 

The  CHAIRMAN.  Well,  you  are  perfectly  familiar  with  the  fact 
that  a  corporation  is  protected  by  the  Constitution ;  its  property  can 
not  be  condemned  for  less  than  its  valuer? 

Mr.  CLARK.  That  is  true.  That,  however,  is  under  the  general 
law  of  the  State,  but  if  you  put  a  clause  in  the  statute  saying  that  the 
franchise  shall  be  fixed  at  a  price  set  by  any  particular  commission — 
I  am  not  lawyer  enough  to  know,  but  it  seems  to  me  that  that  would 
be  a  waiver  of  the  rights  to  protection  under  the  general  State  law. 

The  CHAIRMAN.  I  do  not  think  so.  That  is  subject  to  the  right  of 
appeal  to  the  court,  of  course, 

Mr.  CLARK.  Yes. 

Commissioner  BEALL.  May  I  ask  a  question  right  there,  Mr.  Chair- 
man? 

The  CHAIRMAN.  Yes. 

Commissioner  BEALL.  In  all  of  these  indeterminate  permits  and 
other  forms  of  franchises  wyhich  permit  purchase  by  the  city  on  a 
valuation,  is  it  not  true  that  in  practically  all  of  them,  just  for  the 
reason  that  Ave  have  described,  they  provide  very  carefully  for  the 
method  of  arriving  at  such  a  valuation  ? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  BEALL.  In  other  words,  as  I  understand  it,  it  is 
deemed  by  the  investors  and  companies  that  it  is  absolutely  necessary 
to  define  how  that  valuation  shall  be  arbitrated  and  found  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       9C9 

Commissioner  GADSDEX.  Or  it  is  fixed  in  advance. 

Commissioner  BEALL.  Yes ;  but  that  is  the  same  thing. 

Commissioner  GADSDEX.  Fixed  at  the  time. 

Mr.  CLARK.  Yes. 

The  CHAIRMAN.  Your  paragraph  (/)  suggests  the  elimination  of 
taxes  and  special  assessments. 

Mr.  CLARK.  Yes,  sir. 

The  CHAIRMAN.  Of  course,  these  taxes  and  special  assessments 
have  proven  extremely  irksome  during  the  war  period.  Prior  to 
that,  during  the  normal  years,  did  they  impose  a  large  burden  upon 
the  industry? 

Mr.  CLARK.  I  think  so;  and  I  think  there  is  one  feature  that  has 
not  often  been  thought  of.  If  you  will  look  into  the  capitalization 
account  of  those  companies  you  will  find  a  very  large  amount  of 
capital  which  is  there  because  the  investment  in  paving  and  other 
municipal  requirements,  and  which  are  fixed  charges,  are  now  paid 
by  these  companies.  I  have  in  mind  that  when  the  Rhode  Island 
Co.  was  valued  by  a  commission  appointed  by  the  legislature,  it 
was  discovered  that  almost  one-tenth  of  its  capitalization  was  due  to 

Cayments  made  on  account  of  paving  and  other  requirements  of  that 
ind.  So  there  is  a  charge  that  was  saddled  on  that  company,  as  I 
think,  unjustly,  and  which  to-day  is  keeping  up  the  rate  of  fare  in 
the  cities  of  Rhode  Island. 

The  CHAIRMAN.  Now,  under  your  cost-of -service  plan,  where  your 
return  is  practically  guaranteed,  how  can  the  paving  assessment  or 
tax  matter  affect  you? 

Mr.  CLARK.  It  can  not.  I  think  that  is  largely  a  question  be- 
tween the  car  rider  and  the  public  as  a  whole.  If  the  car  rider  cares 
to  be  indirectly  taxed  for  the  benefit  of  the  property  owner,  that  is 
a  matter  as  between  him  and  the  property  owner,  except  that  I 
think  it  is  particularly  desirable,  from  the  company's  standpoint 
and  from  the  public  standpoint — from  every  standpoint — to  keep 
those  fares  as  low  as  possible,  and  therefore  these  imposts  should 
be  taken  away. 

The  CHAIRMAN.  Of  course,  the  municipality  has  to  have  a  certain 
amount  of  money  to  do  business  with. 

Mr.  CLARK.  Yes,  sir. 

The  CHAIRMAN.  And  it  is  a  question  of  the  most  convenient  way 
of  getting  it. 

Mr.  CLARK.  Yes,  sir. 

The  CHAIRMAN.  So  that,  under  the  cost-of-service  plan,  the  as- 
sessment does  not  do  you  any  harm. 

Mr.  CLARK.  Except  that  it  may  raise  fares  above  a  point  where  it 
would  be  impossible  to  get  business  to  sustain  them. 

The  CHAIRMAN.  I  suppose  that  is  a  matter  that  you  will  have  to 
leave  to  the  judgment  of  the  regulating  officials,  as  well  as  the  city 
officers. 

Mr.  CLARK.  Yes,  sir. 

The  CHAIRMAN.  Wherein  can  your  assessments  and  tax  features 
be  harmful  if  the  State  commission  has  a  right  to  fix  the  rate? 

Mr.  CLARK.  I  would  not  say  that  it  enters  into  that  phase  of  the 
matter.  I  mean  that  the  question  of  impost  did  not  affect  tho 
method  of  regulation  at  all. 


910       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

The  CHAIRMAN.  All  of  these  matters  are  items  deducted  from  the 
revenue,  and  the  commission  has  to  take  them  into  consideration. 

Mr.  CLARK.  Yes,  sir. 

The  CHAIRMAN.  Then,  do  you  believe  that  if  you  had  either  the 
cost-of-service  plan  or  commission  regulation  of  rates  it  would  be 
necessary  to  the  industry  to  have  these  special  assessments  and  taxes 
eliminated? 

Mr.  CLARK.  You  mean,  Mr.  Commissioner,  if  you  had  city 
regulation  ? 

The  CHAIRMAN.  Yes;  or  cost  of  service. 

Mr.  CLARK.  As  I  said  before,  I  think  I  have  answered  that  ques- 
tion when  I  said  that  that  is  a  question  which,  in  my  opinion,  should 
be  decided  between  the  car  rider  and  the  taxpaper.  Personally,  I 
see  no  justice  in  assessing  the  car  rider  for  something  that  somebody 
else  benefits  from. 

The  CHAIRMAN.  Then,  your  paragraph  (A),  dealing  with  special 
taxes  and  assessments,  was  put  in  there  with  some  qualifications, 
was  it  not? 

Mr.  CLARK.  Xo;  I  do  not  believe  it  is  put  in  there  with  any  qualifi- 
cations, Mr.  Commissioner,  because  that  is  my  opinion. 

The  CHAIRMAN.  Yes;  but  it  is  not  essential  to  the  welfare  of  the 
industry,  is  it,  that  these  taxes  and  special  assessments  be  eliminated? 

Mr.  CLARK.  It  is  not  essential,  but  very  helpful,  because  it  keeps 
the  cost  of  service  down,  and  thus  keeps  your  fare  low ;  and  I  think 
a  low  fare  is  very  essential,  wherever  it  can  be  put  into  effect. 

Commissioner  BEALL.  I  just  wanted  to  bring  out  the  point,  Mr. 
Clark,  that  for  the  success  of  the  cost-of-service  plan,  or  any  other 
plan,  the  majority  of  the  people,  being,  in  a  sense,  of  the  poorer  class, 
consequently  the  majority  of  the  citizens  of  any  town,  being  riders, 
would  feel  better  if  they  felt  that  the  taxation  was  scattered,  that 
they  were  not  burdened  with  something  that  increased  their  fare,  and 
that  the  property  owners  and  the  automobilists  and  others  were  not 
paying  their  fair  proportion  of  it?  Would  it  not  tend  toward  a 
better  feeling  if  they  thought  that  taxation  was  better  distributed? 

Mr.  CLARK.  Undoubtedly. 

The  CHAIRMAN.  Taxation  is  a  matter  of  local  law,  and  it  depends 
very  much  upon  the  conditions  pertaining  to  the  proper  upkeep  of 
the  city.  Do  you  think  it  wise  for  a  Government  commission  to  come 
in  and  recommend  the  removal  of  all  taxes  and  special  assessments? 

Mr.  CLARK.  I  think  it  would  be  very  wise  for  yon  gentlemen  to  say 
these  two  things:  First,  that  it  is  a  question  as  between  the  car  rider 
and  the  general  public,  and  second,  that  it  has  a  direct  effect  upon 
the  rate  of  fare  to  be  charged. 

Let  me  give  you  an  instance  where  that  was  very  concretely  shown. 
In  a  city  in  central  New  York,  a  paving  program  for  this  year  called 
for  an  expenditure  of  some  $500,000  on  the  part  of  the  city  company 
in  laying  pavements,  reconstructing  its  track,  and  so  forth.  The 
company  did  not  have  the  money  and  did  not  have  the  credit.  It 
could  not  borrow  money.  It  went  to  the  city  arid  said,  "  If  you  will 
allow  us  to  charge  a  cent  for  a  transfer  in  addition  to  the  fare  that 
you  are  now  paying,  we  will  devote  all  of  that  money  to  paying 
these  charges."  Xow,  there  was  the  situation  that  was  thus  created. 
The  proposition  was  to  take  a  cent  out  of  each  person  that  used  the 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

transfer,  and  to  use  it  for  the  benefit  of  the  man  who  might  or  might 
not  be  a  car  rider,  but  it  was  very  much  more  apt  to  be  an  automobile 
owner,  iu  order  to  pay  for  that  improvement. 

I  think  that  that  .concretely  points  out  what  I  wanted  to  show  you, 
Mr.  Commissioner. 

The  CHAIRMAN.  I  have  no  further  questions. 

Commissioner  SWEET.  Mr.  Clark,  this  statement  that  you  made 
here  is  brief  and  right  to  the  point,  and  it  is  based,  I  judge,  from 
looking  it  over,  upon  what  you  have  heard  said  by  the  witnesses  that 
have  been  introduced  up  to  this  point  in  this  case,  largely. 

Mr.  CLARK.  Yes,  sir. 

Commissioner  BEALL.  Which  paragraph  is  that,  Mr.  Sweet? 

Commissioner  SWEET.  Xo  particular  paragraph,  the  whole  of  it. 

And  it  represents  what  you  consider,  at  least,  the  best  thought,  the 
best  suggestion,  the  best  recommendations  that  have  been  made  here, 
in  view  of  the  facts  that  have  been  disclosed  ? 

Mr.  CLAKK.  Yes,  sir. 

Commissioner  SWEET.  Has  there  been,  so  far  as  you  know,  any- 
thing said  here  with  regard  to  the  paving  question  that  distinguishes 
between  the  general  public  and  the  abutting-property  owner? 

Mr.  CLARK.  Xo,  sir. 

Commissioner  SWEET.  Is  there  not  something  to  be  said  on  that 
point?  Is  there  not  the  thought,  for  instance,  or  the  argument  that 
might  be  presented,  that  the  street-railway  track  in  the  street  is  a 
burden  upon  that  street  and  perhaps  an  inconvenience  and  an  annoy- 
ance, both,  to  the  people  residing  upon  the  street,  and  that  the  relief 
that  is  given  by  requiring  the  street-railway  company  to  pave  ba- 
twecn  the  tracks  is  a  relief  to  the  property  owner  upon  that  street, 
rather  than  to  the  general  public,  under  the  usual  provisions  in 
street-car  charters  with  regard  to  taxation  and  street  building? 

Mr.  CLARK.  Well,  Mr.  Commissioner,  what  you  say  about  its  be- 
ing- perhaps,  an  annoyance  as  well  as  a  benefit  I  think  is  true,  in 
general,  and  as  reflected  in  the  mere  matter  of  finance  I  am  con- 
vinced that  the  presence  of  a  street  railway  on  most  streets — not  all 
streets,  but  on  most  streets — is  a  direct  benefit  to  the  financial  in- 
terests, at  least  of  the  property  owner. 

Commissioner  SWEET.  It  is  an  asset  and  not  a  liability? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Do  the  facts  with  regard  to  property  values 
justify  that  statement? 

Mr.  CLARK.  I  think  so.  I  would  not  say  so  in  every  case,  be- 
cause I  do  not  know  enough,  and  I  have  never  gathered  statistics, 
but  it  is  unquestionably  true  that  real-estate  values  increase  where 
extensions  of  lines  are  made  or  where  railroad  tracks  exist.  If  yoji 
are  now  considering  whether  the  abutting-property  owner  or  the 
public  in  general  should  pay  for  all  of  the  pavement,  I  think  that 
is  an  entirely  ditl'erent  point;  and  if  you  say  that  it  is  a  general 
charge  against  the  public,  or  should  be  a  general  charge  against  the 
public  instead  of  the  abutting-property  owner,  I  am  rather  inclined 
to  agree  with  you,  although  in  the  city  with  which  I  have  had  some, 
experience  it  was  entirely  different. 

Commissioner  SWEET.  Is  it  not  ;'  fact,  under  most  of  the  city 
charters  throughout  the  country,  that  it  is  charged  against  the 
abutt ing-property  owners? 


912       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  CLARK.  Well,  I  don't  know  that.  I  know  in  some  cities  it  is 
not,  and  it  is  paid  for  from  the  city  tax  budget. 

Commissioner  SWEET.  Most  of  the  cities  with  which  I  am  familiar 
make  that  a  charge  upon  the  abutting  properly  owner. 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Not  only  the  original  construction  cost  but 
subsequent  repairs  or  reconstruction.  Upon  that  point  I  am  inclined 
to  think  that,  if  the  original  construction  is  charged  to  the  abutting- 
property  owner,  that  ought  to  end  at  least  any  charge  or  assessment 
that  could  be  made  against  him  for  that  street  paving,  and  repairs 
should  be  entirely  made  by  the  city.  I  think  that  would  result  in 
better  continuous  repairs  and  pavements,  and  not  let  them  go  into 
absolute  scrap,  you  might  say,  and  require  the  rebuilding  of  the  pave- 
ment, because  it  will  place  then  upon  the  city  government  the  re- 
sponsibility of  keeping  that  in  repair,  or  else,  by  general  taxa- 
tion, rebuilding  it.  In  that  event,  I  think  the  city  generally  would 
take  more  pains  to  keep  the  street  in  better  repair;  and  I  think  it 
would  be  more  just;  and  I  am  not  prepared  to  say  that  I  would  not 
be  willing  to  go  this  far — no  matter  what  the  situation  may  be  now, 
the  charge  should  be  on  the  general  public  from  the  beginning  for 
construction  and  repairs;  but,  in  any  event,  this  is  true,  and  evi- 
dence has  been  adduced  which  confirms  it ;  and  I  think  it  is  a  matter 
of  good  judgment  that  the  burden  should  not  be  placed  upon  the 
street-car  rider.  If  you  recognize  the  fact  that  the  street-car  is  what 
it  professes  to  be — a  public  utility — and  that  it  performs  valued  serv- 
ice in  the  economics  of  our  municipalities,  with  its  tendency  to  diffuse 
population,  and  as  a  convenience,  so  that  the  people  can  live  in  the 
suburbs  and  have  their  little  gardens  and  plenty  of  breathing  space, 
and  still  do  business  in  the  city — if  we  recognize  that  feature  of  it, 
no  one  can  deny  the  benefits  of  a  street-railway  system.  Then  it 
would  seem  to  be  logical  that  every  extra  burden  ought  to  be  removed 
from  the  street-car  rider  and,  so  far  as  may  be,  placed  upon  the 
general  public,  which  really  gets  the  benefit  of  the  street-car  service, 
thereby  keeping  fares  down  not  purely,  as  you,  I  think,  have  rather 
intimated,  for  the  benefit  of  the  street-railway  companies  and  in  order 
to  prevent  public  criticism  on  account  of  high  fares,  but  for  the 
general  good.  Perhaps  I  misunderstood  you. 

Mr.  CLARK.  Yes,  sir.  Mr.  Commissioner,  I  did  not  intend  to  con- 
vey any  such  idea.  My  idea  was  this,  in  relation  to  low  fares,  that 
it  is  distinctly  for  the  benefit  of  the  car  rider  to  give  low  fares.  It 
is  distinctly  for  the  benefit  of  the  community  to  give  low  fares;  and 
it  is  also  for  the  benefit  of  the  stability  of  the  industry  that  these 
low  fares  should  be  in  effect,  if  it  is  a  profitable  thing. 

Commissioner  SWEET.  Then,  the  fact  that  the  State  commission 
did  automatically  arrange,  under  the  service-at-cost  plan,  for  a  higher 
cost  to  the  rider,  as  it  naturally  would — it  would  not  entirely  meet 
the  situation,  if  we  wanted  to  readjust  matters  completely  so  as  to 
bring  about  a  better  situation  on  the  whole;  would  it? 

Mr.  CLARK.     I  do  not  know  that  I  got  your  question,  Mr.  Sweet. 

Commissioner  SWEET.  Well,  a  broad  consideration  of  the  whole 
subject,  for  the  benefit  of  the  whole  community,  would  not  be  satis- 
fied with  merely  protecting  the  operating  company  by  having  all  of 
its  cost  taken  eare  of  by  the  service-at-cost  plan  or  by  an  intelligent 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       913 

commission  that  might  give  it  the  benefit  of  raising  its  rates  to  meet 
the  extra  cost  of  riding. 

Mr.  CLARK.  Yes. 

Commissioner  SWEET.  So  that  of  itself  would  not  meet  the  situa- 
tion with  regard  to  the  entire  community,  although  it  might  as  re- 
gards the  operating  company? 

Mr.  CLARK.  You  mean  there  might  be  a  question  as  to  whether, 
under  the  rates  of  fare  granted  by  the  commission  or  by  this  auto- 
matic plan,  the  service  would  be  sufficient  to  serve  the  community? 

Commissioner  SWEET.  I  mean  that,  so  far  as  the  company  is  con- 
cerned, as  Mr.  Elmquist  indicated  to  you  in  the  question  he  asked 
you,  it  would  not  make  any  difference  what  the  actual  cost  was,  what 
the  fares  might  be,  provided  they  produced  enough  revenue  to  meet 
the  requirements  of  the  company. 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Now.  as  between  the  car  riders  and  the  bal- 
ance of  the  community,  it  Avoulcl  make  a  difference? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Whether  the  whole  community  bears  that 
paving  expense  or  the  riders  bear  it  ? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  And  I  say  that,  taking  a  broad  view  of  the 
interests  of  the  entire  community — the  car  rider  and  all  the  rest  of 
the  community — it  would  be  better,  would  it  not,  to  have  the  fares 
low,  thereby  putting  a  premium  upon  diffusion  of  population,  than 
it  would  be  to  have  them  high,  even  though  they  be  met  just  as  well 
if  they  were  high  as  if  they  were  low  ? 

Mr.  CLARK.  Undoubtedly,  Mr.  Commissioner. 

Commissioner  SWEET.  Is  the'  distinction  between  the  car  rider  and 
the  balance  of  the  community  properly  understood  at  the  present  time 
throughout  the  country? 

Mr.  CLARK.  I  doubt  it. 

Commissioner  SWEET.  With  regard  to  these  taxes? 

Mr.  CLARK.  I  doubt  it. 

Commissioner  SWEET.  Do  you  consider  there  is  a  very  great  pro- 
portion of  the  people  at  the  present  time  who  realize  that  this  burden 
is  placed  upon  the  car  rider — the  paving  burden? 

Mr.  CLARK.  I  think  it  developed  in  the  testimony  of  Mr.  Culkins 
here  the  other  day,  when  he  talked  about  the  insistence  on  the  part 
of  the  city  of  Cincinnati  in  the  collection  of  this  sum  of  $300,000, 
and  in  the  higher  cost  of  service  in  Cincinnati,  simply  because  it  was 
impossible  to  explain  in  the  limited  time  that  they  had  that  this  was 
to  be  a  charge  on  the  car  rider. 

Commissioner  SWEET.  Don't  you  know  that  in  the  matter  of  water 
supply  it  is  quite  a  common  custom  in  cities  "for  a  board  of  public 
works  to  furnish  water  for  parks  and  cemeteries  and  for  fire  pro- 
tection without  any  charge? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Do  you  think  that  is  a  good  practice? 

Mr.  CLARK.  I  do  not. 

Commisioner  SWEET.  Does  it  not  involve  precisely  this  question 
that  we  are  talking  about? 

Mr.  CLARK.  Yes,  sir. 


914       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Is  it  not  throwing  upon  the  water  users  the 
burden  that  ought  to  rest  upon  the  entire  community? 

Mr.  CLARK.  Exactly. 

Commissioner  SWEET.  And  in  some  of  these  communities  where 
there  are  private  corporations  furnishing  water  in  competition  with 
the  city,  which  is  sometimes  the  case,  might  it  not  result  in  a  user 
of  water  furnished  by  the  private  corporation  getting  the  benefit  of 
fire  protection  and  other  benefits  that  he  did  not  pay  a  cent  for? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Through  the  city  system? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Is  not  that  an  evil  that  ought  to  be  cor- 
rected? 

Mr.  CLARK.  I  think  so. 

Commissioner  SWEET.  Of  course,  we  have  nothing  to  do  with  that, 
but  the  principle  involved  is  precisely  the  same,  is  it  not? 

Mr.  CLARK.  I  think  so. 

The  CHAIRMAN.  May  I  ask  a  question  there,  Mr.  Sweet  ? 

Commissioner  SWEET.  Yes. 

The  CHAIRMAN.  If  that  principle  were  to  be  adopted,  would  it  not 
result  in  New  York  City  in  eliminating,  perhaps,  90  per  cent  of  the 
population  from  the  payment  of  any  direct  or  indirect  taxes  for  the 
support  of  the  city?  In  New  York  there  is  a  very  large  number  of 
people  who  live  in  tenement  houses.  They  do  not  own  their  own 
homes.  They  have  very  little  taxable  property.  The  great  mass  of 
them  have  no  taxable  property.  They  do  not  pay  a  cent  in  support 
of  the  water  system ;  they  do  not  pay  a  cent  in  support  of  the  school 
system;  and  they  would  not  pay  a  single  penny  in  the  way  of  tax 
for  the  paving  or  other  things  if  that  be  paid  by  the  city  from  taxes. 
Now,  it  would  not  be  fair  to  relieve  this  great  body  of  untaxable 
people  from  any  contribution  to  the  upbuilding  of  the  city,  would  it? 

Mr.  CLARK.  My  experience  in  New  York  has  been  this.  Mr.  Com- 
missioner, that  while  the  taxes  are  assessed  against  the  owners  of 
these  properties  they  are  paid  by  the  tenants  in  the  matter  of 
rentals. 

Commissioner  MEEKER.  Is  it  not  a  fact  that  everybody  on  the  right 
side  of  the  walls  of  penal  and  other  institutions  pay  taxes  ? 

Mr.  CLARK.  I  think  so;  directly  or  indirectly. 

Mr.  SULLIVAN.  Let  me  suggest  there  that  the  man  who  pays  the 
rent  pays  the  taxes. 

Commissioner  SWEET.  Now,  Mr.  Clark,  one  other  point:  Whether 
the  service-at-cost  plan  be  adopted,  or  regulation  by  the  commission, 
municipal  or  State,  be  adopted,  do  you  regard  that  as  a  matter  of 
importance  that  the  actual  cost,  with  the  rates  and  the  fares  and 
everything  else,  should  be  kept  as  low  as  possible  ? 

Mr.  CLARK.  I  do. 

Commissioner  SWEET.  You  agree,  I  presume,  with  the  testimony 
that  has  been  presented  here,  that  the  maintenance  of  the  street  rail- 
ways requires  the  constant  increase  of  capital,  the  influx  of  new 
capital? 

Mr.  CLARK.  Undoubtedly. 

Commissioner  SWEET.  And  that  these  companies  can  not  continue 
to  exist  and  perform  their  proper  function  without  new  capital.  Is 
not  that  true,? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       915 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Then  anything  that  increases  the  cost  of 
obtaining  new  capital  is  a  burden  which  ought  to  be  removed  if 
it  can  be.  Is  not  that  right? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Is  not  the  certainty  of  return  a  very  im- 
portant element  in  connection  with  the  investment  of  new  capital 
in  any  enterprise? 

Mr.  CLARK.  Oh,  yes. 

Commissioner  SWEET.  Do  you  consider  that  the  certainty  of  re- 
turn is  greater  under  an  automatic  plan,  where  the  whole  thing  is 
mapped  out  in  advance,  than  where  it  is  left  to  any  human  inter- 
ference, as  would  be  the  case  in  State  or  municipal  commission 
regulation  9 

Mr.  CLARK.  I  think  there  can  be  no  question  as  to  that,  Mr.  Com- 
missioner. 

Commissioner  SWEET.  If  that  is  true,  would  it  not  be  then  an 
argument  worth  considering  in  favor  of  the  service-at-cost  plan  as 
it  has  been  outlined  here? 

Mr.  CLARK.  I  think  so. 

Commissioner  SWEET.  Where  the  rates  would  go  up  or  down  ac- 
cording to  the  actual  needs? 

Mr.  CLARK.  Yes.  sir. 

Commissioner  SWEET.  Do  you  think  so? 

Mr.  CLARK.  Yes,  sir;  I  think  so. 

Commissioner  SWEET.  I  think  that  is  all. 

Commissioner  GADSDEN.  Mr.  Clark,  I  want  to  ask  you  just  one 
question. 

What  do  you  consider  the  pressing  need  of  the  situation? 

Mr.  CLARK.  The  immediate  need? 

Commissioner  GADSDEX.  Yes. 

Mr.  CLARK.  Increased  revenues  for  the  companies  that  need  them ; 
and  that  means  practically  every  company  in  the  country. 

The  CHAIRMAN.  The  long  green? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  GADSDEX.  Unless  that  immediate  need  can  be  prop- 
erly taken  care  of,  do  you  see  any  advantage  in  our  continuing  this 
discussion  as  to  a  permanent  solution?  Would  it  not  be  largely 
academic? 

Mr.  CLARK.  I  think  so,  Mr.  Commissioner,  because,  although  I 
am  rather  familiar  with  the  Xew  York  City  situation.  I  was  very 
much  surprised  and  shocked  to  hear  Mr.  Quackenbush  say  that, 
unless  they  have  some  relief  of  some  sort,  the  Intorborough  Rapid 
Transit  Co..  operating  the  subway  and  elevated  systems  in  the 
Greater  City  of  Xew  York  would  be  in  bankruptcy  after  January 
1.  I  think  that  epitomizes  the  situation  with  regard  to  the  street 
railways  of  the  country. 

Commissioner  GADSDEX.  If  the  credit  of  the  Interborough  of  Xew 
York  is  destroyed,  what  is  to  become  of  some  of  the  little  fellows? 

Mr.  CLARK.  Yes.  sir. 

Commissioner  ( i ADHDEN.  1  have  no  further  questions. 

Mr.  WARREX.  AVell.  really  nearly  every  company  that  has  any 
bonds  accruing,  even  if  it  is  getting  along  with  operating  expenses, 


916       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

would  be  in  the  same  position  as  the  Interborough,  unless  relief  is 
brought  to  restore  its  credit. 

Mr.  CLARK.  I  think  so,  Mr.  Warren. 

Mr.  WARREN.  And  that  relief,  you  believe,  should  come  through 
an  immediate  increase  of  fares? 

Mr.  CLARK.  Yes,  sir. 

Mr.  WARREN.  Laying  aside  the  ordinary  delay  in  ordinary  rate 
cases,  and  perhaps  quite  appropriate  ordinarily — 

Mr.  CLARK.  I  think  an  emergency  exists,  and  it  should  be  treated 
as  such. 

Mr.  WARREN.  And  rely  on  the  power  of  the  commission  to  correct 
any  overliberality  of  which  they  may  be  guilty? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  I  would  like  to  ask  another  question.  In 
the  plan  that  you  have  outlined  here,  you  seem  to  be  looking  forward 
to  a  new  day  and  one  of  cooperation  between  the  general  public 
and  the  corporation,  rather  than  one  of  antagonism.  In  order  to 
carry  out  that  idea  more  completely,  does  it  not  seem  to  you  as  if  the 
immediate  community  concerned  ought  to  have  some  voice,  either 
through  a  commission  or  some  other  way,  with  regard  to  the  con- 
tinuing arrangement  that  might  be  made,  rather  than  to  have  the 
matter  taken  immediately  to  a  State  commission — either  as  Mr. 
Elmquist  suggested,  through  a  local  commission,  from  which  an 
appeal  might  be  taken,  or  in  some  other  way — that  the  immediate 
locality  would  feel  more  in  accord  with  the  general  proposition  and 
cooperate  better  if  the  subject  were  not  removed  from  the  immediate 
community  and  carried  right  on  to  the  State-? 

Mr.  CLARK.  I  will  answer  that  by  saying  this,  that  my  thought  is 
that  the  immediate  interests  of  the  man  that  uses  the  street-car  serv- 
ice are  in  the  service,  and  what  he  wants  is  to  be  carried  comfortably 
and  expeditiously  from  one  destination  to  another ;  that  if  that  serv- 
ice is  provided  by  whatever  means,  he  is  going  to  be  fairly  content 
writh  the  good  service,  and  that  will  do  more  toward  reconciling  the 
public  and  the  companies  than  any  other  one  thing.  Now,  I  be- 
lieve that,  in  some  way,  if  the  alternative  of  commission  regulation  is 
accepted,  the  city  should  have  some  way  of  expressing  its  wants  and 
needs  in  the  matter  of  service.  I  believe  that  the  other  matters 
connected  with  the  regulation  might  properly  be  left  to  the  State 
commissions,  and  even  this  question  of  service  might  find  in  the  com- 
mission its  ultimate  decision. 

Commissioner  SWEET.  Do  you  think  that  having  a  director  rep- 
resenting the  public,  as  they  have  in  Cincinnati,  fills  the  bill?  Does 
that  answer  the  necessary  requirements  of  the  case? 

Mr.  CLARK.  This,  in  my  opinion,  Mr.  Sweet,  is  a  new  thing.  I  do 
not  think  it  has  ever  been  put  into  practice,  this  cooperation  between 
the  city  and  the  State  in  the  regulation  of  utilities,  and  therefore  I 
am  not  competent  to  tell  you  in  detail  how  the  thing  should  be 
effected. 

Commissioner  SWEET.  But,  as  a  matter  of  judgment,  does  it  not 
seem  to  you  to  carry  out  the  general  idea  of  this  plan,  which  is  one 
of  friendly  cooperation,  that  there  should  be  a  sort  of  working  to- 
gether of  the  city  and  the  company  ? 

Mr.  CLARK.  Yes,  sir;  I  believe  so. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       917 

Commissioner  SWEET.  Now,  would  that  idea  be  encouraged  and 
carried  out  if  you  had  a  large  representation  on  the  board  of  direc- 
tors of  the  company  from  local  citizens? 

Mr.  CLARK.  I  think  the  two  principles  are  not  the  same.  If  you 
are  putting  representatives  of  the  public  on  a  board  of  director's,  you 
are  dividing  the  responsibility  for  the  performance  of  the  service 
as  between  the  community  and  the  company  itself.  If  you  are  per- 
mitting the  public  to  specify  the  service,  you  are  putting  all  the 
responsibility  on  the  company  where,  I  believe,  it  belongs. 

Commissioner  SWEET.  Well,  one  of  the  witnesses  suggested  that  a 
part  of  the  prejudice  against  the  street-railway  corporations  was 
because  they  were  usually  owned  by  nonresidents. 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Or  practically  owned  by  nonresidents. 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  Did  you  hear  that? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  SWEET.  You  think  that  is  true;  do  you  not? 

Mr.  CLARK.  I  think,  Mr.  Commissioner,  that  that,  like  everything 
else,  is  one  of  the  excuses  or  one  of  the  means  of  combating  a  street 
railway,  seized  on  after  something  other  than  the  mere  fact  that  it 
is  owned  by  somebody  else,  which  has  caused  disturbance  between 
the  company  and  the  public. 

Commissioner  SWEET.  I  think  Mr.  Clark  made  that  statement; 
did  he  not? 

Mr.  CLARK.  Mr.  W.  J.  Clark? 

Commissioner  SWEET.  Mr.  W.  J.  Clark. 

Mr.  CLARK.  I  don't  know.     I  didn't  hear  it  if  he  did. 

Commissioner  SWEET.  That  is  all. 

Commissioner  BEALL.  There  is  just  one  point  that  I  would  like  to 
take  up.  I  am  not  sure,  Mr.  Clark,,  that  this  has  been  thoroughly 
brought  out  in  any  of  the  hearings — but  is  it  not  true  that  the  aver- 
age investor  nowadays,  unless  there  is  a  continuing  right,  such  as  an 
indeterminate  permit,  coupled  with  the  right  of  purchase,  will  not 
invest;  that  is,  that  the  investor  is  not  only  concerned  with  a  good 
rate  of  return,  agreed  on,  but  above  all  the  final  return  of  the  prin- 
cipal of  his  investment? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  BEALL.  And  unless  he  knows  that  one  of  two  things 
will  happen — either  he  will  get  a  continuous  right  to  operate  the 
property,  or  else,  if  it  is  bought,  it  will  be  at  a  price  that  will  leave 
him  whole  as  regards  his  principal? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  BEALL.  And  is  it  not  true  that  for  many  years 
now,  one  of  the  greatest  difficulties  with  all  public  utilities  in  raising 
new  money  or  in  refunding  an  old  debt  that  comes  due  has  been  on 
account  of  the  fact  that  in  too  many  States  there  was  a  provision 
limiting  the  franchise  by  State  law  to  "20  or  30  years,  or  whatever  it 
may  be,  and  that  if  they  had  an  obligation  coining  due  and  a  fran- 
chise maturing  at  that  time,  or  a  few  years  later,  or  even  five  years 
later,  the  company  could  not  refund,  except  at  a  very  short-time 
obligation,  at  a  very  high  rate  of  interest? 

Mr.  CLARK.  I  think  that  is  true.  That  is  the  way  I  would  look 
at  it  if  I  were  an  investor. 


918        PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  SWEET.  Do  you  think,  Mr.  Clark,  that  with  these 
rather  short-term  franchises,  as  the  end  approaches,  a  consideration 
of  the  granting  of  a  new  franchise  becomes  prominent  in  the  public 
mind,  and  do  you  think  that  that  has  anything  to  do  with  the  foster- 
ing of  the  spread  of  antagonism  between  the  company  and  the  com- 
munity ? 

Mr.  CLARK.  Oh,  undoubtedly. 

Commissioner  SWEET.  And  the  indeterminate  franchise  would  tend 
to  do  away  with  that? 

Mr.  CLARK.  Yes,  sir. 

Commissioner  BEALL.  The  politician  takes  advantage  of  it. 

Commissioner  SWEET.  Sure. 

Mr.  WARREX.  Prof.  Jenks,  will  you  take  the  stand? 

STATEMENT  OF  MR.  JESEMIAH  W.  JENKS. 

Mr.  WARREX.  Your  full  name.  Prof.  Jenks? 

Mr.  JENKS.  Jeremiah  W.  Jenks. 

Mr.   WARREX.  And  your  occupation? 

Mr.  JEXKS.  I  am  research  professor  of  government,  New  York 
University. 

Mr.  WARREX.  And  in  that  position  you  have  had  occasion,  I  sup- 
pose, to  study  almost  all  phases  of  government,  particularly  of  these 
utilities  and  their  relation  to  the  Government  ? 

Mr.  JEXKS.  I  have  made  no  special  study  of  the  electric  railways, 
but  in  a  number  of  cases  in  connection  with  my  university  work 
and  in  connection  with  some  Government  work,  I  have  been  called 
upon  to  look  right  carefully  into  the  relations  of  government  and 
business  in  general. 

Some  years  ago,  for  example,  I  had  charge  of  a  Government  in- 
vestigation into  the  larger  corporations  and  trusts  for  the  United 
States  Industrial  Commission,  and  later  I  made  other  minor  investi- 
gations in  connection  with  the  relation  of  government  to  business. 

Mr.  WARREX.  You  are  familiar  with  the  appointment  of '  this 
commission  and  with  the  problem  with  which  they  are  confronted 
here  ? 

Mr.  JEXKS.  Yes.  I  have  understood  from  the  public  press  and 
from  information  gathered  in  various  places  that  the  electric  rail- 
ways have  been  in  very  serious  financial  condition  indeed,  and  that 
the  President  thought  it  wise  to  appoint  this  commission  to  make 
a  particular  investigation  and  see  if  they  could  suggest  remedies. 

Mr.  WARREX.  And  can  you,  and  will  you.  be  good  enough  to  state 
to  the  commission  your  views  on  this  question  and  on  this  situation  ? 
And  would  you  rather  do  so  without  the  interruption  of  questions 
from  me  ? 

Mr.  JEXKS.  It  will  be  just  as  well,  perhaps,  to  begin  with,  and 
then  I  should  be  glad  to  have  any  questions  later  on. 

Mr.  WARREX.  I  will  ask  you  any  that  will  help  matters. 

Mr.  JEXKS.  It  had  seemed  to  me  that,  inasmuch  as  I  am  not  a 
technical  expert  on  these  railway  questions,  I  perhaps  should  begin 
by  stating  very  briefly  what  my  views  are  as  to  the  relation  of 
government  and  business,  for  two  or  three  minutes,  and  then  take 
up  more  specifically  these  things. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       919 

I  have  felt  for  a  long  time— from  the  public  press  and  elsewhere 
one  gathers  the  impression — that  the  real  social  significance  of  busi- 
ness as  business  is  not  understood  and  appreciated.  When  one  con- 
siders the  problems  that  managers  of  business  have  to  consider,  not 
merely  as  regards  earning  dividends  for  their  stockholders  but  prob- 
lems with  their  wage  earners  and  customers  of  all  kinds,  the  fact 
that  almost  everybody  in  the  community  is  engaged  in  business  in 
tome  capacity  or  other,  that  is,  he  is  attempting  to  render  some 
service  and  get  paid  for  it,  business  after  all  is  the  greatest  and 
perhaps  most  difficult  social  science  that  there  is. 

An  attempt  to  formulate  the  general  principles  upon  which  busi- 
ness is  to  be  done  needs  to  be  based  absolutely  upon  the  actual  facts 
of  business,  the  main  fact,  perhaps,  l>eing  the  business  man  himself, 
his  character,  his  ideals,  and  his  purposes.  That  concerns  all  of  us 
from  that  point  of  view. 

Xow,  on  the  other  hand,  as  I  understand  it,  the  Government,  Avhen 
you  speak  of  it  specifically,  regardless  of  the  men  who  are  doing  the 
work  for  the  city,  is  a  sort  of  grand  committee  that  under  our  laws 
we  have  picked  out  to  do  our  work  for  us. 

The  consequence  is  that  when  we  are  speaking  of  government  and 
business  and  the  relations  of  government  and  business  we  are,  after 
all,  largely  speaking  of  the  same  people  doing  things  from  different 
viewpoints,  one  from  the  regulating  end  and  the  other  the  people 
who  are  actually  doing  work;  so  that  there  ought  not  to  be  in  reality, 
as  in  essence,  any  conflict.  It  should  be  the  business  of  the  Govern- 
ment, as  representing  the  people,  to  help  on  business.  As  long  as 
it  is  helping  it  in  ways  to  promote  the  best  interests  of  the  -people 
as  a  whole,  any  special  feeling  of  antagonism  that  some  people  seem 
to  have,  or  wish  to  set  up,  is  really  out  of  place  in  any  proper  view 
of  government  and  business. 

It  has  been  suggested  that  the  electric  railways  have  not  been  pay- 
ing proper  expenses,  generally  speaking.  That,  to  my  mind,  is  a 
public  calamity,  not  merely  to  the  owners  of  the  stocks — and  in 
many  cases  this  condition  is  apparent  to  the  bondholders — but  also 
of  course  to  the  traveling  public,  as  we  found  out  during  the  war. 

If  we  are  going  to  find  a  remedy,  the  first  thing,  of  course,  is  to 
find  exactly  what  the  facts  are;  and  that  is  what  this  commission  is 
appointed  for,  I  suppose. 

The  causes,  as  they  develop,  seem  to  begin  with,  I  should  say, 
the  increased  expenses  that  necessarily  have  come  from  high  prices 
of  all  kinds  and  from  high  wages,  which  have  normally  developed 
out  of  the  present  conditions  and  the  war  conditions. 

Another  way  of  putting  it  is  that  it  is  the  inflation,  if  you  like, 
of  our  currency  and  credit.  That  has  been  the  fundamental  cause 
of  this  increased  cost  of  living,  while  the  fixed  fares  have  not  gone 
up  correspondingly.  There  was  no  other  way  out.  The  trouble  must 
come. 

The  offhand  remedy,  one  would  say,  to  begin  with,  would  be, 
of  course,  to  raise  the  fares  proportionate  to  the  increased  expenses; 
aiiil  there  is  where,  of  course,  we  get  into  difficulty  at  once. 

It  has  seemed  to  me  from  a  study  of  similar  questions  along  other 
lines  that  where  the  public  really  understands  the  question  it  is  not 
prejudiced  against  a  reasonable,  moderate  return  to  capital,  and  I 


920       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

believe  that  if  this  commission  can  get  itself  clearly  before  the 
public,  so  that  the  public  knows  what  the  facts  are  along  this  line, 
there  will  be  no  special  objection  on  the  part  of  the  patrons  to  paying 
a  higher  rate  of  fare.  Of  course,  they  will  regret  it,  but  it  is  a  part 
of  the  normal  business,  and  they  are  getting  it  back  in  higher  wages 
and  in  other  ways.  There  will  be  objections,  of  course.  We  have 
had  plenty  of  experience,  if  one  may  judge  by  some  of  our  papers  in 
New  York  and  elsewhere.  Where  anything  of  that  kind  is  at- 
tempted, it  is  looked  upon  by  many — and  they  seem  to  wish  to  pro- 
mote that  idea  among  the  voters  in  general — that  the  people  that  are 
owning  and  managing  these  public-service  corporations  are  trying  to 
get  something  extra  out  of  the  people,  more  than  they  have  had  be- 
fore, and  it  is  a  burden  on  the  people,  or  a  burden  on  the  working- 
men.  It  depends  on  how  they  are  putting  it. 

It  seems  to  me  that  where  that  is  apparently  a  deliberate  attempt 
to  mislead,  as  it  often  is,  for  special  political  purposes,  an  attempt 
to  furnish  some  kind  of  political  propaganda,  it  should  be  met  di- 
rectly by  telling  the  facts  officially  to  the  people ;  and  I  see  no  reason 
why  it  is  not  a  very  wise  policy  for  the  public  corporations  them- 
selves to  give  the  facts.  Of  course,  AVC  know  that  as  to  facts  given 
by  the  public  corporations,  they  would  be  considered  to  be  interested 
parties,  and  are  often  discounted  by  a  good  many ;  but  after  all,  facts 
are  facts,  and  they  do  carry  weight.  Some  of  the  railways  have  done 
admirably  along  that  one  line,  and  it  has  had  some  weight,  as  in  the 
case  of  the  telephone  companies;  and  if  the  real  facts  would  come 
from  this  commission  it  would  help  a  great  deal  more. 

There  doubtless  have  been  at  times  great  difficulties  that  have  been 
caused  either  by  earlier  mismanagement  or  perhaps  by  present  mis- 
management in  individual  cases.  I  think  there  is  no  question  that 
in  the  early  days,  more  particularly  when  franchises  were  given  away 
very  freely,  there  was  often  a  good  deal  of  watered  stock,  and  so 
forth,  and  attempts  were  made  to  pay  dividends  on  a  larger  capitali- 
zation than  was  for  the  good  of  the  public.  That  is  a  matter  for  in- 
vestigation into  the  individual  cases  wherever  that  is  found.  The 
remedy  in  most  cases,  I  suppose,  would  be  in  due  time,  at  any  rate, 
in  the  hands  of  the  commissions  and  courts.  At  any  rate,  when  an 
attempt  was  made  to  develop  further  along  that  line,  it  clearly 
would  be. 

I  have  felt  also  that  some  very  simple  principles  of  business  should 
be  developed  among  the  public,  as  far  as  possible. 

For  example,  all  of  us  have  doubtless  heard  hundreds  and  hun- 
dreds of  times  statements  made  by  people  that  are  promoting  the  in- 
terests of  the  laboring  men  that  implied  that  wages  could  be  raised, 
and  that  as  a  permanent  thing,  out  of  the  profits,  out  of  the  wages  of 
the  managers,  and  so  forth,  and  not  realizing  the  fundamental  fact 
that  in  any  business  it  is  out  of  the  value  of  the  product  that  the 
wages  and  interest  on  the  capital  and  the  wages  of  the  management, 
in  case  there  is  to  be  any  special  benefit  to  the  consumer  from  lower 
prices,  has  to  come.  It  is  out  of  the  product  itself. 

Now  anything,  then,  that  can  be  done  to  increase  the  value  of  that 
product — in  this  case,  of  course,  as  I  say,  the  remedy  is  to  raise  the 
fares — produces  a  fund  from  which  all  of  these  things  can  be 
handled. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       921 

If,  on  the  other  hand,  through  great  skill  in  management,  the  costs 
can  be  lessened  along  any  line,  that,  of  course,  increases  the  fund  out 
of  which  wages  can  be  paid,  and  interest,  and  so  forth. 

So  that  fundamental  idea,  which  is  certainly  not  in  the  minds  of 
hundreds  and  thousands  and  millions  of  laboring  men,  I  think,  is 
one  of  the  first  things  to  be  driven  into  the  heads  of  the  American 
public,  as  far  as  possible — that  we  have  to  look  after  the  value  of 
the  product,  and  these  things  are  to  be  taken  out  of  that,  and  no  one 
of  these  groups  in  business  can  permanently  go  ahead  at  the  expense 
of  another  group.  The  business  can  not  stand  for  that  at  all,  and 
won't  do  that. 

I  think  the  difficulties  that  have  come  along  that  line,  and  a  good 
deal  of  the  trouble  that  has  come  to  the  street  railways,  as  well  as  to 
others,  has  come  from  the  advocates  of  certain  special  political  ele- 
ments, the  extremists  in  favor  of  municipal  ownership,  the  socialists, 
and  others. 

I  perhaps  may,  in  just  a  word,  express  my  own  view  on  that  ques- 
tion now  of  municipal  ownership. 

I  have  no  doubt  that  there  are  certain  localities,  particularly  the 
smaller  towns,  where  everybody  knows  everybody,  and  particularly 
where  an  opportunity  could  be  had  for  combining  the  street-railway 
system — the  power  there  with  the  electric  lights,  and  things  of  that 
kind — where  municipal  ownership  might  work,  and  work  to  advan- 
tage; but,  speaking  generally,  the  experience,  not  merely  of  this 
country,  but  of  the  best  of  Europe,  is  against  municipal  management 
'  generally. 

I  think  my  own  experiences  along  that  line  have  been  most  marked 
in  work  that  I  have  done  from  time  to  time  in  association  with  dif- 
ferent departments  of  the  Government. . 

But  the  reason  for  it,  to  my  mind,  is  absolutely  fundamental  in 
human  nature.  When  we  have  a  business  carried  on  primarily  for 
the  purpose  of  normal  profits,  under  conditions,  of  course,  implying 
honesty  of  management  and  things  of  that  kind — we  had  the  man- 
agement— and  if  the  workingmen  are  properly  treated  and  properly 
handled,  they  should  recognize  the  fact  that  they  need  to  put  forth 
their  best  energies  and  their  best  intelligence,  their  interest  in  the 
business,  and  stick  right  on  the  job  and  not  waste  time.  I  have 
known  some  very  striking  cases,  for  example,  of  individuals,  abso- 
lutely unskilled  workers,  who,  when  they  got  a  change  of  heart  along 
that  line,  increased  their  output  amazingly.  I  know  one  specific  case, 
for  example,  where  a  young  man  in  a  shop  was  simply  feeding  an 
automatic  machine,  stamping  up  triggers  in  a  gun  shop.  His  normal 
output,  which  was  as  good  as  that  of  the  average  of  the  shop,  was 
about  260  a  day.  The  boss  came  along  one  day  and  told  him  that 
he  was  going  to  raise  his  wages  2i>  cents  a  day.  He  was  a  faithful 
sort  of  a  fellow  and  got  to  thinking  the  matter  over.  He  realized 
that,  perhaps,  he  had  gone  to  get  a  drink  a  little  oftener  than  was 
necessary,  looked  aside  to  other  people  a  little  oftener  than  was  neces- 
sary, and  he  said  to  himself,  "Old  (ieorge  has  been  pretty  good  to 
me;  I  will  see  what  I  can  do  for  him/'  80  he  got  on  the  job  the 
next  day  and  did  not  waste  a  minute  of  the  day,  all  day  long.  He 
did  not  work  any  overtime,  but  he  simply  worked  carefully  and 
faithfully,  and  he  turned  out  that  day  instead  of  2GO,  400  pieces, 
and  he  said,  "  I  can  easily  average  400." 
10W430— "20 09 


922   j    PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

There  is  an  example  of  what  an  absolute  change  in  spirit  only 
will  do. 

Now,  it  does  seem  to  me  that,  in  connection  with  private  manage- 
ment, you  can  get  that  spirit  all  through  the  organization  from  top 
to  bottom  much  more  easily  than  you  can  in  the  case  of  Government 
management  of  any  kind. 

As  I  have  said,  I  have  had  more  or  less  experience  in  connection 
with  Government  management,  and  it  is  a  necessity  in  many  cases, 
but  I  believe  it  is  much  more  difficult  to  get  that  spirit  in  the  first 
place.  In  the  second  place,  you  can  not  pick  and  control  your  men 
nearly  so  well.  I  have  been  for  many  years  an  advocate  of  civil 
service  reform  all  along  the  line,  not  because  I  thought  it  was  the 
ideal  thing  at  all,  but  because  it  was  the  lesser  of  two  evils.  Under 
civil  service,  the  difficulty  is  not  so  much  in  getting  the  man,  but  the 
difficulty  is  in  getting  rid  of  him.  Anyone  who  has  had  any  ex- 
perience with  it  knows  that  it  is  absolutely  impossible  to  get  rid  of 
those  people  that  you  do  not  want.  I  know  of  a  case  where,  for  threa 
or  four  months,  they  had  been  trying  to  get  rid  of  people  whom  they 
knew  were  dishonest.  Now,  in  a  private  establishment  that  would  be 
done  easily  and  pleasantly. 

So  it  seems  to  me  there  are  those  two  things. 

The  third  thing,  which  is  not  along  the  same  line,  is  this:  In  the 
case  of  public  management  the  idea  of  a  profit  or  a  tax  does  not 
come  in  at  all.  That  is  where  I  think  we  have  been  making  very 
many  fallacious  conclusions  with  reference  to  our  war  work.  The 
war  work,  in  many  cases,  was  done  remarkably  well,  but  it  was  done 
regardless-  of  cost.  It  was  simply  to  get  the  biggest  output  possible, 
regardless  of  cost.  When  peace  comes  we  can  not  run  on  that  basis 
any  longer.  We  have  an  example  of  that  in  some  of  this  beautiful 
printing  in  Government  reports.  It  is  done  absolutely  regardless  of 
cost.  You  can  not  do  that  in  private  work.  You  have  to  hold  the 
costs  down.  On  the  other  hand,  if  in  all  private  enterprise  you  clo 
not  give  excellent  service,  you  can  not  get  your  price. 

Now,  it  is  doubtless  true  that  when  people  are  working  equally 
conscientiously  in  both  cases,  the  Government  on  the  one  hand  and 
the  private  individuals  on  the  other,  they  will  come  pretty  nearly  to 
getting  results,  but  that  is  assuming  the  ideal  in  both  cases,  and  you 
do  not  get  it  in  both  cases. 

Another  difficulty  that  has. come  in  has  been  the  very  slow  action 
on  the  part  of  the  commissions  where  they  have  had  to  make  decisions 
and  of  the  courts  when  they  have  had  to  make  decisions.  I  do  not, 
feel  that  I  am  really  competent  to  express  a  very  definite  opinion  on 
that,  because  I  have  not  investigated  the  cases;  but,  generally  speak- 
ing, we  know  our  courts  have  been  very  slow,  and  one  of  the  chief 
movements  among  the  lawyers  has  been  to  expedite  the  work  of 
the  courts  by  a  reformation  in  methods  of  procedure.  I  have  no 
doubt  that  that  would  run  all  through  this  work,  as  well  as  elsewhere. 

Other  difficulties  have  been  due  at  times  to  differences  of  opinion 
as  to  the  proper  method  to  be  applied,  the  proper  theories,  if  you  like, 
that  should  be  applied,  as  to  division  of  earnings,  or  as  to  the  amount 
of  return  on  the  capital  invested,  and  as  to  the  area  in  which  you  are 
to  fix  the  amount  of  capital  upon  which  you  should  pay  the  return, 
and  so  forth. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       923 

There  is  a  real  legitimate  basis  for  a  difference  of  opinion  there, 
and  in  thrashing  these  differences  out,  as  I  am  informed,  also  in  at- 
tempting to  harmonize  the  views  at  times  of  courts  and  commissions, 
there  have  been  very  serious  delays. 

Now,  I  suppose  that  there  is  an  opportunity  for  the  commission's 
recommendations  to  be  of  great  service.  If  the  commission  can  make 
definite,  positive  recommendations  as  to  the  basis  on  which  the  re- 
turns should  be  calculated  and  as  to  the  general  methods  that  would 
be  followed  that  can  be  made  as  nearly  automatic  as  possible,  it  will 
save  a  lot  of  time  along  those  lines,  and  I  imagine  in  a  good  many 
cases  also,  as  it  has  been  the  opinion  about  the  Interstate  Commerce 
Commission,  too  much  work  has  been  loaded  upon  commissions.  I 
have  no  doubt  that  that  is  true  in  other  cases.  There,  again,  Govern- 
ment can  help  by  providing  the  right  kind  of  commissions  properly 
equipped,  all  the  way  through. 

Xow,  I  should  suppose  that  the  work  of  the  Federal  Government 
would  be  primarily  this  advisory  work.  We  know  that  in  the  dif- 
ferent States  there  are  many  cases  where  we  have  State  commis- 
sions, for  two  or  three  reasons.  In  the  first  place,  when  it  comes  to 
questions  of  accounting,  it  is  very  desirable  that  therS  should  be  some 
uniform  system  of  accounts,  for  the  keeping  of  costs  and  things  of 
that  kind.  That  would  be  determined  by  the  State  commissions. 
You  are  not  very  likely  to  get  the  different  municipalities  to  be 
working  together  so  that  they  will  keep  their  accounts  in  the  same 
way,  so  that  comparisons  can  be  made,  unless  you  do  have  some  cen- 
tral power.  I  think  something  should  be  done  along  that  line. 

I  speak  with  some  hesitancy  with  reference  to  expressing  any 
opinion  as  to  the  proper  basis;  but  many  years  ago,  in  connection 
with  certain  European  contracts,  it  had  seemed  to  me  that  the  sug- 
gestion was  an  excellent  one  that,  when  contracts  were  made  with 
these  corporations  providing  for  rates  of  fare,  returns,  and  so  forth, 
perhaps  the  most  satisfactory  work  as  it  would  occur  to  me — a  theory, 
without  practical  experience — was  to  provide  that  rates  of  fare  or 
income  from  whatever  source  be  large  enough,  so  that  there  would 
be  no  possibility  of  not  earning  a  minimum  amount,  a  minimum 
return  on  the  investment.  Then,  as  would  be  expected  in  most  cases, 
there  would  be  a  return  above  that,  and  that  methods  should  be  had 
for  a  proper  division  of  the  surplus  return  between  the  corporation 
concerned  and  the  municipality,  with  an  increase  in  the  proportion 
to  the  municipality  as  the  profit  increased.  There  are  two  or  three 
reasons  for  that.  If  you  give  the  municipality  a  portion  above  a 
certain  minimum,  then  at  once  the  incentive  is  gone  to  kcop  up 
efficiency.  If.  on  the  other  hand,  you  give  the  corporation  ;\  con- 
tinual likelihood  of  greater  earnings,  no  matter  how  good  its  service 
is,  it  will  keep  that  stimulus  on  them;  and  the  probability  will  be 
that  with  that  stimulus  there  the  city  will  get  more,  too,  on  account 
of  the  more  efficient  work  than  it  otherwise  would.  For  example, 
take  5  or  G  per  cent.  I  do  not  want  these  figures  to  be  understood 
as  one  that  would  have  my  final  judgment.  I  have  not  studied  the 
question  enough.  Then,  we  will  say  from  5  to  8  per  cent,  the  division 
is  half  and  half,  and  above  8  two-thirds  or  three-quarters  to  the  city. 
You  still  would  have  the  stimulus  to  the  corporation,  and  in  that 
way  I  think  you  would  get  a  better  arrangement. 


924       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Let  me  repeat  that  I  speak  with  great  hesitation  on  these  things, 
because  it  is  not  my  real  field,  but  I  was  interested  in  the  subject  for 
years,  and  I  have  read  a  good  deal  on  it. 

I  have  felt  also  that  it  is  very  desirable  that  some  method  of 
calculating  these  returns  be  made  that  can  be  flexible,  that  can  be 
uniform,  that  can  be  adaptable,  so  that  one  does  not  need  to  be 
changing  rules  all  the  time. 

I  wonder  if  I  might  be  permitted  to  give  an  illustration  from 
another  field  that  I  am  rather  more  familiar  with. 

There  came  into  my  own  experience  three  or  four  years  ago  a  ques- 
tion of  this  kind.  One  of  the  governments  in  the  Far  East  wanted 
to  buy  some  millions  of  ounces  of  silver,  which  had  been  tied  up  in 
Europe  and  practically  speculated  on  in  the  limited  market.  More- 
over, the  rates  of  freight  from  London  or  from  anywhere  in  Europe 
to  the  Far  East  are  higher  than  they  are  from  San  Francisco.  A 
very  large  part  of  the  American  silver  is  shipped  to  London,  to  begin 
with.  So  the  suggestion  was  made  that  the  Government  make  a  con- 
tract with  our  biggest  American  producer  of  silver  to  be  allowed  to 
take  as  long  as  it  wanted  to  a  certain  number  of  thousands  of  ounces 
a  month  at  a  rate  based  on  the  London  market  price.  The  London 
market  price  was  to  be  taken  as  the  average,  if  I  recall  rightly,  of 
the  preceding  two  weeks.  That  took  the  element  of  speculation  out 
of  it  entirely.  On  account  of  the  lower  freight  rate,  it  assured  the 
Government  something  like,  if  I  recall  right!}',  a  quarter  of  a  cent 
an  ounce,  at  least,  with  the  cheaper  rates,  than  they  could  buy  in 
London  on.  Then  another  article  of  the  contract  said  that  this  is  a 
self-perpetuating  contract  that  may  be  suspended  temporarily  by 
either  party,  and  then  may  be  renewed  again  by  consent  of  both 
parties.  The  idea  was  that  that  kind  of  a  contract,  based  on  the 
London  market  and,  for  that  matter,  the  rate  of  interest  also  made 
flexible  and  depending  upon  the  rate  of  the  Bank  of  England,  was 
successful  and  adaptable  to  market  conditions,  and  there  was  no 
reason  why  that  should  not  be  run  for  20  years. 

It  seems  to  me  that  in  any  of  these  cases  where  we  are  making 
contracts  with  the  corporations  and  the  Government  it  is  difficult 
to  get  those  things  through,  and  if,  when  they  are  made  -\ve  could 
put  them  through  in  some  form  that  would  be  more  or  less  self- 
adapting  to  varying  conditions,  it  would  have  a  great  deal  of  time. 
In  the  long  run  it  would  doubtless  be  much  more  satisfactory,  and 
much  help  all  along  the  line  could  be  done  there.  Now,  how  it 
should  be  done  is,  of  course,  something  that  I  do  not  know  anything 
about. 

It  might  also  very  well  be  that,  in  making  contracts  of  that  kind, 
the  franchise — I  think  normally  they  should  be  limited,  because  we 
cannot  foretell  the  future  long  enough — would  become  practically  a 
perpetual  franchise.  I  am  against  perpetual  franchises,  on  principle. 

The  CHAIRMAN.  On  that  point,  let  me  ask  you  one  question. 

Mr.  JENKS.  Yes.  sir. 

The  CHAIRMAN.  Do  you  believe  in  the  indeterminate  franchise, 
subject  to  the  right  of  the  cit}^  to  buy  the  plant  ? 

Mr.  JENKS.  To  buy  the  plant? 

The  CHAIRMAN.  Yes. 

Mr.  JENKS.  Yes;  I  have  advocated  that  a  good  many  times, 
especially  of  late  years.  The  more  I  go  into  these  questions,  the  more 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       925 

I  put  emphasis  upon  the  fact  that,  while  it  is  worth  while,  perhaps, 
to  retain  the  option  to  buy,  you  had  better  not  buy  unless  the  cases 
are  very  exceptional. 

There  again,  let  me  repeat  what  I  said  before.  I  think  your  public 
ownership  with  private  management  is  often  a  very  good  combina- 
tion. When  I  was  thinking  of  buying,  and  when  I  spoke  so  em- 
phatically against  buying,  it  was  with  the  idea  of  municipal  manage- 
ment also. 

Commissioner  BEALL.  Professor,  let  me  ask  you  there  whether  one 
of  the  principal  things  that  a  company  has  to  do  is  to  continue  to 
nuse  money. 

Mr.  JENKS.  Yes,  sir. 

Commissioner  BEALL.  Would  you  put  any  money  in  a  street  rail- 
way of  your  own?  For  instance,  suppose  I  wanted  to  sell  you  a 
20-year  franchise — and  they  do  have  20-year  franchises — would  you 
put  3*our  money  in  it  ? 

Mr.  JENKS.  I  think  that,  so  far  as  that  is  concerned,  if  you  have 
your  proper  contract,  your  proper  supervision  by  the  State  commis- 
sion, and  so  forth,  then  that  is  not  so  serious  a  difficulty. 

Commissioner  BEALL.  Well,  but  it  has  been.  That  is  just  what 
comes  up.  What  happens  at  the  end  of  20  years? 

Mr.  JENKS.  I  wonder  if  that  does  not  depend  upon  the  character 
of  the  franchise  there  in  the  first  place? 

Commissioner  BEALL.  Well,  but  that  franchise  is  ended.  You 
have  no  further  right.  Would  you  take  that  risk? 

Mr.  JENKS.  Oi  course,  this  is  true.  The  bonds  that  were  issued 
under  that  franchise  are  good. 

Commissioner  BEALL.  They  are  not  good  if  you  have  not  the  right 
to  operate. 

Mr.  JENKS.  Well,  that  is  true. 

Commissioner  BEALL.  Would  you  put  your  money  in  it? 

Mr.  JENKS.  Yes;  I  would. 

Commissioner  BEALL.  On  what  theory? 

Mr.  JENKS.  On  this  general  theory,  which  I  think  is  perfectly 
sound,  that  if  you  have  been  able  to  get  a  good  franchise,  particularly 
of  the  type  that  I  have  had  in  mind,  the  chances  are  speculative; 
but  speculation  is  not  a  very  serious  difficulty.  The  chances  are 
reasonably  good,  just  as  good  as  the  contract's  being  continued. 

Commissioner  BEALL.  Would  you  put  your  money  in  anything  like 
that  when  you  have  a  lot  of  other  things  offered  to  you  that  will  pay, 
perhaps,  just  as  well  or  better,  and  where  you  do  not  have  to  tako 
that  risk? 

Mr.  JENKS.  Well,  yes.  I  know  that. 

Commissioner  BEALL.  There  are  a  number  of  things  where  you 
do  not  have  to  take  that  risk. 

Mr.  JENKS.  No. 

Commissioner  BEALL.  Why  take  that  risk  if  you  do  not  have  to? 

Mr.  JENKS.  Your  rate  of  return  may  be  a  little  higher. 

Commissioner  BEALL.  Well,  it  is  not. 

Mr.  JENKS.  You  doubtless  will  find  many  individual  cases  of  that 
kind.  Now,  let  me  reply  on  the  other  side.  The  reason  for  a  some- 
what shorter  permit — I  had  not  suggested  20  or  25  years  as  the 
lowest;  I  had  suggested  25  or  30  years  as  the  lowest  that  I  had  in 
mind,  but  that  is  immaterial. 


926       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Commissioner  BEALL.  Let  me  ask  you  right  there:  You  are  fa- 
miliar with  the  fact  that  where  a  company  has  a  25-year  franchise, 
or  whatever  term  it  be,  and  it  is  about  to  expire,  and  the  securities 
are  coming  due,  either  at  the  same  time  as  the  franchise  expires  or 
maybe  some  years  previously,  it  is  very  often  the  case  that  it  is 
practically  impossible  to  renew  those  obligations? 

Mr.  JENKS.  I  should  think  it  would;  yes.  The  other  conditions 
are  aside  from  these  very  abnormal  conditions. 

Commissioner  BEALL.  But  to  a  very  great  extent  that  has  alwayr; 
been  true  in  good  times. 

Mr.  JENKS.  Doubtless  it  has. 

Commissioner  BEALL.  This  thing  would  have  to  be  handled  for  a 
very  short  time  at  a  very  high  rate. 

Mr.  JENKS.  May  I  give  in  just  a  word  my  reason  for  suggesting 
that  alone  and  not  a  perpetual  franchise  ? 

The  conditions  in  every  community  are  pretty  rapidly  changing 
all  along  the  line.  I  do  not  think  we  can  foretell  conditions  very 
far  ahead,  and  I  should  say  that  if  we  were  to  go  back  50  years — 
now,  I  have  not  gone  through  the  books  on  it,  but  from  the  general 
information  that  one  has — I  should  say  that  if  we  were  to  go  back 
50  years  we  would  find  that  the  difficulties  that  had  arisen  in  many 
cases — of  course,  I  am  not  saying  in  all,  but  as  a  general  thing — have 
been,  in  the  first  place,  clue  to  a  franchise  .given  that  was  very  valu- 
able, or  else  it  had  been  overcapitalized,  or  else  the  corporation  had 
conducted  its  affairs  in  such  a  way  that  there  was  some  real  legiti- 
mate cause  of  complaint  against  it  that  had  stirred  up  a  hostility 
that  was  more  or  less  justified. 

Now,  along  the  lines  that  I  have  suggested,  if  the  corporation  luvs 
managed  its  business  in  the  right  way,  and  the  public  has  been  prop- 
erly informed,  I  do  not  think  there  is  any  special  likelihood  of  the 
corporation's  being  plundered  by  the  public.  I  grant  there  are  ex- 
ceptional cases,  and  I  am  as  afraid  of  the  politicians  as  you  are. 

Commissioner  BEALL.  Unfortunately,  it  is  the  politicians  that  do  it. 

Mr.  JENKS.  I  am  as  afraid  of  the  politicians  as  you  are. 

Commissioner  BEALL.  Now,  is  not  this  true  that,  all  things  being 
equal,  you  are  going  to  put  your  money  in  the  thing  that  offers  the 
best  security? 

Mr.  JENKS.  Oh,  surely. 

Commissioner  BEALL.  And  if  a  street  railway,  through  having  a 
short  franchise,  or  a  limited  term,  has  to  compete  against  something 
which  is  very  much  better,  with  another  form  of  security,  the  street 
railway  is  going  to  suffer. 

Mr.  JENKS.  It  will  have  great  difficulty  in  getting  it. 

Commissioner  BEALL.  Is  it  not  just  as  important  to  the  street  rail- 
way as  to  any  other  form  of  investor  to  get  that  money  as  constantly 
and  as  cheaply  as  pssible?  It  is  really  vital;  is  it  not? 

Mr.  JENKS.  Other  things  equal,  I  grant  that. 

Commissioner  BEALL.  The  minute  you  look  into  the  term  of  your 
franchise,  are  you  not  putting  a  great  big  handicap  on  the  company? 

Mr.  JENKS.  Not  if  the  other  things  are  carried  on  as  your  question 
implies. 

Commissioner  BEALL.  Have  you  ever  tried  to  raise  money  for  a 
street  railway? 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       927 

Mr.  JENKS.  No. 

Commissioner  BEALL.  Have  you  ever  tried  to  raise  any  money  for 
any  other  kind  of  an  industry? 

Mr.  JENKS.  No,  sir;  that  is  not  my  business.  I  have  been  rather 
familiar  with  a  great  many  of  these  things,  but  what  you  say  is  true. 

The  CHAIRMAN.  We  will  resume  at  2  o'clock. 

(Whereupon,  at  1  o'clock  p.  m.,  a  recess  was  taken  until  2  o'clock 
p.  m.) 

AFTER  RECESS. 

The  hearing  was  resumed  at  2  o'clock  p.  m. 

Mr.  WARREN.  I  would  like  to  introduce  some  documentary  testi- 
mony here. 

Mr.  Chairman,  you  asked  Mr.  Clark  when  he  was  on  the  stand 
for  certain  information  about  increases  of  fares. 

The  CHAIRMAN.  Yes,  sir. 

Mr.  WARREN.  And  I  have  a  summary  of  those  figures  here. 

The  increased  rates  of  fare  granted,  as  was  found  in  the  June, 
1919,  Aera,  page  1078.  have  been  as  follows:  By  commissions,  133; 
by  cities,  52 ;  operation  of  service  at  cost,  9.  Those  increases  include 
increases  of  all  kinds,  whether  a  charge  for  a  transfer  or  in  any  other 
way.  The  number  of  cities  with  increased  fares  was  388,  as  appears 
from  the  May,  1919,  Aera,  at  page  973.  The  number  of  companies 
to  which  increases  have  been  granted  in  rates  of  fare  are  260. 

The  CHAIRMAN.  Does  that  statement,  Mr.  Warren,  show  the  num- 
ber of  applications  that  were  made  for  increased  fares  during  the 
same  period? 

Mr.  WARREN.  This  summary  does  not,  Mr.  Chairman.  The  article 
shows  applications  pending  before  commissions,  36;  before  courts, 
3;  and  before  city  authorities,  27.  It  also  shows  applications  re- 
fused, by  commissions,  4;  by  local  authorities,  18. 

The  CHAIRMAN.  Is  not  that  quite  a  remarkable  statement? 

Mr.  WARREN.  I  think  it  is. 

The  CHAIRMAN.  It  shows  that  they  have  been  pretty  generally 
granted  increases, 

Mr.  WARREN.  Yes;  I  think  the  only  criticism  that  could  be  made 
would  be  as  to  the  length  of  time. 

Commissioner  GADSDEN.  There  are  only  about  300  companies  in- 
volved out  of  the  whole  industn*.  Lots  of  them  did  not  apply  be- 
cause they  knew  they  could  not  get  anything. 

Mr.  WARREN.  That  may  be  so. 

Commissioner  GAIXSDEN.  Yes;  but  as  far  as  the  industry  is  con- 
cerned, it  does  not  show  that. 

Mr.  WARREN.  It  appeared  in  a  special  report  of  the  commission 
investigating  this  general  subject  in  Massachusetts,  which  reported 
a  year  ago  last  January,  as  I  recall  the  statement,  that  the  average 
time  before  the  Massachusetts  commission  had  been  four  months. 
Under  normal  conditions  I  do  not  think  that  could  be  criticized,  but 
under  the  war  conditions  four  months  is  a  long  time.  The  wages 
on  the  Boston  Elevated,  as  I  have  just  been  reading  in  this  morning's 
paper,  have,  been  raised  25  per  cent  since  the  1st  of  August,  and 
they  have  been  rate  increases  retroactive  to  the  1st  of  May;  so  that 
the  25  per  cent  for  May,  June,  and  July,  three  months,  must  bo 


928       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

paid,  although  during  those  three  months  the  rate  of  fare,  most  of 
it,  was  at  the  old  rate. 

Do  3'ou  care  to  have  these  magazines  filed  with  the  commission, 
showing  those  increases  in  detail? 

The  CHAIRMAN.  Well,  you  might  as  well  file  one,  if  you  will. 

Mr.  WARREN.  It  is  in  two  parts,  some  in  one  and  some  in  the  other. 

Commissioner  GADSDEN.  Why  not  .just  tear  the  page  out  and  put 
it  in  evidence,  instead  of  the  whole  magazine? 

The  CHAIRMAN.  That  can  be  done,  Mr.  Warren. 

Mr.  WARREN.  Yes. 

I  have  here  also  copies  of  replies  made  to  an  inquiry  by  the  Secre- 
tary of  Labor  as  to  the  permanence  ot  the  range  of  prices  for  necessi- 
ties of  life.  They  are  statements  of  Julius  Rosenwald,  John  D. 
Ryan,  Darwin  P.  Kingsley,  W.  L.  Douglas,  A.  Barton  Hepburn,  J. 
Ogden  Armour,  James  B.  Forgan,  of  the  First  National  Bank  of 
Chicago,  and  Jacob  H.  Schiff.  Those  I  should  like  to  have  inserted 
in  the  record,  if  I  may. 

The  CHAIRMAN.  That  ma}^  be  done. 

The  statements  referred  to  by  Mr.  Warren  are  as  follows : 

STATEMENT  BY  JULIUS  ROSENWALD. 

It  is  my  belief  that  the  range  of  prices  for  the  necessities  of  life  will  average 
little,  if  any,  lower  than  at  the  present  time.  Of  course,  there  will  be  some 
exceptions,  but  I  do  not  look  for  a  sudden  or  violent  reduction  in  the  near 
future  aside  from  those  which  have  been  artificially  stimulated. 

There  exists  a  tremendous  demand  in  our  own  country  for  all  kinds  of 
commodities.  This  demand  will  not  diminish  materially  until  war-wrecked 
Europe  firmly  reestablishes  herself  on  a  peace-time-production  basis.  I  fully 
agree  with  those  who  believe  that  the  reconstruction  is  going  to  tax"  our 
efforts  perhaps  even  harder  than  did  the  war,  and  that  there  is  cause  for 
rejoicing  in  these  conditions  even  though  accompanied  by  high  prices,  for, 
after  all,  it  is  not  a  question  so  much  of  the  price  one  has  to  pay,  but  as  to 
what  relation  this  price  bears  to  one's  own  income. 

STATEMENT  BY  JOHN  D.  RYAN. 

I  am  rather  a  firm  believer  in  the  natural  economic  laws  and  I  do  not  find 
myself  in  accord  with  the  impression  that  many  people  seem  to  have  that  the 
level  of  prices  is  not  likely  to  be  radically  changed  over  the  decade.  I  believe 
that  prices  must  be  made  that  will  equalize  consumption  and  production. 

We  have  seen  some  sharp  adjustments  already  from  war  prices,  and  in  every 
product  in  which  the  companies  with  which  I  am  connected  are  interested 
prices  have  gone  back  to  prewar  averages,  and  in  some  cases  lower.  These 
products  are  copper,  zinc,  lead,  and  manganese. 

I  do  not  believe  that  the  level  of  prices  will  fall  permanently  as  low  ns 
before  the  war,  but  I  am  convinced  that  we  can  now  look  for  gradual  adjust- 
ments in  most  staple  products.  I  think  prices  will  have  to  be  put  where  build- 
Ing  and  development  of  all  kinds  must  be  encouraged  before  we  will  see  con- 
sumption approach  production  of  the  staples. 

I  think  in  the  adjustments  which  are  necessary  labor  will  have  to  contribute 
its  share  or  unemployment  on  a  very  serious  scale  is  bound  to  result.  I  hope, 
however,  that  the  intelligence  and  foresight  of  those  who  have  to  settle  these 
questions  will  be  such  that  every  consideration  of  the  needs  of  those  who  work 
for  wages  and  salaries  will  be  considered  before  profits,  and  that  reductions 
in  wages  will  take  place  only  where  it  is  imperative. 

STATEMENT  BY  DARWIN  ?.  KINGSLEY. 

We  have  undoubtedly  reached  a  new  price  level.  For  some  years  food  will 
bo  higher.  Europe  has  been  so  stripped  of  every  sort  of  food  that  it  will  take 
more  than  the  harvests  of  1919  to  restore  an  equilibrium. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       929 

Food  will  remain  high  because  wages  will  not  go  back  to  the  prewar  level. 
Wages  will  fall  at  some  points  where  production  was  overforced  during  the 
war;  but  unless  our  whole  industrial  and  financial  fabric  falls  into  chaos — 
find  nothing  like  that  seems  possible  now — the  postbellum  readjustments  mean 
continued  high  wages  and,  of  course,  a  higher  cost  for  everything  into  which 
wages  enter. 

How  "far  discoveries  In  science,  inventions,  improved  methods,  etc.,  may  go 
toward  overcoming  this  increased  cost  through  increased  efficiency  and  in- 
creased production  is  a  question.  These  will  be  a  factor,  possibly  a  surprising 
factor,  because  the  rewards  will  be  large,  and  few  things  so  quicken  invention 
ai  d  efficiency  as  the  incentive  of  large  returns. 

Carry  the  message  to  the  Bolsheviks. 

STATEMENT  BY  W.  I.  DOUGLAS. 

Tf  you  will  call  it  to  mind,  the  per  capita  in  the  United  States  in  1914,  in 
round  numbers,  was  about  $34.  Recently  I  have  noticed  that  the  per  capita  is 
about  $57,  which  is  an  increase  of  a  little  over  57  per  cent.  While  the  per 
capita  remains  at  this  high  level  the  cost  of  commodities  and  labor  will  remain 
about  the  same.  I  am  of  the  opinion  that  prices  will  be  governed  to  a  great 
extent  as  the  per  capita  rises  or  falls. 

STATEMENT  BY  A.  BARTON  HEPBURN. 

Seventy-five  to  eighty  per  cent  of  the  cost  of  all  products  represents  labor; 
and  as  long  as  the  minimum  price  of  wheat  is  fixed  by  the  Government  at  $2.25 
a  bushel  and  other  necessities  of  the  wage  earner  are  approximately  as  high  in 
proportion,  there  is  every  reason  why  labor  should  contend  against  reduction. 
With  a  recession  in  the  cost  of  living  there  should  be  a  corresponding  reduc- 
tion in  the  cost  of  labor.  The  employers  of  labor  can  not  go  on  paying  present 
wages  nor,  indeed,  any  wages,  unless  their  business  continues,  and  it  has  seemed 
to  me  that  the  closing  of  certain  industries  would  throw  labor  out  of  employ- 
ment. In  seeking  new  employment  they  would  accept  the  reduction  in  accord- 
ance with  what  industry  could  afford  to  pay. 

I  understand  that  this  is  what  you  are  contending  against ;  and  you  seek  to 
induce  manufacturers,  wholesalers,  retailers,  and  consumers  to  accept  the 
present  prices  for  goods  and  commodities  and  continue  business,  thereby  assur- 
ing the  employment  of  labor  at  the  present  level  of  wages.  You  very  likely 
will  be  successful  as  to  the  large  industries,  but  I  think  there  will  be  more  or 
less  readjustment  of  the  wage  scale  on  a  lower  level  in  the  smaller  industries 
and  in  various  localities. 

STATEMENT  BY  J.  OGDEN  ARMOUR. 

The  greatest  danger  to  our  economic  structure  to-day  arises  from  the  failure 
of  many  to  recognize  a  new  and  higher  level  of  prices,  based  on  permanently 
increased  cost  of  labor  and  higher  taxation. 

Those  who  postpone  building  or  buying  in  the  hope  of  materially  lower  prices, 
are  sjieculating  in  the  future  misfortune  of  the  Nation.  For  falling  prices,  when 
reaching  the  point  where  profit  is  eliminated,  mean  panic,  depression,  unem- 
ployment, and  other  troubles. 

In  the  final  analysis,  75  per  cent  or  more  of  the  cost  of  most  commodities  con- 
sists of  labor,  and  reductions  in  the  market  price  of  commodities  are,  therefore, 
inevitably  reflected  in  the  compensation  of  labor. 

Nothing  in  the  labor  situation  warrants  anyone  in  expecting  materially  lower 
cost  of  commodities  in  general,  and  building  in  particular.  Wages  will  not 
be  less  for  several  fundamental  reasons ;  viz : 

1.  The  practical  stoppage  of  immigration  since  1014,  depriving  America  of 
the  several  million  workers  who  would  normally  have  come  to  our  shores. 

2.  The  retention  by  the  Nation's  military  and  naval  establishments  of  nearly 
2,<MX),(HK)  workers,  which  may  continue  for  an  indefinite  period. 

:j.  The  creation  of  new  Industries,  such  as  shipbuilding  and  manufacture  of 
chemicals  and  dyes,  requiring  hundreds  of  thousands  of  workers. 

4.  The  urgent  dcMiiand  for  building  and  construction  of  every  class  due  to 
their  having  been  forcibly  held  back  for  several  years. 


930       PROCEEDINGS  OP  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

5.  The  shortage  of  the  world's  supply. 

G.  The  proportionately  higher  levels  of  commodity  prices  existing  practically 
all  over  Europe. 

On  the  one  hand  then,  we  are  facing  a  serious  shortage  of  labor  as  soon 
as  we  approach  normal  industry  activity,  and  on  the  other  hand  there  is  con- 
fronting us  a  tremendous,  unsatisfied  demand  for  many  necessities  which  it 
was  difficult  or  impossible  to  obtain  during  the  war. 

Normally,  under  such  conditions  we  could  have  expected  a  flood  of  low- 
priced  goods  from  the  Old  World,  while  now  we  find  that  prices  in  Europe  have 
risen  proportionately  much  higher  than  in  America,  and  the  demand  for  com- 
modities and  labor,  to  make  up  for  the  wastage  of  war,  is  even  more  keenly 
felt  there  than  here. 

The  manufacturer  who  now  quotes  the  lowest  possible  price  consistent  with 
the  high  cost  of  labor  and  guarantees  this  to  be  so,  doing  his  buying  freely  on 
the  same  basis,  ranks  as  our  highest  type  of  patriotic  citizen.  A  new  level 
of  prices  has  been  established  from  which  there  can  be  no  material  recession 
until  inventive  genius  succeeds  in  correspondingly  increasing  labor's  productive 
capacity  by  mechanical  means. 

STATEMENT  BY  JAMES  B.  FORGAN,  FIRST  NATIONAL  BANK,  CHICAGO. 

While  it  is  my  belief  that  the  general  trend  of  prices  during  the  next  decade 
may  be  downward,  I  clo  not  anticipate  any  sudden  or  violent  tumble  in  the 
near  future  beyond  the  elimination  of  war  prices  made  necessary  to  stimulate 
production  in  high-cost  plants.  We  can  not  eat  oiir  cake  and  have  it.  We  can 
not  immediately  have  low-priced  products  with  high-cost  lalx>r. 

At  no  time  was  honest  labor  more  indispensable  than  during  the  war,  and 
during  that  period  the  average  weekly  wage  of  all  workers  was  greatly  in- 
creased. 

Out  of  the  war  has  come  a  strong  realization  of  the  value  of  labor  to 
civilization,  and  we  must  actnistom  ourselves  to  the  evident- fact  that  a  per- 
manently higher  scale  of  wages  or  compensation  has  been  established  for  the 
world's  worker,  both  skilled  and  unskilled. 

In  all  lines  of  industry,  to  make  a  fair  profit,  selling  prices  must  be  in  pro- 
portion to  the  cost  of  production,  including  the  enhanced  cost  of  labor.  This 
fact  should  be  recognized  in  buying  as  well  as  selling. 

There  exists  in  the  world  to-day,  and  there  will  exist  for  some  time  to  come, 
a  tremendous  latent  demand  for  goods  and  service  and  a  relative  shortage  of 
workers  caused  by  the  war.  The  high  cost  of  living  has  not  yet  begun  to  recede, 
and  it  would  be  an  erroneous  policy  at  present  to  cut  prices  at  the  expense  of 
labor. 

STATEMENT  BY  JACOB  H.  SCHIFF. 

In  the  period  from  May.  1918,  to  October,  1918,  commodity  prices  in  the 
United  States  had  advanced  about  107  per  cent  above  the  1917  level;  in  Canada 
115  per  cent;  in  Great  Britain  133  per  cent,  and  in  France  235  per  cent  From 
October,  1918,  until  March  this  year,  in  spite  of  the  most  violent  cry  for  lower 
prices,  even  by  those  who  are  undoubted  beneficiaries  of  high  prices,  the  de- 
cline, according  to  Dun's  figures,  averaged  only  6.9  i>er  cent.  During  April,  in 
spite  of  the  agreement  to  lower  steel  prices,  other  commodities  rose  to  such 
an  extent  that  the  average  price  on  April  1  was  only  5.7  per  cent  below  the 
high  point  for  October  1  last  year. 

The  reason  for  this  tenacious  grip  which  high  prices  apparently  have  taken 
on  the  world  is  obviously  to  be  found  in  the  immutable  law  of  supply  and  de- 
mand. The  cost  of  labor  is  the  most  important  factor  in  the  price  of  com- 
modities, as  it  makes  up  75  per  cent  or  more  of  their  price.  It  starts  with  the 
cost  of  food  and  raw  materials,  which  is  largely  represented  by  labor,  goes  on 
to  the  manufacture  of  semifinished  and  finished  products,  which  again  is  labor 
heaped  upon  labor,  and  is  frequently  punctuated  between  or  after  these  various 
stages  or  processes  with  transportation  and  distribution,  which,  when  analyzed, 
turn  out  to  consist  of  a  high  percentage  of  labor  in  its  broadest  sense. 

The  v.-astage  of  war,  both  in  men  and  materials,  again  is  largely  responsible 
for  shortage  of  labor,  especially .  past  and  prospective.  For  four  years  the 
orderly  production  and  maintenance  of  peace-time  activity  has  been  most 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       931 

violently  interrupted  throughout  the  civilized  world,  causing  on  the  one  hand 
a  lietivy  depreciation  of  property  and  on  the  other  hand  an  appalling  destruction 
of  all  those  things  which  are  vital  to  human  happiness,  life  and  activity.  The 
reconstruction  is  going  to  tax  our  efforts  perhaps  even  harder  than  did  the 
war.  the  latent  demand  for  labor  and  commodities  being  tremendous. 

There  is  cause  for  rejoicing  in  these  conditions,  for  intense  activity,  even 
though  accompanied  by  high  prices,  is  far  to  be  preferred  to  (he  blight  of 
inactivity,  stagnation,  idleness,  and  suffering  attendant  upon  unsound,  un- 
balanced production  and  rapidly  falling  prices.  After  all,  it  is  not  a  question 
so  much  of  what  price  each  of  us  has  to  pay  for  what  we  want  but  as  to  what 
relation  this  price  l)ears  to  our  own  income.  These  millions  of  men  whose 
incomes  have  grown  apace  with,  or  ahead  of,  the  general  price  advance  have 
abundant  canst?  fr.r  satisfaction.  Yet  how  often  do  we  hear  these  same 
people  unwittingly  complain  of  high  prices,  their  attitude  being  that  high  prices 
is  a  privilege  that  belongs  to  themselves  only,  in  the  selling  of  their  own  labor 
or  wares,  but  has  no  place  in  their  scheme  of  buying. 

Mr.  WARREN.  Then,  earlier  in  the  session— 

The  CHAIRMAN.  Just  a  moment.  Can  you  state  for  the  record 
what  the  substance  of  those  replies  is? 

Mr.  WARREN.  I  think  the  substance  of  it  is  that  the  price  level  is 
going  to  be  maintained  for  a  long  time. 

The  CHAIRMAN.  That  is  all  I  wish  to  ask  on  that. 

Mr.  WARREN.  Then  we  referred  in  some  of  the  earlier  testimony 
to  the  history  of  prices  during  the  war,  international  price  com- 
parisons issued  by  the  Department  of  Commerce.  I  would  like  to 
file  that  as  a  memorandum.  It  might  assist  the  commissioners. 

I  should  also  like  to  file  the  Review  of  Economic  Statistics  for 
June,  1919,  monthly  supplement,  the  post-war  level  of  commodity 
prices,  which  is  issued  by  the  Harvard  University  Committee  on 
Economic  Research,  at  Cambridge,  Mass. 

The  CHAIRMAN.  AVould  it  be  convenient  for  you  to  get  a  sufficient 
number  of  copies  so  that  each  and  every  commissioner  could  have 
one  of  them  ? 

Mr.  WARREN.  I  will  endeavor  to  do  that,  Mr.  Chairman. 

The  CHAIRMAN.  Thank  you. 

Mr.  WARREN.  There  are  many  things  we  have  promised,  and  which 
I  want  to  file,  but  which  I  should  like  to  have  an  opportunity  to 
look  at  the  record  for;  because  while  we  have  kept  a  memorandum, 
I  am  afraid  it  is  not  complete,  and  I  want  to  run  through  the  steno- 
graphic record,  when  finished,  to  see  what  we  should  furnish  that 
we  have  not  furnished. 

The  CHAIRMAN.  Yes. 

Mr.  WARREX.  The  commission  has  asked  for  data  as  to  the  power 
generated  and  purchased  by  the  electric  railways  of  the  United 
States,  with  the  cost  of  each,  for  the  census  year.  They  are  referred 
to  in  Table  104,  1912,  and  Table  104  of  Advance  Statistics,  1917 
census,  and  that  I  will  file. 


932       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  information  thus  referred  to  by  Mr.  Warren  is  as  follows : 

Power  generated  and  purchased  677  electric  railways  of  United  States  tdf/t  the 
cost  of  each  for  the  census  years. 

(Table  104, 1912,  and  Table  104,  Advance  Statistics,  1917  Census.) 


Kilowatt  hours. 

Percent 
of  total. 

Cost. 

Percent 
of  total. 

1917. 
Power  generated  

7,240,502,783 

59.4 

$54,494,814 

59  1 

Power  purchased       ....        

4,  £47,348,042 

40  6 

37  757  963 

50  9 

Total       .  .       .                 

12,187.850,831 

100  0 

92  352  777 

100  0 

1912. 
Power  generated  

6,052,699,008 

67  1 

35  788  270 

59  2 

Fo'.ver  purchased  

2,967,318,781 

32.9 

24  6%  647 

40  8 

Total  

9,020,017,78-) 

100  0 

60,484,917 

100  0 

1907. 
Power  eenerate  J  

4  759,130  100 

31  235  005 

71  1 

Power  purchased  

(') 

12  342  258 

28  9 

Total  

43,577,268 

100.0 

1902. 
Power  venerated  
Power  purchased  

2,261,481,397 
(i) 

19,190,810 
3  871  518 

83.2 
16  8 

Total       

23  082  328 

100  0 

1  Not  available. 

Mr.  WARREX.  The  commission  also  asked  that  the  ratio  of  tax  to 
net  capitalization  for  the  census  years  1902  to  1912,  which  is  made 
up  from  Table  5,  1912  census,  and  Table  5,  Advance  Photostats,  1917 
census,  and  that  I  will  file.  The  ratio  appears  to  have  0.935  per  cent 
in  1917,  as  against  0.826  per  cent  in  1912. 

The  information  thus  referred  to  by  Mr.  Warren 'is  as  follows: 
Ratio  of  taxes  to  net  capitalization  for  the  census  years  1902-1912. 

(Table  5, 1912  census,  and  Table  5,  Advance  Photostats,  1917  census.) 


1917 

1912 

1£07 

1£02 

$4,  881,  962,  096 

$4,243,317,727 

$3,  400,  107,  839 

$2  155  768  102 

45,756,695 

35,027,965 

19,955,602 

13  078  8J9 

Ratio  taxes  to  net  capitalization  (per 

0.935 

0.826 

0.58 

0.607 

Mr.  WARREX.  Our  statistician  was  asked,  when  on  the  stand — as 
to  the  segregation  of  electric-railway  companies  relating  to  power 
statistics — where  the  companies  were  combined  companies,  as  re- 
ported in  the  Special  Electric  Bailway  Census ;  and  I  am  advised  as 
follows  by  him : 

In  answer  to  questions  of  Commissioner  Wehle  regarding  the  ex- 
tent to  which  the  United  States  census  reports  segregate  power 
statistics  as  between  strictly  electric-railway  properties  and  those 
doing  a  combined  electric-railway,  lighting  and  power  business,  it 
has  been  found  that  complete  separation  has  been  made  by  the  United 
States  Census  Department. 

This  is  included  in  the  1912  census  report  under  the  discussion  of 
power-plant  statistics. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       933 

We  are  advised  by  the  Census  Department  that  the  same  segregation 
has  been  made  in  the  1917  census,  and  where  possible,  an  even  greater 
refinement  has  been  made  in  the  attempt  to  segregate  as  completely 
as  possible  electric-railway  properties  from  those  doing  a  combined 
power  and  lighting  business.  As  a  result,  the  amount  of  power  and 
lighting  business  included  in  the  electric-railway  statistics  is  in- 
significant. This  applies  to  all  statistics,  including  the  number  of 
employees  and  the  capacity  of  equipment  in  use. 

One  of  the  witnesses  was  also  asked  as  to  double-decked  cars;  and 
we  have  the  following  replies: 

The  first  one  is  by  Mr.  Tome,  receiver  of  the  Pittsburgh  Railways 
Co.,  dated  July  23 :" 

Mr.  E.  B.  BURRITT, 

Secretary  American  Electric  Railway  Association. 

Washington,  D.  C. 
(Re  double-dock  cars  \ised  by  Pittsburgh  Railways  Co.,  Pittsburgh,  Pa.) 

DKAR  Mr.  BURRITT.  The  operation  of  double-deck  cars  in  Pittsburgh  has  been 
in  effect  since  the  summer  of  1912,  at  which  time  a  double-deck  car  constructed 
in  the  company's  shop  was  put  in  service.  This  operation'  proved  sufficiently 
successful  to  warrant  the  purchase  of  five  additional  cars  from  the  car  builder. 
So,  therefore,  for  the  last  five  or  six  years  we  have  been  operating  a  total  of 
six  cars  of  this  type  in  regular  passenger  service  from  the  center  of  the  city  to 
the  residential  districts.  These  cars  were  designed  primarily  to  meet  a  demand 
from  the  public  an.l  in  response  to  a  campaign  of  certain  complainants  for  a 
greater  proportion  of  seats  per  passenger  during  the  rush  hour. 

These  cars  are  the  center-entrance  type  with  double  doors  and  two  stairways 
at  the  center,  thus  facilitating  the  collection  of  fares. 

The  seating  capacity  of  the  cars  is  112  persons,  and  they  take  the  place  in 
the  schedule  of  a  regular  motor  car  and  trailer,  having  a  combined  seating 
capacity  of  120.  In  other  words,  the  double-deck  car  is  used  in  the  same  service 
with  two-car  trains.  They  have  not  noticeably  slowed  up  the  schedule,  although 
there  is  no  doubt  that  some  additional  time,  is  required  for  loading  these  cars 
as  compared  with  the  other  cars  on  the  system. 

Of  course,  these  cars  are  not  so  well  suited  for  midday  service,  since  the 
larger  capacity  is  not  needed  except  in  the  rush  hour,  and  this  involves  some 
additional  weight  and  wear  and  tear  during  the  nonrush-hour  periods.  As  a 
matter  of  fact,  however,  these  cars  have  been  so  closely  designed  that  they  do 
not  weigh  more  than  the  standard  double-truck  end-entrance  cars  largely  used 
on  the  system.  It  Is  only  in  comparison  with  the  modern  center  entrance,  low- 
floor  cars,  now  adopted  as  standard  on  the  system,  embodying  the  same  prin- 
ciples as  these  double-deck  cars,  that  a  saving  in  weight  may  be  secured. 

Owing  to  narrow  streets,  sharp  curves  and  clearance  in  passing  overhead 
structures,  the  interior  design  and  dimensions  of  these  cars  were  necessarily 
limited,  resulting  in  some  loss  of  comfort  and  convenience  to  the  passengers. 

In  view  of  the  above  considerations,  we  do  not  believe  that  we  would  care 
to  extend  the  use  of  this  type  of  car,  as  its  economies  are  somewhat  doubtful 
In  view  of  the  limitations  in  schedule  speed,  the  carrying  of  extra  weight  in 
the  nonrush-hour  periods,  and  the  limited  dimensions  of  the  car. 
Yours  very  truly, 

(Signed)  S.  L.  TOMK. 

Rcccircr,  J'Htxbiirali  lfnilir<n/>t  Co. 

A  telegram  from  Mr.  A.  M.  Rol>ertson,  vice  president  of  the  Twin 
Cities  Rapid  Transit  Co.,  Minneapolis,  Minn.: 

MIXNKAPOI.IS,  MINN.,  ,/»///  ^,   1UI9. 
HKISHKKT  WAKRKN, 

it'tO  Mnnscy  nuiltliin/,  Wa*?iinaton,  7).  C.: 

Telegram  received.  Experience  of  Twin  City  Co.  with  double-deck  cars  was 
not  of  sufficient  duration  to  go  to  the  real  merits  of  their  operation.  During 
pleasant  weather  all  passengers  wanted  to  ride  on  upper  decks,  during  bud 
weather  they  wanted  to  ride  below. 

A.  M.  RODKBTSON. 


934       PROCEEDINGS  OP  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Telegram  from  Horace  Lowry,  president  of  the  Twin  Cities  Rapid 
Transit  Co.,  Minneapolis,  Minn. : 

MINNEAPOLIS,  MINN.,  July  23,  1919. 
JOSEPH  K.  CHOATE, 

American  Electric  Railicay  Association, 

9~)0  Mtinsey  Building,  Washington,  7).  C.: 

Yesterday  we  wired  Warren  of  Duluth  Co.  in  regard  to  double-deck  cars. 
Our  experience  not  of  much  value  as  equipment  was  too  heavy  on  account  of 
attempt  to  build  upper  deck  on  standard  cars.  Upper  deck  was  not  closed  in 
and  was  very  unpopular  in  bad  weather  and  over-crowded  in  good  weather, 
iraking  cars  top-heavy.  Do  not  believe  our  experience  of  any  value  in  dis- 
cussion. We  only  built  three  cars  and  only  used  them  a  short  time. 

HORACK    LOWHY. 

Telegram  from  Frank  Hedley,  vice  president  and  general  manager 
of  the  Interborough  Rapid  Transit  Co.  of  New  York,  saying : 

NEW  YORK,  N.  Y.,  July  23,  1919. 
JOSEPH  K.  CHOATE,  Esq., 

American  Electric  Railway  Association, 

9i)0  Munsey  Builainy,  }\'asliin'gton,  D.  C.: 

Oi>eration  of  double-deck  car  has  been  successful  and  popular  here.  Built 
before  war.  not  practicable  to  build  and  operate  such  equipment  at  present 
prices  of  labor  and  material  on  5-cent-fare  basis. 

FRANK  HEDLKY. 

I  would  like  to  file  a  letter  from  Mr.  H.  H.  Westinghouse,  of  the 
Westinghouse  Air  Brake  Co.,  on  the  cost  of  materials.  Other  mate- 
rial of  that  kind  was  filed,  and  I  do  not  think  I  need  to  take  your 
time  to  read  it: 

NKW  YORK,  N.  Y.,  July  23,  1919. 
COMMITTEE  ON  PRESENTATION, 

American  Electric  Railway  Association. 

GENTLEMEN  :  The  Westinghouse  Traction  Brake  Co.  specializes  in  furnishing 
material  and  expert  service  for  the  safe  and  effective  braking  control  of  elec- 
trically propelled  vehicles.  Its  business  forms  a  substantial  proportion  of 
the  product  of  the  parent  company,  Westinghouse  Air  Brake  Co.,  the  largest 
manufacturer  of  power  brakes  for  steam  locomotives  and  cars. 

During  the  period  of  the  war  practically  the  entire  output  of  the  Wer.ting- 
house  Air  Brake  Co.  was  oil  Government  orders,  and  our  raw  material  and 
labor  costs,  as  well  as  personnel,  were  affected  in  almost  exact  ratio  to  the 
large  steel  mills  and  other  industries  in  the  vicinity  of  Pittsburgh,  where  our 
works  are  located.  The  increased  cost  and  scarcity  of  material  and  labor  has 
resulted  ill  a  continual  rise  in  cost  of  production,  and  therefore  in  the  price 
to  our  customers,  the  electric  railways,  as  shown  by  an  approximately  increase 
in  price  of  standard  brake  apparatus  in  1919  over  1914  of  78  per  cent.  Not- 
withstanding this  condition,  the  rate  of  profit  has  remained  practically  the  same 
ns  in  3914,  being  in  some  cases  somewhat  less. 

The  art  of  brake  manufacture  has  been  so  completely  developed  that  there 
is  little  prospect  of  reduced  costs  due  to  improved  methods ;  and  as  there 
seems  to  be  no  immediate  reasons  to  expect  a  reduction  in  either  wages  or 
cost  of  material,  it  is  believed  that  the  present  scale  of  prices  can  not  be  re- 
duced within  the  near  future.  We,  of  course,  hope  that  conditions  will  so 
change  that  we  can  readjust  prices  for  the  benefit  of  our  customers,  -but 
circumstances  over  which  we  have  no  control  must  necessarily  govern  what 
may  be  done  in  that  direction. 
Truly,  yours, 

H.  H.  WESTINGHOUSE. 

Mr.  WARREN.  A  question  was  asked  the  other  day  about  British 
conditions.  The  Electric  Railway  Journal  has  published  numerous 
articles  on  the  situation  in  Great  Britain,  in  which  it  appears  that 
there  have  been  increases  in  wages,  and  that  fares  have  been  in- 
creased in  many  cases  from  50  to  100  per  cent. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       935 

There  is  also  included  in  these  articles  a  statement  of  increased 
cost  in  the  city  of  Sheffield,  and  if  I  may  file  those — not  to  be  copied 
into  the  record,  but  as  possible  useful  information  for  the  commis- 
sion— I  would  like  to  do  so. 

I  should  also  like  to  have  go  into  the  record,  if  I  may,  without 
taking  the  time  to  read  it,  a  letter  from  Congressman  W.  B.  Mc- 
K  in  ley.  who  is  president  of  the  Illinois  Traction  S3rstem,  on  the  street- 
railway  situation.  I  should  like  to  have  that  copied  into  the  record. 

The  letter  thus  referred  to  by  Mr.  Warren  is  as  follows: 

CHAMPAIGN,  ILL.,  July  23,  1919. 

PEAK  SIR  :  I  inclose  herewith  sundry  data  in  connection  with  the  electric 
railways  and  collected  from  our  experience  in  operation. 
Yours,  very  truly, 

W.  B.  MCKINLEY,  Prcaulent. 
FEDERAL  ELECTRIC  RAILWAYS  COMMISSION, 

Interstate  Commerce  Building,  Washington,  J).  C. 

There  are  so  many  dependent  considerations  to  be  considered  in  a  discussion 
of  the  financial  crisis  in  which  the  street-railway  systems  find  themselves  that 
it  can  not  be  covered  in  any  short  discussion.  The  following  subdivisions  will 
furnish  a  basis  of  suggestion,  from  which  may  be  selected  the  particular 
branch  of  the  subject  which  one  may  wish  to  present. 

STREET  RAILWAY  DATA — DEVELOPMENT   AND  EVOLUTION. 

Facilities:  (a)  Cars,  (h)  track  and  roadway,  (c)  wages,  (d)  power  houses. 
(c)  competition,  (/)  saturation  or  service. 

(a)  Cars. — If  we  iregin  in  the  year  1895  and  take  steps  in  five-year  periods 
down  to  the  year  1919.  we  find  that  there  has  been  a  complete  evolution  and 
change  in  the  type,  construction,  electrical  equipment,  size,  and  appliances  in 
use  in  street-railway-transportation  systems. 

About  1895  the  electric  street  railway  became  a  reality,  although  the  earliest 
experiences  and  development  in  that  utility  preceded  that  date  by  probably 
fivo  years. 

The  first  cars  were  constructed  with  open  vestibules,  without  any  protection 
for  the  trainmen,  with  the  most  simple  operating  devices;  hand  brakes,  single 
motors,  light  weight  and  cheap  .construction.  They  were  single-truck  cars 
without  any  improved  fare-collecting  or  registering  devices,  with  the  most 
simple  electrical  equipment  and  heated  by  stoves. 

The  present  electric  street-car  is  usually  of  the  double-truck  type,  multiple 
motors,  large  seating  capacity,  vestibules  completely  inclosed  and  electrically 
heated. 

The  electric  equipment  on  the  present  typo  of  car  costs  more  than  the  entire 
car  complete  cost  originally. 

From  a  car  costing  prol>ably  $3,500  fully  equipped,  we  now  pay  $5,000  to 
$10,000  for  a  single  car. 

(b)  Track  and  roadicuy. — The  original  electric  street  railway  was  usually 
run  on  30-i>ound  steel   rails;  over  light   social    work;    little,   if  any   ballast; 
no  pavement,  light  bonding,  without  crossing  signals  or  devicts,  and  without 
any  modern  safety  appliances. 

To-day  the  track  is  laid  of  90-pound  steel  rails,  sometimes  125  pounds  (heavier 
than  in  use  on  the  steam  railroads),  rails  of  special  type;  the  special  work  of 
the  heaviest  construction  obtainable;  track  usually  laid  on  concrete  base,  and 
pavements  of  expensive  and  permanent  character.  Where  street  is  unsafe, 
the  track  is  heavily  ballasted.  The  cost  of  installing  and  maintaining  crossing 
signals  and  devices  is  a  material  element;  the  rail  joints  are  frequently  welded 
and  connected  with  heavy  and  expensive  bond. 

A  comparison  of  the  installation  of  the  track  and  roadway  of  the  year  1900 
with  the  present  time  shows  from  100  per  cent  to  200  per  cent  increase  in  the 
cost  of  this  part  of  the  property. 

Likewise  in  similar  ratio  the  maintenance  costs  have  increased. 

(c)  Wages. — From  n  15  or  20  cents  per  hour  wage  to  platform  men,   the 
street  railways  are  paying  from  30  to  70  cents  per  hour,  and  demands  are  being 
seriously  urged  for  additional  increase. 


936       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  wages  of  all  the  trackmen  has  increased  from  approximately  $1.35  per 
day  of  32  hours  to  approximately  $4  per  day  for  8  hours. 

Shop  labor  and  power-house  labor  has  increased  in  like  proportion.  Linemen 
are  receiving  $1  per  hour. 

(d)  Power  houses. — The  development  of  the  generating  plants  of  the  electric 
street  railways  has  undergone  a  complete  evolution  within  the  last  decade. 
From  small  100  kilowatt  belt,  or  direct-connected  units,  we  have  advanced  to 
noncondensing  steam  turbines  of  from  500  to  10,000  kilowatt  capacity. 

(e)  Competition. — In  the  face  of  these  advancements,  street  railways  to-day 
comi>ete  with  gas-engine  vehicles  in  the  form  of  jitneys  or  taxicabs,  to  say 
nothing  of  the  privately  owned  automobile  which  carries  a  large  per  cent  of 
the  population  which  used  to  use  the  tram  cars. 

(/)  Saturation  and  service. — The  street-railway  systems  10  years  ago  aver- 
aged a  population  of  1,000  per  mile  of  track  in  the  cities  served ;  with  the 
doubling  and  redoubling  of  population,  to-day  the  electric-railway  mileage  is 
on  a  ratio  of  probably  2,500  people  per  mile  of  track,  in  smaller  communities 
with  much  larger  ratio  of  population  than  in  the  larger  cities. 

Originally  the  electric  car  carried  the  passenger  on  comparatively  short  hauls 
for  a  5-cent  fare;  while  to-day  the  electric-railway  utility  is  expected  to  carry 
passengers  as  far  as  20  miles  for  the  same  nickel. 

A  bare  suggestion  of  the  above  historical  facts  is  enough  to  prove  the  im- 
possibility of  the  future  development  or  success  of  the  electric  street  railway 
on  the  old  basis  of  a  5-cent  fare. 

Probably  one  of  the  fundamental  errors  in  the  evolution  of  street-railway 
business  has  been  the  effort  to  extend  the  length  of  haul  without  any  reference 
to  a  zoning  system  and  without  any  proportionate  or  compensatory  increase  in 
fare. 

There  can  be  no  justification  for  charging  one  passenger  5  cents  for  a  ride 
of  two  or  three  blocks  and  another  passenger  on  the  same  car  only  5  cents  for 
traveling  a  distance  of  10  miles. 

There  can  be  no  defense  of  the  regulating  practices  which  are  being  applied 
to  the  street-railway  business  by  the  commissions  and  regulating  bodies  at  the 
present  time. 

The  single  aim  of  the  regulating  bodies  seems  to  have  been  directed  to  an 
effort  to  justify  a  continuance  of  the  5-cent  fare  in  the  face  of  the  conditions  of 
evolution  and  development  of  the  service. 

One  of  the  false  methods  by  which  it  has  been  attempted  to  justify  the  nickel 
fare  under  impossible  conditions  is  for  the  regulating  body  to  ascertain  an  esti- 
mated original  cost  of  the  physical  property  remaining  in  the  service  of  a  par- 
ticular utility,  entirely  ignoring  the  property  that  had  been  retired  without  hav- 
ing served  its  useful  life  and  without  any  effort  to  reward  the  utility  for  losses 
from  functional  depreciation  in  the  units  replaced  with  improved  types  and 
structures. 

Thus  by  this  process  of  unfair  appraisals,  the  regulating  tribunals 'have  con- 
fiscated millions  of  dollars  of  invested  capital,  wholly  without  any  effort  to 
compensate  for  the  loss  or  recognition  of  the  destruction  of  the  industry. 

There  has  also  apparently  been  no  effort  to  harmonize  or  reconcile  the 
various  classes  of  patronage  which  support  the  street-railway  service. 

The  man  who  rides  on  the  car  once  a  month  and  to  whom  it  is  nothing  but  a 
luxury  and  who  does  the  loudest  complaining  at  any  discomfort  in  the  service 
pays  the  same  fare  as  the  laboring  man  who  rides  on  the  same  car  four  times  a 
day  and  who  really  supports  the  service. 

If  a  service  is  maintained  to  accommodate  the  transient  rider  he  would 
probably  have  to  be  charged  from  50  cents  to  a  dollar  per  tiip;  while  the 
maintenance  of  a  service  to  accommodate  a  daily  user  could  probably  afford 
it  at  5  cents  per  ride. 

There  is  also  apparently  no  recognition  of  the  necessity  for  a  tremendous 
investment  to  meet  peak-load  business  during  the  rush  hours  of  the  day  or 
upon  the  occasion  of  unusual  gatherings  such  as  county  fairs,  circuses  and  the 
like ;  and  the  street  railway  is  expected  and  required  to  maintain  sufficient 
equipment  to  conveniently  handle  tremendous  crowds  for  probably  three  or 
four  days  in  the  year,  and  50  per  cent  of  this  equipment  lies  idle  the  rest  of  the 
time  with  no  thought  of  the  interest  upon  the  investment  necessary  to  provide 
the  same. 

During  the  rush  hours  the  passenger  complains  of  the  crowded  condition 
of  the  cars,  and  the  public  is  entirely  forgetful  of  the  remaining  four-fifths  of 
the  day  when  the  cars  are  rattling  over  the  system  without  passengers  and  at 
an  actual  operating  loss  to  the  company. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       937 
SUGGESTED    REFORMATIONS. 

1.  There  should  be  a  zoning  system  put  into  practice  on  every  street-railway 
system,  by  which  the  long-haul  passenger  pays  for  the  additional  service  in 
some  degree  of  proportion  to  the  short-haul  passenger  who  probably  pays  ail 
excessive  fare. 

2.  A  basic  10-cent  fare  would  be  less  in  proportion  to  the  present-day  invest- 
ment and  operating  and  maintenance  costs  than  was  a  5-cent  fare  when  the 
thing  became  generally  operative. 

3.  With  a  basic  10-cent  cash  fare,  provision  should  be  made  for  the  accommo- 
dation and  recognition  of  the  value  of  the  daily  patron  by  a  sliding  scale  of 
reduced  fares  in  proportion  to  the  frequency  of  patronage  by  the  individual  or 
his  family. 

4.  The    street-railway    company    should    be    encouraged    to    inaugurate'  the 
practice  of  one-man  car  operation  and  to  purchase  specially  designed  and  con- 
structed equipment  for  that  character  of  operation. 

This,  however,  requires  as  a  condition  precedent  that  the  retirement  from 
service  as  obsolete  of  the  present  character  of  equipment  should  not  operate 
to  deprive  the  investor  of  the  value  of  the  remaining  useful  life  of  such  equip- 
ment and  the  original  investment  therein,  but  the  same  should  continue  and  be 
made  a  part  of  the  fair  value  of  his  property  upon  which  subsequent  rates  are 
predicated  and  return  allowed. 

Unless  the  regulating  bodies  do  allow  as  a  part  of  the  appraisal  of  street- 
railway  systems  the  property  which  the  company  elects  to  retire  and  treat  as 
functionally  obsolete,  it  will  be  financial  suicide  to  attempt  this  improvement 
and  economy  when  operating  street  railways. 

5.  If  the  patron  of  the  street  railway  company  is  to  be  required  to  furnish 
the  money  to  pay  a  compensation  to  the  city  for  the  use  of  the  street  by  the 
street-railway  system,  it  should  be  laid  as  a  direct  charge  and  not  camouflaged 
by  assessments  for  pavements  for  which  there  can  be  no  present-day  apology. 

The  theory  of  assessing  a  street-railway  company  for  street  paving  may  have 
been  justified  when  the  mules  trod  down  the  middle  of  the  street  and  wore  out 
the  roadway,  but  it  can  not  be  justified  with  electrically  operated  cars,  where 
the  surface  of  the  pavement  is  usually  better  than  in  the  adjoining  portion  of 
the  street  upon  which  vehicles  are  supposed  to  preferably  travel. 

Under  present  conditions  the  patron  of  the  street-car  who  supports  the  service 
pays  for  the  construction  and  maintenance  of  a  pavement  in  the  streets  for  the 
use  of  the  automobile  driver,  who  does  not  patronize  the  street-car  but  who  uses 
the  facility  provided  by  the  revenues  furnished  by  the  street-car  passenger. 

The  CHAIRMAN.  Mr.  Warren,  will  you  kindly  indicate  to  the  re- 
porter the  documents  filed  that  you  desire  to  have  made  a  part  of  the 
transcript  of  the  record  ? 

Mr.  WARREN.  I  will  do  that  afterwards;  yes.  sir. 

The  following  statement  was  also  submitted  by  Mr.  Warren : 
Electric  raihcayx — lialance  xhcet,  operatiny  and  lessor  companies,  1917. 

Number   of   companies 1,307 

Profit  and  loss,  surplus 732 

Profit  and  loss  deficit 394 

Balanced  statements  (neither  surplus  nor  deficit) 181 

Total    assets    or    liabilities $0.272.017,041 

Assets : 

Hoad  and  equipment 5,13(5.441,509 

Other    physical    property 79,  008.  323 

Stocks  and  bonds  of  other  electric  railway  companies 312.  (500.  03(5 

Stocks  and  bonds  of  companies  other  than  electric  railways  03.  305,  213 

Treasury    securities 77,  883,055 

Stock 17.  254.  917 

Honds (50,  028, 138 

Other   |H>riiiuiient    investments • 108,  7(59.  01M5 

Materials  and  supplies..  59.1(58,287 

('ash  and  notes  and  accounts  receivable 140,191,981 

Stock  and  bond  dim-mint 101.483.071 

Sinking    and    other    special    funds 71,454,040 

160043°— 20 CO 


938       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Assets — Continued. 

Interest,  dividends,  and  rents  receivable $3,  208, 174 

Sundries 39,  047.  487 

Profit  and  loss,  deficit 78,  740.  080 

Liabilities: 

Capital    stock 2,  473,  840.  051 

Common '. 2,  012, 189,  294 

Preferred 401,  057,  357 

Funded    debt • 3,  051, 179,  272 

Real  estate  mortgages 7, 197,  895 

Floating  debt    (loans  and  notes) 100,592,228 

Reserves , 75,  744,  518 

Accounts  payable 87,  947, 134 

.Interests,    rents,   and    taxes    due    and    accrued ;    dividends 

due 102.  999,  990 

Premium  on  capital  stock  and  funded  debt 12,  224,  098 

Accrued  depreciation 73,933.  750 

Sundries 04, 138,  284 

Profit    and    loss,    surplus 150,812.709 

Net  surplus—, 78,072,  029 

Condensed  income  accounts,  year  1911. 

Operating  companies : 

Income  from  all  sources $730, 108,  040 


Operating  revenues — 

Railway  operations 050, 149,  SOG 

Auxiliary    operations 59,  075,  280 


Total  operating  revenues 709,  825,  092 

Operating  expenses 452,594,  054 


Net  operating  revenue 257,  230,  438 

Taxes 45,  750,  095 


Operating  income 211,473.  743 

Nonoperating  income 20, 282,  948 


Gross   income 231,  750,  091 


Deductions  from  gross  income : 

Rent  for  leased  roads  (lines  and  terminals) 48,302,823 

Interest  on  funded  and  unfunded  debt 119, 113,  018 

All    other__  7,889,920 


Total  deductions 175,  305,  701 


Net    income 50,450,  930 

Dividends 48,  337, 435 


Surplus 8,113,  495 

Opehftinr/  expenses  ?>?/  detailed  account,  United  States,  1917. 

Number  of  companies 943 

Operating  expenses $452,  594,  054 


Railway 421,  250,  838 

Auxiliary 31, 343,  810 


Way  and  structure 55,754,859 

Superintendence  of  way  and  structures 3, 110,  073 

Maintenance  of  way 35,717,257 

Maintenance  of  electric  lines 0,023,513 

Buildings,  fixtures,  and  grounds 2,912,025 

Dapreciation  of  way  and  structures G,  800,  348 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       939 

Way  and  structure — Continued. 

Other  operations $591.643 

Other  operations,  credit 2:14,  440 

Railway  operations,  net  total 55,  470, 419 

Equipment 49,  48Tn  880 

Superintendence  of  equipment 2,039,273 

Maintenance  of   equipment 35,  91G,  G95 

Miscellaneous   equipment   expenses 4,  249,  992 

Depreciation  of  and  retired  equipment 6.  83G,  836 

Other    operations 443,  057 

Other  operations,  credit 504, 320 

Railway  operations,  net  total 48,  981.  554 

Power 92.  352.  777 

Superintendence  of  power 934.  311 

Power-plant  buildings,  fixtures,  and  grounds 408,  321 

Maintenance  of  power  equipment 4, 128. 435 

Depreciation  of  power  plant,  buildings,  and  equipment 2.  270,  295 

Power-plant    employees 6,  G59,  758 

E'uel  for  power 30,167,325 

Water  for   power 504. 1.32 

Other  power  supplies  and  expenses 1.  475,  390 

Substation  employees— 2,  634.  5(>7 

Power  purchased  and  exchanged,  credit 4.259,812 

Other  operations,  credit 11, 134,  504 

Railway  operations,  net  total 7G,  958.  461 

Conducting  transportation 174,972,  645 

Superintendence  of  transportation 9,  839,  230 

Conductors,  motormen,  and   trainmen 131,052,689 

Miscellaneous  transportation  expenses 34,  080,  726 

Traffic  expenses 2,  301,  817 

General  and  miscellaneous 64.185,308 

Salaries  and  expenses  of  general  officers 7,  013.  752 

(ieneral  expenses 22,  794,  005 

Injuries  and  damages 23,  743.  431 

Insurance 3, 101,  407 

Kent  of  tracks,  facilities,  and  equipment 7,152,823 

Other  operations 379,  S90 

Other  operations,  credit 1,447.043 

Railway  operations,    net  total 62,738,255 

Transportation  for  investment 172,  323 

Mr.  WARREN.  Prof.  Jenks,  will  you  resume  the  stand? 

STATEMENT  OF  MR.  JEREMIAH  W.  JENKS— Continued. 

Mr.  JENKS.  Yon  had  been  asking  me  some  questions,  Mr.  Com- 
missioner. 

Commissioner  BEALL.  Yes,  sir;  I  had  finished  with  those. 

Mr.  JENKS.  Some  questions  have  been  asked  with  reference1  to  the 
effect  of  the  short-term  franchise  on  the  securities.  I  had  spoken 
of  the  desirability  of  th«  short-term  franchise,  25  or  30  years  perhaps, 
the  reason  for  the  term  submitted  being  that  there  arc  very  many 
changing  conditions  that,  can  not  he  expected. 

I  recall  to  my  mind,  for  example,  a  specific  instance  that  I  remem- 
l>er  being  told  me  in  Washington  here  some  years  ago,  when  I  was 
engaged  in  a  Government  investigation.  It  was  the  case  of  a  gas 
comjKiny.  One  of  the  directors  told  me  that  the  chief  problem  be- 
fore them  for  some  little  time  had  lx»en  to  find  ways  to  cover  up 
their  profits,  so  that  they  would  not  get  in  difficulties  with  the  taxing 
authorities. 

Mr.  WARREN.  That  was  not  a  street-railway  company. 


940       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION". 

Mr.  JENKS.  That  was  not  a  street-railway  company ;  no.  The  prin- 
ciple, as  to  the  franchises,  of  course,  may  be  the  same  in  general. 

He  said  that  it  had  to  seek  new  ways  to  get  securities  out,  so  as 
to  not  have  their  profits  appear  so  high  that  the  public  would  not 
stand  for  it. 

That,  of  course,  was  an  exceptional  case,  and  under  present  condi- 
tions I  am  quite  prepared  to  believe  it  would  not  apply  to  any  one 
of  the  electric  railways. 

Notwithstanding,  we  do  know  perfectly  well  that  in  the  early  days 
street-car  franchises  in  many  cities  that  were  rapidly  growing  were 
given  on' such  terms  that  within  a  few  years  they  did  become  unjust 
to  the  public. 

No\v,  as  regards  this  question  of  securities,  I  am  quite  in  sym- 
pathy with  the  suggestion  that  was  made  that  they  had  to  be  taken 
care  of.  I  believe,  as  I  said  to  begin  with,  that  business  is  as  much 
a  care  of  the  public — property,  I  mean,  is  as  much  a  care  of  the 
public — as  anything  else.  We  are  all  one.  It  is  the  difference  in 
the  point  of  view ;  but  I  should  think  there  might  be  different  ways 
of  meeting  that  objection.  .  If  we  are  going  to  have  any  specific 
term,  50  years,  75  years,  the  same  difficulty  is  likely  to  arise. 

Mr.  WARREN.  The  idea  of  the  indeterminate  franchise  is  to  have 
no  definite  term. 

Mr.  JENKS.  Yes ;  that  is  understood. 

Mr.  WARREN.  It  simply  continues  until  the  city  chooses  to  buy  on 
an  agreed  price,  based  on  the  actual  value  of  the  property. 

Mr.  JENKS.  Yes;  I  understood  that  was  the  case. 

Mr.  WARREN.  And  in  Cleveland  it  goes  a  step  further  than  that, 
and  provides  that  the  city  can  arrange  for  the  sale  to  some  other 
company,  and  the  city  does  not  necessarily  have  to  buy  it  iself. 

Mr.  JENKS.  In  a  great  many  cases  at  the  present  time  in  the  sales 
of  bonds  of  public-service  corporations — and  I  think  it  should  be 
generally  the  custom,  when  the  bonds  are  issued — rigid  provisions 
are  made  for  either  a  sinking  fund  or  issues  of  term  bonds  that  will 
take  care  of  themselves  as  they  go  on.  My  own  feeling  is  that  they 
should  be  included  in  the  cost-of-service  idea  and  be  taken  care  of 
in  the  permanent  obligations  of  that  kind,  as  I  think  there  should 
be  taken  care  of  a  proper  depreciation  and  maintenance  of  the  road 
and  things  of  that  kind.  I  see  no  reason  why  that  is  not  one  of  the 
regular  proper  charges  to  take  care  of  in  that  way,  and  that  would 
include  amortization. 

Commissioner  BEAUL.  That  is  all  right,  if  they  will  allow  you  to 
earn  enough  to  do  it ;  but  they  do  not. 

Mr.  JENKS.  Well,  there  again,  that  will  come  in  under  the  prin- 
ciple that  I  have  laid  down  at  the  beginning — that  if  we  are  going 
to  have  that,  the  rate  should  be  fixed  high  enough  so  that  there  would 
be  no  question  about  taking  care  of  the  proper  legitimate  charges. 
I  am  quite  in  sympathy  with  that,  that  they  should  take  care  of  the 
securities. 

Commissioner  BEALL.  So  an  essential  feature  of  the  term  fran- 
chise, in  your  judgment,  would  be  to  take  care  of,  in  some  way,  any 
bond  issues  that  would  have  to  be  made  ? 

Mr.  JENKS.  Yes,  of  course.  Personally  I  would  not  like  to  be 
understood  as  opposing  an  indeterminate  franchise  along  the  line 
you  are  suggesting,  but  I  would  like  to  have  that  developed  in  such 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       £41 

a  way  as  to  adapt  itself  to  the  changing  conditions,  and  of  course 
we  should  take  care  of  what  I  think  is  a  perfectly  legitimate  charge, 
such  as  depreciation  is. 

Commissioner  BEALL.  Yes. 

Mr.  JENKS.  May  I'  add  just  one  or  two  words  more,  and  then  I 
have  nothing  further  to  say,  as  far  as  I  nrvself  am  concerned. 

We  have  spoken  of  the  control  "by  State  commissions  and  of  the 
control  by  the  city  governments  themselves.  It  seems  that  it  is  a 
little  difficult  to  lay  down  any  hard  and  fast  rule.  As  I  intimated  to 
begin  with,  the  conditions  in  different  cities  vary  so  that  each  case 
should  be  considered  by  itself.  In  the  case  of  many  large  cities,  for 
example,  if  you  do  not  have  the  city  itself  exerting  a  considerable 
measure  of  control  and  discretion,  they  are  likely  to  lose  the  interest 
in  it  that  the}'  have.  Of  course,  I  recognize  the  dangers.  Generally 
speaking,  the  tendency  has  been  to  give  the  State  commission  more 
control,  and  that  is  doubtless  right. 

It  would  be  very  advantageous,  it  would  seem  to  me,  if  the  com- 
mission, in  the  very  beginning,  would  seek  remedies  for  this  difficulty, 
aside  from  the  question  of  raising  fares.  I  am  not  in  a  position  to 
recommend  definitely  very  many,  but  I  recall,  for  example,  that  in 
Xew  York  City  at  the  time  of  the  most  congested  period,  which  was 
one  of  the  greatest  difficulties  there,  arrangements  were  made  by 
which — and  I  can  see  no  reason  why  it  should  not  be  applied  here — 
various  business  houses  might  change  their  opening  and  closing  hours 
in  such  a  way  as  to  prevent  the  very  great  overcrowding. 

That,  might  be  done  by  a  sort  of  an  agreement,  if  you  like,  or  by 
the  city  authorities;  and  in  that  way  you  can  escape  the  peak  load 
to  a  considerable  extent,  and  thereby  get  relief  from  that  difficulty. 
Of  course,  the  trouble  with  the  electric  roads  is  that  very  largely 
their  cars  are  often  run  only  half  full,  and  at  other  times  they  can 
not  possibly  take  care  of  the  traffic,  and  if  you  could  spread  this  over 
more  time  it  would  be  helpful. 

Then  it  has  been  suggested,  I  believe  here,  that  a  very  customary 
plan  is  to  compel  the  electric  lines  to  pave  between  the  tracks,  and 
that  they  might  possibly  be  relieved  from  such  taxation  in  an  emer- 
gency, although  the  latter,  it  seems  to  me,  ought  to  be  avoided  if 
possible.  I  do  not  want  to  make  exceptions  along  those  lines  if  it 
can  be  avoided.  Those  things,  I  should  think,  in  a  good  many  cases 
might  be  worked  out.  but  I  am  not  competent  to  state  how. 

That  is  all  I  have  to  say,  Mr.  Chairman,  unless  you  wish  me  to 
answer  some  questions. 

The  CHAIRMAN.  We  are  much  obliged  to  you. 

Mr.  WARREN.  I  want  to  introduce  Prof.  Con  way  in  reference  to 
the  increases  of  fare,  and  particularly  in  reference  to  the  zone 
system. 

STATEMENT  OF  MR.  THOMAS  CONWAY,  JR. 

Mr.  WARREN.  Will  you  give  your  full  name? 
Mr.  CONWAY.  Thomas  Conway,  jr. 
Mr.  WARREN.  Where  are  you  located? 

Mr.  CONWAY.  I  hold  the  chair  of  finance  of  the  University  of 
Pennsylvania. 


942       PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mi-.  WARREN.  And  have  you  given  a  good  deal  of  study  to  the 
street-railway  situation  ? 

Mr.  CONWAY.  I  have ;  yes,  sir. 

Mr.  WARREN.  And  a  good  deal  to  the  question  of  increased  fares 
and  different  methods  of  accomplishing  it? 

Mr.  CONWAY.  That  is  correct. 

I  might  say — and  I  think  perhaps  it  would  help  the  commission, 
to  know  how  far  my  study  of  this  question  has  gone,  in  order  that 
they  may  tell  to  what  extent  my  views  are  worth  while 

Mr.  WARREN.  Yes;  I  will  be  glad  to  have  you  do  that. 

Mr.  CONWAY.  If  I  should  just  go  into  that  a  little? 

Mi-.  WARREN.  Yes. 

Mr.  CONWAY.  For  a  great  many  years — that  is,  for  over  10  years — 
I  have  studied  the  public-utility  question,  first  as  a  university 
teacher,  and  later  from  a  more  intimate  connection,  in  the  examin- 
ing and  reporting  upon  public-utility  properties  for  investment 
bankers.  Included  in  that,  of  course,  were  street-railway  properties. 

When  the  European  war  broke  out  and  the  price  situation  had 
begun  to  be  acute,  I  was  requested  by  some  of  these  firms  to  study 
the  matter  of  protecting  the  securities  which,  in  past  years,  had  been 
sold  to  investors.  In  that  way  I  became  intimately  interested  in 
the  matter  of  endeavoring  to  reestablish  a  sound  economic  basis  for 
these  enterprises. 

The  electric  railways  of  the  State  of  New  York,  through  their 
association — the  New  York  State  Electric  Railway  Association — I 
believe,  were  the  pioneers  in  calling  the  attention  of  the  public  and 
the  commissions  to  the  problem;  and  through  a  special  committee 
which  was  created  in  1916,  of  which  Mr.  Choate  was  chairman, 
general  testimony  in  form  very  similar  to  that  which  has  been  pre- 
sented here,  was  laid  before  the  New  York  Commission,  especially 
the  up-State  commission,  so  called.  Mr.  Carr  at  that  time  wras  a 
member  of  the  commission. 

I  testified  in  that  proceeding  and  assisted  the  committee  in  bring- 
ing out  the  facts  as  they  then  existed,  largely  from  the  records  of 
the  commission  itself  and  the  reports  of  the  companies  to  the  com- 
mission. 

Subsequent  to  that  time  I  have  given  a  great  deal  of  attention  to 
the  matter  of  endeavoring  to  work  out  an  equitable  solution  of  the 
problem  of  readjusting  rates  to  bring  about  the  necessary  readjust- 
ment of  revenues,  and  in  connection  with  that  matter  have  made 
careful  studies  of  the  possibility  of  rate  readjustment  on  a  number 
of  properties.  These  properties,  I  think,  present  practically  every 
condition  which  you  would  encounter,  at  least  in  the  eastern  part 
of  the  United  States.  I  have  in  mind  particularly  certain  proper- 
ties in  which  these  various  phases  are  illustrated,  such  as  the  Wilkes- 
Barre  Eailway  Co.,  which  serves  the  territory  in  and  around  the 
city  of  Wilkes-Barre ;  the  Lehigh  Valley  Transit  Co.,  which  serves 
a  large  part  of  the  territory  lying  to  the  north  of  Philadelphia  and 
including  the  eastern  end  of  the  Lehigh  Valley. 

Subsequent  to  that  time,  when  these  matters  were  investigated  and 
I  made  a  report  upon  questions  of  revisions  of  fares  and  rates,  I  was 
privileged  to  participate  in  two  very  interesting  studies,  one  made  at 
the  direction  of  the  New  Jersey  Utilities  Commission,  which  ordered 
the  Public  Service  Eailway  Co.  to  work  out,  if  possible,  a  plan  for 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.       243 

a  zone  system  of  fares.  (I  might  say  that  the  Public  Service  Railway 
Co.  operates  practically  all  of  the  electric-railway  lines  in  the  State 
of  Xew  Jersey,  excepting  those  in  the  seashore  resorts  and  in  the  city 
of  Trenton.  So  that  you  had  practically  all  of  the  conditions  which 
you  would  encounter  in  a  State,  from  the  rural  lines  to  the  lines  in 
thickly  settled  cities). 

At  about  the  same  time  the  president  and  trustees,  the  latter  ap- 
pointed by  the  United  States  court,  operating  and  controlling  the 
Connecticut  Co.  property  (which  serves  practically  all  of  the  State  of 
Connecticut,  including  not  only  cities  but  the  rural  districts)  re- 
quested me  to  make  a  study  of  the  whole  question  of  a  readjustment 
of  rates  to  meet  the  necessities  of  the  situation. 

Mr.  WARREN.  Just  a  moment,  Professor.  Those  trustees  have  no 
personal  interest  in  the  Connecticut  Co.  at  all,  have  they  ? 

Mr.  CONWAY.  Xo.  They  were  appointed  by  the  Federal  court  to 
administer  the  property  in  connection  with  the  dissolution  of  the  so- 
called  trust  affected  by  the  court  when  they  divorced  the  trolley  line 
from  the  control  of  the  Xew  York,  New  Haven  &  Hartford  Railroad. 

Mr.  WARREN.  They  are  merely  trustees  to  dispose  of  the  property  ? 

Mr.  CONWAY.  Yes,  sir;  and  administer  it  until  such  time  as  that 
can  be  accomplished. 

Mr.  WARREN.  Yes. 

Mr.  CONWAY.  Xow.  it  was  my  good  fortune  to  have  in  connection 
with  those  two  matters  every  measure  of  cooperation  and  assistance 
which  it  was  possible  to  secure.  The  studies  were  most  elaborate,  and 
without  going  into  detail  at  this  time  regarding  them,  I  think  that, 
in  connection  with  these  questions,  I  was  able  to  get  a  very  clear  pic- 
ture of  at  least  some  of  the  difficulties  in  readjusting  rates  and  some 
measure,  perhaps,  of  the  possibilities  of  the  various  methods  of  read- 
justing rates  to  secure  additional  revenues;  because,  as  I  say,  you  had 
practically  every  situation  which  existed  in  the  two  States,  from  the 
thinly  settled  rural  lines,  with  hourly  service,  as  in  Connecticut,  to 
cars  operating  on  '20-second  headway  in  the  rush  hours  in  the  city  of 
Newark. 

Xow,  in  addition  to  that,  I  have  been  requested  to  report  on 
various  other  properties;  in  each  case,  the  report  along  the  lines  of 
endeavoring  to  work  out  or  point  out  an  equitable  method  of  increas- 
ing the  revenues  by  the  readjustment  of  fares  to  meet  the  increased 
operating  expenses. 

Mr.  WARREN.  Do  you  care  to  say  anything  about  the  rapidity  of 
the  increase  of  operating  expenses? 

Mr.  CONWAY.  Well,  I  have  not  .been  here  regularly  at  these 
sessitns — I  got  in  last  evening — but  I  assume  that  the  commission  is 
well  aware  of  the  general  course  of  these  increases  in  operating  costs. 

In  the  first  place,  in  my  mind,  they  divide  themselves  into  certain 
periods.  The  real  increase  in  operating  cost  began  many  years  ago, 
and  it  went  along  gradually.  The  situation  from  a  broad  point  of 
view,  as  I  see  it,  was  one  in  which  increased  costs  were  offset  to  a 
considerable  extent  in  that  first  stage  by  various  improvements  in 
tho  art,  which  were  effected  by  the  managers  of  the  properties;  but 
I  think,  on  the  whole,  speaking  now  of  the  prewar  period,  the  man- 
agers of  the  properties  were  steadily  but  slowly  losing  ground.  The 
investors  in  securities  were  very  uncertain  about  the  ability  of  the 


944       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

manager  to  meet  these  increased  costs,  and,  in  consequence,  the  street- 
railway  securities  were  in  disfavor. 

Now,  when  the  war  came,  this  gradual  progress  was  suddenly 
changed  into  an  acute  crisis.  In  1916  there  was  a  large  increase  in 
operating  costs,  resulting  at  that  time  in  most  cases  from  an  increase 
in  the  cost  of  materials,  largely  due,  no  doubt,  to  the  demands  of  the 
Allies  for  supplies  of  all  kinds.  In  these  stages  there  was  little  or  no 
increase  in  labor  cost. 

Then  the  labor  phase  of  the  situation  became  acute ;  and  what  I  call 
the  first  crisis  in  the  labor  element  was  reached  last  summer,  when 
the  War  Labor  Board  was  called  upon  to  readjust  wages  in  order  to 
offset  the  increased  cost  of  living. 

Now,  as  you  doubtless  know,  the  greater  part  of  the  expenses  of 
an  electric  railway  is  labor.  My  recollection  is  that  the  census  of 
1912  shows  that  over  60  per  cent  of  the  total  operating  expense  of 
electric  railways  were  wages  and  salaries,  and  that  only  a  little  over 
1  per  cent  represents  the  salaries  of  officers.  A  recent  careful  study 
of  the  cost  of  operation  of  the  Public  Service  Railway  Co.  for  the 
12  months  ending  July  1  of  this  year  showed  that  over  75  per  cent 
of  the  operating  expenses  were  labor,  and  since  that  time  the  War 
Labor  Board  has  raised  wages.  I  have  not  figured  it  out,  but  it  must 
be  practically  80  per  cent  now  of  the  operating  expenses  of  that 
company  are  labor. 

The  increased  wages  which  the  War  Labor  Board  granted  to  the 
men,  beginning  last  summer  and  extending  through  the  fall  and 
winter,  brought  a  very  serious  problem;  and,  as  I  see  it,  the  com- 
panies have  not  even  yet  been  able  to  readjust  their  fares  and  their 
income  to  take  up  these  increased  expenses  represented  by  the  in- 
creased wages  granted  to  the  men  last  summer  and  fall  and  early 
winter. 

Now  we  are  about  to  enter,  in  my  opinion,  the  third  phase.  It  is 
here.  It  is  on  us.  We  are  just  coming  into  it,  and  that,  from  the 
standpoint  of  the  companies,  is  the  most  serious  of  all,  on  the  theory 
that  it  is  the  last  straw  that  breaks  the  camel's  back. 

You  know  the  wages  of  -trainmen,  and  they  carry  with  them  col- 
lateral increases  for  other  classes  of  empk>3rees,  have  recently  been 
increased,  by  one  method  or  another,  and  the  process,  as  I  see  it,  of  a 
second  general  readjustment  is  here. 

I  call  attention  to  the  recent  increase,  in  Detroit  from  48  cents  to 
60  cents  an  hour,  and  in  Cleveland  48  cents  to  60  cents  an  hour. 

There  are  pending  before  the  National  War  Labor  Board  cases 
involving  the  Bay  State  Street  Railway  Co.,  or,  as  it  is  now  called, 
the  Eastern  Massachusetts  Street  Railway  Co.,  and  the  Pittsburgh 
Railways  Co. 

Mr.  WARREN.  You  do  not  mention  the  Boston 

Mr.  CONWAY.  I  was  just  getting  to  Boston. 

Mr.  WARREN.  Oh,  I  beg  your  pardon. 

Mr.  CONWAY.  The  Boston  case  was  pending  before  the  War  Labor 
Board,  but  the  men  were  not  willing  to  wait  for  that  answer.  The 
consequence  was  that  it  had  to  be  settled  by  a  quicker  tribunal ;  and 
62  cents,  I  think,  was  the  amount  granted  to  the  men  in  order  to  re- 
establish service. 

The  Chicago  situation  is,  at  the  moment,  very  acute.  The  men 
are  asking  85  cents  an  hour,  with  an  eight-hour  day. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       945 

Mr.  WARREX.  I  ought  to  state  that -I  do  not  know  which  is  cor- 
rect. The  telegraphic  dispatches  stated  the  rate  in  Boston  at  62  cents, 
and  the  Boston  paper  which  I  received  this  morning,  in  giving  an 
account  of  the  celebration  on  the  common  when  the  result  was  an- 
nounced, indicated  that  60  cents  was  the  rate  for  the  surface  men 
and  62  cents  for  the  men  on  the  subway  and  elevated  cars.  So,  as  I 
say,  I  do  not  know  which  is  correct. 

Mr.  COXWAY.  Probably  that  is  correct. 

Mr.  WARREN.  Yes.     They  usually  have  a  slight  differential. 

Mr.  COXWAY.  Yes.  Now,  my  information  on  the  Chicago  situa- 
tion that  I  am  about  to  relate  now  is  all  from  the  newspapers;  but 
the  clippings  which  I  received,  taken  from  the  Chicago  papers,  just 
before  I  came  to  Washington  yesterday,  indicated  that  the  company 
had  offered  the  men  operating  on  the  surface  cars  60  cents  an  hour 
and  those  operating  on  the  elevated  62  cents  an  hour.  The  men  had 
rejected  the  offer  and  had  demanded  85  cents,  their  original  demand. 

Xow,  as  I  say,  the  War  Labor  Board  advanced  the  wages  of  the 
trainmen  of  the  Public  Service  Railways  from  45  cents  to  50  cents. 
These  increases  are  far  more  important  than  would  be  indicated  by 
the  enumeration  of  the  companies  which  are  affected,  because  the 
War  Labor  Board  had,  practically  speaking,  standardized  wage  rates, 
dividing  the  companies  into  three  groups.  The  first  group  embraced 
those  properties  in  the  large  cities  where  the  cost  of  living  was 
highest.  In  the  original  awards  they  gave  the  men  48  cents  an  hour 
as  the  maximum  in  these  cities.  That  48-cent  rate  has  gone  to  60 
cents  an  hour,  an  increase  of  at  least  25  per  cent. 

The  second  group  of  companies  established  by  the  War  Labor 
Board  were  what  was  known  as  the  45-cent  group,  the  companies 
operating  in  the  smaller  cities,  where  the  cost  of  living  was  less; 
and  then  there  was  a  third  group,  representing  properties  operating 
in  the  thinly  settled  districts,  where  the  cost  of  living  was  still  less. 

Now,  with  a  well-organized  unit  of  men,  such  as  is  the  case  in  the 
street-railway  business,  the  establishment  by  a  number  of  companies 
of  the  60-cent  rate  practically  means — I  am  certain  of  this  in  my 
own  mind — that  all  of  the  other  companies,  under  like  conditions, 
are  going  to  have  to  follow  suit,  and  the  establishment  of  rates  for 
such  companies  as  are  typical  of  the  old  45-cent  group,  such  as  the 
Public  Service  Railway,  the  Bay  State  system,  and  the  Pittsburgh 
Railways  Co.,  is  going  to  mean  that  all  of  those  companies  will  be 
elevated,  and  then  the  rural  lines — if  I  might  so  term  them:  those 
with  the  cheapest  rates — will  have  to  follow  suit. 

You  have  therefore,  as  I  say,  a  situation  in  which  the  industry 
is  now  called  upon,  or  will  be  within  a  very  short  time,  to  take  on  at 
least  a  25  per  cent  increase  in  wages.  I  think  that  is  the  outstanding 
fact  of  the  moment. 

We  have  been  talking  largely,  all  of  us,  about  where  we  were 
yesterday  and  last  mouth  and  last  winter.  The  real  problem  is  where 
are  we  going  to  be  this  fall  and  this  winter  with  these  increased 
wages;  and  the  statistical  record  is  before  you.  You  know  how  little 
there  is  in  the  way  of  surplus  revenue  to  carry  these  increases,  and 
yet  they  are  here,  and  they  must  be  met  somehow  or  other. 

I  have  in  mind  an  intern rban  road  in  the  Middle  West,  the  bond- 
holders of  which  asked  me  to  advise  them.  They  have  a  protective 


946       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

committee.  That  company  is  in  receipt  of  demands  from  their  men 
for  wage  rates  based  on  these  Chicago  demands,  and  if  those  wages 
are  granted  the  total  revenue  of  that  property  on  the  rates  now 
charged  will  not  be  sufficient  to  pay  the  wages;  and  yet  that  prop- 
erty, for  many  years,  paid  dividends,  and  has  a  value  fixed  by  the 
commission  of  some  $14.000,000.  They  earned  within  a  hundred 
thousand  dollars  of  their  fixed  charges  last  year.  There  you  have  a 
condition  which  I  do  not  think  can  be  paralleled  in  this  country— 
in  the  history  of  this  country — and  one  the  seriousness  of  which  is 
in  the  immediate  future,  rather  in  the  present  or  in  the  late  past. 

Xow,  therefore,  to  talk  about,  as  I  see  it,  the  increased  rates  which 
had  been  granted  in  the  past  by  commissions,  or  the  increases  which 
are  now  being  asked  for  in  cases  pending  and  undecided,  is  to  discuss 
the  affairs  of  yesterday  and  not  the  questions  which  are  the  live  mat- 
ters of  to-day.  It  is  true  that  a  large  percentage  of  the  companies 
in  this  country  have,  in  some  measure,  received  increases. 

I  took  a  computation  made  by  the  American  Electric  Railway 
Association  and  endeavored  to  bring  it  up  to  date  by  adding  com- 
panies which  had  increased  fares,  and  classified  those  companies 
according  to  the  recent  changes.  On  that  basis  I  find — that  is,  by 
bringing  their  figures  up  to  date — that  there  are,  according  to  their 
statement,  273  cities  in  the  United  States,  having  a  population  of 
25,000  or  more.  In  over  200  of  these  fares  have  been  increased  from 
those  which  prevailed  before  the  war.  Of  these  increases,  135  were 
granted  by  public-utility  commissions,  and  52  by  local  authorities, 
11  became  effective  under  service-at-cost  plans,  1  was  put  into  effect 
by  order  of  a  United  States  court,  and  1  by  action  of  the  company. 

In  24  cities,  applications  for  increases  have  been  refused.  In  20 
of  these  cases,  the  refusal  came  from  local  authorities,  and  in  4  cases 
from  the  commissions. 

Forty -two  States  and  the  District  of  Columbia  have  cities  of  more 
than  25,000.  In  36  of  these  States,  increases  have  been  granted.  In 
Connecticut,  Delaware,  the  District  of  Columbia.  Idaho,  Maine, 
Maryland,  Massachusetts,  Mississippi,  Montana,  Xew  Hampshire, 
Xew  Jersey,  North  Carolina,  Oregon  and  Rhode  Island,  increases 
have  been  granted  in  all  cities  of  more  than  25,000.  In  Arkansas, 
Florida,  Kansas,  Oklahoma,  South  Carolina  and  Tennessee,  no  in- 
creases have  been  granted  in  such  cities. 

A  10-cent  fare  is  being  charged  in  29  cities;  an  8-cent  fare  in  8; 
7  cents,  plus  1  cent  for  transfer,  in  13 ;  C  cents,  plus  1  cent  for  trans- 
fers, in  2 ;  and  a  7-cent  fare  in  20,  and  a  G-cent  fare  in  94. 

Thirty-six  applications  are  pending  before  commissions,  27  before 
city  authorities,  and  2  before  courts. 

Municipal  ownership  has  been  proposed  in  three  cities — San  Fran- 
cisco, Detroit  and  Omaha.  Service-at-cost  plans  are  being  considered 
in  Philadelphia,  Xew  Orleans,  Minneapolis.  Denver,  Louisville,  Oak- 
land, Berkeley  and  Muskogee. 

In  six  cities,  the  service  is  being  operated  by  the  State,  while 
State  operations  will  be  shortly  under  way  in  12  more. 

In  31  cities  railway  companies  are  in  the  hands  of  receivers. 

In  addition  to  these  increases  affecting  urban  systems,  a  large 
proportion  of  the  interurban  electric  lines  in  the  country  have  ma- 
terially increased  their  fares. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       947 

Mr.  WARREX.  Has  that  been  compiled  up  to  date,  Professor? 

Mr.  COXWAY.  The  compilation  made  by  the  officers  of  the  Ameri- 
can Electric  Rail-way  Association  13  as  of  April.  I  searched  the  files 
of  the  Electric  Railway  Journal  and  the  Commercial  and  Financial 
Chronicle,  and  where  a  company  had  increased  fares  from  6  to  7 
cents,  I  reduced  the  number  of  companies  on  which  6-cent  fares  pre- 
vailed by  oney  and  added  one  to  the  7-cent  cities.  In  that  way  I 
endeavored  to  bring  it  up  to  date.  I  am  quite  certain  it  is  not  full}7 
complete,  but  perhaps  it  errs  on  the  side  of  understating  recent 
changes,  especially  with  reference  to  small  communities:  but  that 
was  as  near  as  we  could  get  any  kind  of  an  accurate  picture  of  the 
situation  as  it  prevailed. 

Xow.  if  I  am  correct  in  my  assumption  that  these  increases  in 
wages  which  have  come  about  in  the  last  few  days  are  the  fore- 
runners of  another  general  advance,  such  as  occurred  in  the  late  sum- 
mer, then  all  of  these  increased  rates  are  going  to  be  as  inadequate, 
or  almost  as  inadequate,  as  were  the  rates  prior  to  the  time  of  the 
last  increases.  We  have  got  to  get  over  another  mountain. 

Therefore,  as  I  see  it.  the  record  of  increases  in  the  past  is  of 
significance  in  pointing  out  the  communities  in  which  a  recognition 
has  thus  far  occurred  of  the  economics  of  the  situation,  and  probably 
the  whole  \vork  has  to  be  done  over  again  in  a  few  months  to  take 
up  these  labor  increases,  or  if  you  do  not,  your  companies  will  be 
back  where  they  were,  say,  a  year  ago,  if  no  increases  whatever  had 
been  granted. 

Xow,  as  I  talk  to  the  ordinary  man  on  the  street — and  after  all 
his  view,  I  think,  is  very  important —  he  fails  to  appreciate  the  ex- 
tent to  which  costs  of  operation  have  increased. 

I  well  remember  when  the  present  Public  Service  Railway  Co.  ap- 
peared before  the  Camden  Board  of  Trade,  in  Camden,  N.  J.,  com- 
posed of  business  men,  who  were  acquainted  with  the  changes  in  price 
levels,  the  gasp  that  went  around  the  room  when  they  were  told  that 
to  haul  within  2  per  cent  of  the  same  number  of  people  which  the 
company  carried  in  191f>  would  cost  in  the  year  1919-20,  the  year 
ending  June  30,  1920,  80  per  cent  more.  That  gasp,  as  I  say,  in- 
dicated to  my  mind  that  they  were  taken  off  their  feet.  They  could 
not  believe  the  facts. 

Xow,  if  the  5-cent  fare  was  adequate  in  the  days  when  costs  were 
as  they  were  in  191G,  anyone  will  readily  admit  that  on  the  basis  of 
averages  an  8  or  9  cent  fare  will  be  required  to-day  to  put  the  com- 
pany where  it  was  in  1916. 

I  think  one  of  the  problems  which  the  industry  must  solve,  and 
which  I  think  this  commission  can  perform  a  great  national  service 
in"  assisting  in  the  solution  of,  ks  to  get  the  people  to  understand  the 
extent  to  which  costs  have  increased.  That  is  the  first  thing.  The 
public  are  behind  the  times  in  this  thing.  They  do  not  understand 
the  relation  of  income  and  outgo. 

Xow,  the  second  fact  I  think  is  quite  evident,  and  that  is  the  matter 
for  which,  perhaps,  the  commissions  are  in  part  responsible,  and  I 
do  not  except  the  companies.  They  have  been  shortsighted  in  talking 
about  an  emergency,  to  get  through  the  war. 

Mr.  WARIIKX.  He  fore  you  take  up  tlie  question  of  emergency — you 
say  the  commission  can  do  a  great  deal  of  good  in  educating  the 
public  as  to  increased  operatimg  costs? 


948        PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  CON  WAY.  Yes. 

Mr.  WARREN.  How  should  that  be  done? 

Mr.  CONWAT.  I  had  in  mind  more  particularly  this  commission 
setting  here.  The  average  commission's  opinion,  from  the  standpoint 
of  the  requirements  of  the  law,  must  of  course  meet  certain  require- 
ments, but  I  notice  that  if  you  take  even  a  college  student  and  give 
him  an  opinion  to  read,  he  does  not  see  the  homely  truths  that  lie  at 
the  bottom  of  the  whole  thing.  He  does  not  get  the  ordinary  common 
denominator  comparisons.  The  average  commission  does  not  point 
cut  the  things  in  their  opinions  in  a  way  that  the  man  on  the  street 
can  understand  them.  It  is  over  his  head,  just  like  a  decision  of  the 
Supreme  Court  of  the  United  States.  That  is  doubtless  necessary 
from  a  legal  point  of  view,  but  I  have  often  felt  that  if  there  were  a 
few  paragraphs  in  the  opinion  which  an  ordinary  man  could  under- 
stand, because  they  stated  the  truth  in  a  homely  way,  and  by  the  use 
of  a  few  simple  comparisons  which  he  would  understand,  he  would 
get  the  measure  of  the  thing. 

Mr.  WARREN.  Then,  I  take  it,  you  think  we  should  set  out  the 
figures  ? 

Mr.  CONWAT.  It  is  not  so  much  stating  how  many  millions  of 
dollars  are  required  as  it  is  stating  the  fare  which  is  required.  A  man 
reasons  in  his  terms  of  a  nickel.  The  commissions'  decisions  deal 
with  millions  or  hundreds  of  thousands,  depending  on  the  size  of  the 
company.  To  the  ordinary  man  the  difference  between  $100,000  and 
$150,000  or  $200.000  is  not  very  great. 

Mr.  WARREN.  But  if  you  raise  the  motorman's  wages*  from  40  to  65 
cents  an  hour — 

Mr.  CONWAY.  He  understands  that. 

Mr.  WARREN.  He  understands  that? 

Mr.  CONWAY.  Yes. 

Mr.  WARREX.  Because  it  takes  five  more  fares  per  hour  to  pay 
that,  man's  wage  ? 

Mr.  CONWAY.  That  is  the  idea  exactly. 

Mr.  WARREX.  If  you  divide  it  up  in  that  way,  the  ordinary  reader 
could  understand  it;  could  he  not? 

Mr.  CONWAY.  That  is  right. 

Mr.  WARREN.  Is  that  the  idea  you  have? 

Mr.  CONWAY.  That  is  the  idea  I  have,  or,  stated  in  another  way, 
that  a  car  ride,  according  to  the  commission's  finding,  costs  so  much 
to-day,  and  say,  five  years  ago,  that  same  car  ride  cost  so  many  cents. 
The  commission  goes  through  ,a  lot  of  calculations,  involving  hun- 
dreds of  thousands  of  dollars  and  a  hundred  operating  accounts  and 
valuations  and  a  lot  of  things,  and  then  says  that  the  rate  is  fair, 
but  it  does  not  say  what  it  cost  the  company,  in  cents,  to  furnish  a 
car  ride. 

Now,  the  commission's  opinion  after  all  is  justification  for  its 
finding,  that  is  to  justify  its  finding  to  a  court  of  review,  and  I 
think  it  is  just  as  important  to  justify  it  to  the  man  on  the  street. 
It  takes  the  language  of  the  court  of  review.  It  apparently  forgets 
the  man  on  the  street. 

Commissioner  SWTEET.  You  think  homeliness  is  a  virtue  ? 

Mr.  COXWAY.  Yes ;  in  these  opinions — 

Commissioner  SWEET.  And  homeliness  is  one  of  the  character- 
istics of  this  commission.  [Laughter.] 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       949 

The  CHAIRMAX.  We  need  no  evidence  to  prove  that. 

Commissioner  MEEKER.  As  you  stated,  the  increase  in  wages  was 
the  prime  question,  the  prime  question  involved  in  the  immediate 
problem,  so  that  the  determination  of  the  labor  policy  is  of  the  first 
importance,  I  take  it,  in  your  mind  ? 

Mr.  COXWAY.  Do  you  mean  from  the  standpoint  of  this  commis- 
sion or  from  the  standpoint  of  the  company  ? 

Commissioner  MEEKER.  From  the  evidence  that  you  yourself  have 
adduced. 

Mr.  CON  WAY.  Yes;  the  result  of  the  demands  of  labor,  as  I  see 
it,  is  the  controlling  factor. 

Now  the  public  have  a  peculiar  attitude  on  this  labor  question.  I 
do  not  say  this  in  any  criticism,  but  as  an  explanation  of  the  facts 
as  I  see  them  at  this  moment — that  the  extent  to  which  operating 
expenses  will  be  increased  and  the  extent  to  which  the  fare  must  be 
increased,  if  possible,  is  determined,  you  might  say,  by  the  enlight- 
ened self-interest  of  labor. 

Commissioner  MEEKER.  And  the  all-important  thing  is  to  stabilize 
so  far  as  it  is  possible,  the  labor  bill? 

Mr.  COXWAY.  Yes. 

Commissioner  MEEKER.  Have  you  any  suggestion  to  give  us  along 
that  line? 

Mr.  COXWAY.  I  think  that  is  the  great  unsolved  question  that  the 
world  has  got  to  solve. 

Commissioner  MEEKER.  You  are  familiar  with  the  so-called  Plumb 
bill? 

Mr.  COXWAY.  In  a  general  way;  yes. 

Commissioner  MEEKER.  Do  you  advocate  any  such  treatment  as 
that  to  cure  the  street-railway  troubles  ? 

Mr.  COXWAY.  Well,  I  must  confess  that  I. have  not  been  able  to 
think  out  a  practical  solution  of  this  labor  question.  The  companies 
make  a  great  mistake  in  each  thinking  in  terms  of  itself.  Without 
mentioning  any  names — a  certain  company  will  make  an  agreement 
with  a  labor  union  that  they  will  give  them  a  certain  wage  increase 
if  the  laboring  men  will  help  them  force  the  fare  up.  Now  they 
do  not  realize  that  whatever  they  do  affects  the  entire  industry.  I 
do  not  know  that  you  can  change  that  situation;  I  do  not  know 
that  it  would  be  advisable  to  change  it. 

Mr.  WARREN.  But  you  do  not  think  that  any  company  often  agrees 
to  pay  a  higher  fare  than  the  best  judgment  of  its  managers  would 
justify,  in  order  to  avoid  a  strike? 

Mr.  COXWAY.  Well,  that  is  it.  I  think  the  public-utility  operators 
are  like  any  other  class  of  managers  in  that,  as  a  practical  matter, 
they  can  not  afford  a  strike. 

Commissioner  OADSDEX.  Don't  you  think  it  would  be  helpful  to 
this  commission  and  to  the  public  if  the  representatives  of  organized 
labor  in  the  street-railway  field  would  come  before  the  commission 
and  give  us  their  views  on  the  subject? 

Mr.  COXWAY.  I  certainly  do.  If  they  would  tell  you  frankly  what 
their  terms  are,  then  you  would  know. 

Commissioner  MEEKER.  Do  you  think  it  might  be  possible  to  bring 
on  the  street-railway  men  and  the  workmen,  not  merely  the  platform 
men,  but  the  workmen  generally — that  if  they  were  given  some 
responsibility,  a  voice  in  the  management  of  the  industry,  whether 


950       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

it  goes  so  far  as  the  Plumb  bill  or  not,  if  they  could  be  made  to 
realize  that  every  time  their  wages  are  increased  5  cents  per  hour, 
it  means  so  much  increase  in  the  cost  of  operation,  which  must  be 
met  by  charging  the  riding  public  an  increased  fare? 

Mr.  CONWAY.  I  think  there  is  no  doubt  of  that.  I  think  if  they 
have  to  come  to  the  point  where  in  some  fashion  labor  must  take  ti 
responsible  share — not  in  the  management  of  the  company,  becaus-j 
I  do  not  believe  that  we  are  far  enough  along  for  that,  but  you  have 
got  to  the  point  where  labor  must  feel  that  they  are  not  dealing  with 
an  alien  enemy,  and  that  is  their  attitude  with  most  companies.  They 
have  no  interest  in  common  with  the  company.  They  feel  that  every- 
thing they  get  is  the  fair  spoils  of  war. 

Commissioner  MEEKER.  They  must  be  made  to  realize  that  they 
have  an  investment  in  the  industry,  the  employees  have? 

Mr.  CONWAY.  They  have  got  to  realize  that  there  is  only  a  certain 
amount  of  money  in  the  business,  because  in  my  judgment  in  many 
cases  you  have  reached  very  close  to  the  maximum  under  p'rivate 
operation.  Now  if  they  want  to  deliberately  force  the  industry  on  a 
basis  which  it  can  not  survive,  as  a  private  enterprise,  and  take  then- 
chance  of  Government  control,  or  whatever  may  be  involved,  they 
ought  to  make  that  choice  with  their  eyes  open  and  a  full  under- 
standing of  the  facts  as  they  exist. 

Commissioner  MEEKER.  Well,  do  you  regard  the  labor  question  as 
the  question  for  the  immediate  solution  of  this  problem,  and  not 
merely  as  the  ultimate  solution,  as  I  take  it  from  your  testimony? 

Mr.  CONWAY.  I  do  not  go  quite  that  far,  Dr.  Meeker,  because  I 
feel  that  the  street-railway  industry  prior  to  the  war  was  on  an 
unsound  basis,  in  that  they  were  not  paying  their  men  as  much  as 
they  ought  to  pay  them.  I  remember  your  study,  as  Commissioner 
of  Labor,  of  the  turnover  of  the  men.  Now,  an  industry  where  you 
have  in  prewar  times  as  much  a  turnover  as  there  was  in  the  street- 
railway  business  is  an  industry  in  which  there  must  be  some  degree 
of  unhealthiness.  The  companies  were  up  against  the  fixed,  inflexible 
5-cent  fare.  They  were  paying  all  they  could  pay  their  labor,  but  it 
was  a  rate  which  did  not  attract  and  hold  the  best  class  of  men. 
Now  the  pendulum  is  swinging  the  other  way  perhaps.  This  union 
movement  has  swept  over  the  world.  The  men  have  gotten  together. 
They  are  recognizing  and  feel  their  power,  and  they  are  exerting  it. 

Commissioner  MEEKER.  You  are  not  afraid  that  the  apparent  turn- 
over will  be  reduced  too  low  for  the  health  of  the  industry,  are  you  ? 

Mr.  CONWAY.  I  do  not  think,  if  you  have  a  desirable  thing,  there 
is  such  a  thing  as  getting  it  too  low.  I  believe  in  a  man  getting  in  a 
business  and  staying  in  that  business.  We  all  know  that  the  street- 
railway  job  is  a  sort  of  a  makeshift  job.  It  is  a  young  man's  job, 
and  it  must  be  a  young  manrs  job  in  the  nature  of  things. 

Commissioner  MEEKER.  There  is  one  thing  in  regard  to  the  turn- 
over in  the  street-railway  industry,  and  that  is  the  very  undesirable 
Hours  that  the  men  must  necessarily  work  in  order  to  serve  the  public 
and  give  it  the  service  that  it  demands. 

Mr.  CONWAY.  That  is  true. 

Commissioner  MEEKER.  No  matter  how  high  the  wages  must  be 
made,  that  can  not  be  avoided. 

Mr.  CONWAY.  There  is  no  doubt  that  that  is  true,  but  you  would 
not  call  the  work  of  the  motorman  a  skilled  occupation.  I  think  you 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       951 

would  call  it  semiskilled,  but  their  wages  and  the  continuity  of  em- 
ployment can  be  brought  up,  I  believe,  to  such  a  point  that  the  indus- 
try will  eventually  attract  and  hold  the  higher  type  of  men  in  years 
to  come,  a  higher  type  than  they  enjoyed  in  the  prewar  days. 

I  have  been  interested,  in  looking  over  the  pay  rolls  of  some  of 
these  companies,  to  see  what  these  men  are  making.  Xow,  when  a 
man  can  make  from  $GO  to  $80  a  week — that  is,  $80  every  pay  day, 
which  is  about  $30  to  $40  a  week — that  is  good  pay,  even  in  these 
days,  for  semiskilled  labor;  and  when  you  remember  that  he  is  not 
like  the  man  employed  outdoors,  who  only  works  eight  months  in 
the  year,  but  that  the  street-car  employee  is  working  throughout  the 
year,  and  that  therefore  his  yearly  earnings  are  much  more — a  com- 
parison of  his  wage  with,  say,  that  of  the  bricklayer  or  stonemason, 
would  indicate  that  you  have  a  situation  which,  I  think,  in  the  future 
is  going  to  be  able  to  attract  and  hold  the  better  class  of  labor,  who 
will  give  better  service  to  the  public. 

Commissioner  MEEKER.  Let  me  repeat  my  question:  Is  not  the 
labor  question,  then,  right  in  the  forefront?  Must  we  not  solve  the 
labor  problem  in  the  street-railway  industry  before  we  have  made  a 
beginning  ? 

Mr.  CONWAY.  Xo ;  I  should  say  you  must  make  the  beginning  l>e- 
fore  you  come  to  the  final  ending,  and  you  will  have  to  consider  the 
wage. 

Commissioner  MEEKER.  What  is  the  use  of  raising  rates  to  increase 
your  income  if  it  all  has  to  go  out  in  an  advance  in  wages? 

Mr.  CONWAY.  That,  of  course,  is  a  matter  which  I  am  not  prepared 
to  form  an  intelligent  opinion  on,  whether  the  wage  rates  now  pre- 
vailing are  exceptionally  high. 

Xow,  I  infer  from  the  recent  findings  of  the  War  Labor  Board 
that,  in  their  judgment,  a  further  advance  in  wages  is  clue  to  the  men. 
If  such  is  the  case,  then  I  submit  that  they  ought  to  get  it  when  the 
industry  gets  the  money  to  pay  them.  Xow,  when  wages  begin  to 
go  above  a  point  which  represents  a  fair  living  wage,  then  I  agree 
\vith  you;  but  this  industry,  my  point  is,  has  reached  the  stage  where 
what  it  needs  is  a  lifebuoy,  and  after  you  have  saved  the  drowning 
man,  we  can  then  inquire  why  he  fell  overboard,  and  I  am  afraid  that 
if  we  are  going  to  try  to  regulate  wages  before  we  get  the  companies 
more  revenue  that  while  we  are  regulating  the  wages  the  patient 
will  die. 

Xow,  in  order  that  I  may  bring  clearly  before  you  my  feeling 
about  the  matter  of  increased  fares,  which  I  have  been  asked  to 
discuss,  I  want  to  call  your  attention  to  some  of  the  recent  cases  or 
proposals  for  fare  increases. 

The  Kansas  City  Railways  Co.  in  Kansas  City,  whose  property 
was  recently  valued  by  the  United  States  court  and  its  capitalization 
fixed,  has  made  application  to  the  State  commission  for  10-cent 
fares,  or  two  tickets  for  15  cents;  that  is,  a  commutation  rate  of  7^ 
cents  and  a  cash  fare  of  10  cents. 

The  Middlesex  &  Boston  Street  Railway  Co.,  in  Massachusetts, 
whose  capitalization  for  a  generation,  as  in  the  case  of  the  other 
Massachusetts  companies,  has  been  subject  to  regulation,  has  filed  a 
schedule,  effective  August  1,  which  puts  the  system  on  practically  a 
10-cent  basis,  with  a  3-cent  charge  for  transfers. 


952       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

The  Eastern  Massachusetts  Street  Railway  Co.  (the  old  Bay 
State  system),  whose  property  has  just  been  valued  by  the  Massachu- 
setts Commission  and  the  company  reorganized  under  the  service-at- 
cost  law  in  accordance  with  the  findings  of  the  commission,  and  is 
operating  under  public  trustees,  instituted  a  10-cent  fare  on  the  1st 
of  July. 

The  Boston  Elevated  Railway  Co.,  also  operating  under  public 
trustees,  instituted  10-cent  fares  from  the  1st  of  July. 

The  president  of  the  Chicago  surface  lines  has  announced  that  the 
rates  of  wages  demanded  by  the  men  mean  either  a  9-cent  or  a  10-cent 
fare  in  that  city. 

The  Pittsburgh  Railways  Co.  will  on  August  1  institute  a  10-cent 
fare,  with  7^-cent  tickets. 

These  10-cent  fares  are  to  my  mind  the  serious  question.  We  have 
heretofore  talked  in  terms  of  6-cent  fares  and  7-cent  fares,  and 
latterly  8-cent  fares,  but  these  new  wages  mean  10-cent  fares  if  you 
are  going  to  stick  to  the  straight  cash  fare. 

Now,  a  6-cent  fare  was  a  comparatively  easy  matter,  but  when  you 
get  to  10-cent  fares,  you  are  getting  into  deep  water;  and  if  the  large 
cities  must  charge  10  cents,  the  rate  of  fare  in  the  small  towns  is  going 
to  be  one  which  is  practically  prohibitive.  In  fact,  the  whole  matter, 
I  am  afraid,  would  become  impracticable  on  the  basis  of  getting  the 
full  cost  of  operation,  under  present  conditions,  out  of  the  car  rider. 

I  sat  here  this  morning  and  listened  to  various  gentlemen  express 
their  views  on  taxes — paving,  for  instance. 

My  belief  is  that,  taking  the  companies  as  a  whole,  all  the  things 
that  you  can  suggest  of  relieving  them  of  taxes  and  of  paving  re- 
quirements and  all  of  the  other  obligations  which  represent  an  in- 
direct tax  on  the  car  rider,  a  necessary  addition  to  his  fare,  will  not 
meet  the  situation  by  offsetting  these  increased  costs ;  but  all  of  that, 
if  given  to  them,  still  means  for  many  properties  a  rate  of  fare  which 
is  almost  prohibitive,  as  a  practical  question. 

Therefore,  as  I  see  it  from  the  commission's  point  of  view,  you 
start  by  these  abatements  as  a  necessary  element,  because  without 
them  there  will  be  hundreds  of  electric  railways  that  will  have  to  go 
to  the  junk  heap,  unless  they  are  to  be  taken  over  and  operated  by 
the  public,  who  bear  the  deficit,  through  taxation. 

Now  my  feeling  about  this  matter  is  that  this  situation  is  so  serious, 
due  to  the  sudden  addition  of  these  wages,  first  last  summer  and 
fall,  and  now  to  make  these  new  additional  demands,  that  I  do  not 
believe  that  even  the  commissions  themselves  are  fully  aware  of  the 
crisis  presented. 

I  have  lived  in  the  State  of  Pennsylvania.  As  I  say,  I  have  been 
in  intimate  touch  with  the  situation  in  Connecticut.  I  have  had 
the  good  fortune  of  being  well  acquainted  with  the  commissions  in 
both  States.  My  work  has  brought  me  in  close  contact  with  their 
work,  and  with  their  staffs. 

Now  I  think  the  public  utilities  laws  of  most  States  are  funda- 
mentally at  fault.  The  Pennsylvania  law  and  the  Connecticut  law — 
and  perhaps  other  States  have  the  same  law,  but  I  am  not  aware  of 
the  instances,  if  there  are  such — that  have  one  tremendous  advantage, 
and  that  is  that  in  those  States  the  companies  can  initiate  rate  in- 
creases or  rate  reductions,  to  make  a  change  and  put  it  into  effect. 
The  commission  has  the  privilege  of  ordering  the  companies,  if  it 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       953 

seems  wise,  to  give  some  sort  of  a  rebate,  a  slip  or  certificate  for  the 
amount  of  the  increase. 

To  illustrate,  if  a  company  increased  its  fare  from  5  cents  to  7 
cents,  the  commission,  if  they  feel  that  there  is  any  doubt  about  the 
justice  of  the  matter,  authorizes  and  diret-ts  the  company  to  give 
every  passenger  a  2-cent  rebate  slip  as  he  pays  his  fare.  Those  are 
carried  as  liabilities. 

The  commission  in  Pennsylvania  or  in  Connecticut  does  not  have 
the  power  of  suspension  without  a  hearing  and  determination  of 
the  matter,  but  if  anyone  complains  about  the  rate  the  commission 
must  go  ahead  and  make  an  inquiry.  The  law  requires  the  companies 
in  Pennsylvania  to  post  the  increases  conspicuously. 

The  CHAIRMAN.  The  Pennsylvania  law  has  been  described  here  by 
two  witnesses,  Prof.  Cdnway,  and  you  need  not  spend  any  time  on 
that. 

Mr.  CONWAY.  I  did  not  know  that.  The  point  I  want  to  make  is 
that  in  Pennsylvania  and  Connecticut  the  companies  have  the  right 
to  increase  their  rates,  and  the  commissions  have  the  power  to  ratify 
and,  so  far  as  I  can  see  by  studying  the  opinions  of  the  commissions, 
there  have  been  no  serious  abuses  to  develop  because  of  that  condition. 

Now  the  great  advantage  of  that  is,  as  I  see  it,  that  the  companies 
are  able  to  try  experiments. 

Let  me  illustrate  some  of  the  instances  where  it  has  worked  ad- 
vantageously. This  rate  situation,  gentlemen,  is  not  one  of  arithmetic 
or  one  in  which  there  is  any  golden  rule  that  you  can  arrive  at 
mathematically.  I  am  frank  to  say  to  you  that  this  industry  is  in  the 
experimental  stage,  so  far  as  rates  are  concerned,  and  that  these  ex- 
periments are  largely  ahead  of  us. 

The  Pittsburgh  Railways  Co.,  for  example,  about  a  year  ago  last 
December,  when  the  war  costs  hit  them,  increased  their  fare  from  5 
cents  to  6  cents  cash,  or  5^-cent  ticket.  The  War  Labor  Board  then 
increased  their  wages.  They  then  tried  a  so-called  zone  system, 
which  I  think  can  be  called  such  only  by  courtesy.  It  is  really  two 
superimposed  flat-fare  areas.  The  commission  held  hearings  on  the 
matter,  and  it  did  not  interfere.  Now  after  a  few  months  of  that, 
they  are  going  to  abandon  that  system  and  go  to  a  10-cent  fare. 

The  Wilkes-Barre  Railways  Co.  tried  a  G-cent  fare,  and  then  when 
wages  went  up  they  tried  a  7-cent  fare,  and  then  an  8-cent  fare.  The 
matter  is  now  being  heard  on  its  merits  by  the  commission. 

The  Lehigh  Valley  Transit  Co.  first  tried  to  keep  the  5-c.ent  fare  by 
shortening  up  the  zone,  the  distance  you  could  ride  for  5  cents,  and 
the  War  Board  said  its  say.  Instead  of  again  redividing  the  prop- 
erty into  zones,  the  6-cent  fare  was  put  in. 

Those  are  simply  typical  instances  of  what  has  occurred.  If  that 
commission  had  been  called  upon  to  pass  upon  every  application  for 
an  increased  rate  and  decide  whether  or  not  it  should  be  granted  be- 
fore it  was  actually  granted  or  became  effective,  there  would  be  utter 
chaos.  I  heard  the  chairman  of  the  commission  state  that  his  men 
had  averaged,  according  to  the  time  sheets,  which  are  accurately  kept, 
over  14  hours  a  day  in  the  last  six  months.  He  stated  that  to  the 
legislature.  And  there  were  700  cases  on  the  calendar  to  be  tried. 
Now,  if  each  company's  necessities  required  three  trials,  they  would 
have  been  absolutely  swamped. 

160043°— 20 Gl 


954       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Now,  I  want  to  say  that  I  think  part  of  the  delay  in  many  of  these 
commissions  in  deciding  these  cases,  which  has  been  very  unfortunate 
and  very  unfair,  has  been  due  to  overwork.  It  has  been  due  to  this 
requirement  of  the  law,  or  at  least  the  interpretation  of  the  law,  by 
these  commissions,  that  they  must  hold  long  hearings  and  go  into 
valuations — the  procedure  of  a  regular  rate  case — before  they  do  any- 
thing. I  think  that  is  a  mistaken  idea,  and  I  think  any  requirement 
which  imposes  that  duty  upon  a  commission  is  a  very  shortsighted 
public  policy.  With  the  industry  as  it  stands  to-day,  the  crying  im- 
mediate need,  in  my  judgment,  is  to  give  the  commissions  liberty  of 
action,  freedom  to  put  in  almost  any  rate  that  they  think  will  meet 
this  exigency,  and  then,  as  in  the  case  of  Pennsylvania  and  Connecti- 
cut, let  the  commission  observe  the  actual  result  and  make  the  changes 
as  seem  necessary. 

Mr.  WARREN.  Prof.  Conway,  may  I  ask  you  at  this  point — I  as- 
sume you  are  through  with  your  discussion  of  the  specific  labor  ques- 
tion. You  have  said  nothing  about  the  8-hour  day. 

Mr.  CONWAY.  No;  I  forgot  that. 

The  electric  railway  industry  is  face  to  face  with  a  world-wide 
demand  for  an  eight-hour  day.  Now,  in  some  businesses,  I  believe  it 
is  possible,  to  a  large  extent,  at  least,  to  offset  the  apparent  increase 
in  labor  costs  resulting  from  an  eight-hour  day,  involving,  as  a  rule, 
10  hours'  pay,  under  the  old  plan,  for  eight  hours  of  work,  on  the 
theory  that  the  old  wage  was  a  living  wage,  and  the  men  must  get  a 
living  wage  with  a  shorter  day,  to  offset  that  by  a  speeding-up 
process.  The  possibilities  of  such  economies  in  the  electric-railway 
industry  are  very  limited.  The  motorman  and  conductor,  who  con- 
stitute the  most  important  class  of  labor,  can  not  increase  their  pro- 
ductive power  in  this  fashion,  for  the  speed  of  the  car  is  determined 
by  the  track  construction,  as  well  as  the  matter  of  safety  and  con- 
venience of  the  public  requiring  numerous  stops.  The  size  of  the 
car  can  not  be  profitably  increased  so  that  he  hauls  more  fares  per 
trip.  As  a  matter  of  fact,  the  tendency  is  in  the  opposite  direction, 
smaller  cars  and  more  frequent  service. 

Therefore,  the  extent  to  which  the  companies  can,  by  a  speeding-up 
process,  take  up  the  cost  of  the  eight-hour  day  is  probabty  less  than 
in  any  other  business  in  the  whole  round  of  business  enterprise  in 
this  country. 

Now,  I  do  not  argue  against  the  eight-hour  day.  I  am  not  dis- 
cussing the  merits  of  what  the  men  should  get  in  the  matter  of  wages 
or  what  the  working  day  should  be,  but  if  we  have  an  eight-hour 
day,  we  have  not  only  an  increase  in  the  pay  of  the  men  on  the 
hourly  basis,  but  we  have  a  large  increase  in  the  cost  of  operation. 

The  chairman  alluded  some  time  ago  to  the  nature  of  the  business. 
You  must  have  considerable  spreads,  because  the  working  day  of 
the  usual  street-railway  employees  must  be  longer  than  that  of  other 
people  in  the  community.  To  state  the  matter  simply,  they  must  be 
there  to  take  other  workmen  to  work,  and  they  must  be  working  after 
the  other  men  have  quit  to  bring  them  home ;  so  their  working  day  is 
considerably  longer  than  that  of  other  members  of  the  community, 
who  represent  their  patrons. 

Now,  with  the  eight-hour  day  literally  applied,  you  have,  on  many 
properties,  most  difficult  operating  conditions,  and  in  the  application 
of  that  requirement  to  the  service  you  have  a  great  deal  of  lost  man 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       955 

hours,  if  such  it  may  be  termed,  to  meet  the  eight-hour  da}',  and  to 
get  their  working  da}7  within  the  certain  limits  of  the  spreads  you 
have  to  pay  for  labor  which  is  not  very  productive. 

So  it  is  not  only  the  immediate  matter  of  an  hourly  rate  of  wage 
that  this  business  has  to  confront,  but  it  is  a  matter  of  the  readjust- 
ment of  the  hours  of  employees  on  a  basis  which  raises  the  cost  of 
operation;  and  I  say,  that — and  I  want  to  emphasize  it — would 
prejudice  to  the  rights  of  the  workers,  either  to  wages  or  to  shorter 
hours;  that  is  not  a  matter  that  I  am  here  to  discuss,  but  assuming 
that  they  are  entitled  to  higher  wages,  and  assuming  that  they  are 
entitled  to  shorter  hours,  the  industry,  somehow  or  other,  must  bear 
the  cost  of  both  of  those  changes. 

Commissioner  GADSDEN.  Doctor,  the  eight-hour  day  would  impose 
greater  costs  for  overtime ;  would  it  not  ? 

Mr.  CON  WAY.  Oh,  yes.  Let  us  take,  for  instance,  the  morning 
rush.  On  many  properties  it  begins  at  C  to  7  o'clock,  bringing  the 
factory  worker  to  his  plant,  depending  somewhat  on  the  customs  in 
the  community.  The  rush-hour  service  in  the  evening  must  run  up 
until  approximately  7  o'clock,  G  to  7.  It  begins  to  taper  off  after  G. 
You  have  12  hours  in  there.  The  requirements  for  rush  service  are 
anywhere  from  140  to  160  per  cent  of  the  base  schedule;  that  is,  you 
have  to  have  from  140  to  1GO  per  cent  of  the  normal  service  in  these 
rush  hours  to  take  the  workers  to  and  from  their  work.  That  means 
that  whatever  may  be  the  standard,  you  either  have  to  have  two  sets 
of  men,  one  set  running  the  morning  rush  hour,  and  the  other  the 
evening  rush  hour,  the  cost  of  which  would  be  prohibitive  absolutely ; 
or  you  have  to  pay  the  same  set  of  men  overtime  to  run  in  the  morn- 
ing and  evening  rush  hours,  and  after  they  have  been  working  an 
eight-hour  day.  They  may  work  eight  hours,  but  their  working  day 
covers  12  hours,  perhaps,  or  11  hours,  and  they  get  paid  overtime  for 
a  good  part  of  that  time,  especially  if  there  is  a  requirement  as  to 
straight  runs  or  swings  between  the  various  parts  of  the  day's  work. 

Mr.  WAKKEX.  I  might  say  on  this  point,  Mr.  Chairman,  that  the 
association  is  endeavoring  to  get  some  figures  and  estimates  from 
those  companies  whose  wages  have  been  materially  increased.  Them 
are  certain  companies  which  are  making  estimates  as  to  the  effect  of 
both  increased  wages  and  the  eight-hour  day  upon  the  pay  roll,  and  I 
would  like  to  file  that,  but  the  work  is  in  process  at  the  present  time. 

The  CHAIRMAN.  It  may  be  of  interest  to  know  that  the  commission 
will  have  before  it  the  representatives  of  the  employees,  so  that  we. 
will  hear  fully  from  their  side  of  the  case  also. 

Mr.  WAKKRX.  I  am  very  glad  to  hear  you  are  going  to  do  that. 

Mi1.  CONWAY.  I  was  asked  particularly  to  endeavor  to  present 
.to  you  the  possibilities  and  limitations  of  increasing  revenues  from 
higher  fares.  It  is  a  very  large  subject,  and  I  would  be  grateful  for 
anv  questions  which  may  bring  out  any  points  that  I  can  help  you  on. 

From  my  observation  and  experience,  I  am  fully  convinced  that 
there  are  very  definite  practical  limitations  on  most  properties  of 
increasing  rates.  The  theory  whioh  exists  in  the  minds  of  many 
people  that  a  street  railway  enjoys  a  complete  monopoly  is.  in  :i 
limited  sense,  true,  of  course — if  there  are  no  other  street  railways  in 
the  community:  but.  as  a  practical  matter,  there  are  very  few  elec- 
tric railways  which,  in  a  positive  sense,  enjoy  a  monopoly,  and  that 
fact  is  being  developed  in  rather  painful  fashion  to  many  electee- 


956       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

railway  operators  as  they  endeavor  to  get  their  revenues  by  higher 
fares. 

Now,  I  want  to  make  it  clear  before  I  begin  this  discussion  that 
I  am  absolutely  convinced,  as  I  feel  certain  anyone  must  be,  that, 
with  private  ownership  and  operation,  the  electric-railway  business 
must,  in  some  fashion,  get  sufficient  revenues  to  equal  its  operating 
expenses,  to  set  up  a  proper  amount  for  maintenance  and  deprecia- 
tion, and  to  give  a  fair  return  upon  the  value  of  the  property,  be- 
cause, as  one  of  you  said  this  morning,  these  properties  are  never 
finished,  new  capital  is  required  from  day  to  day  and  from  year  to 
year.  To  get  that  new  capital  and  to  provide  the  facilities  which 
the  public  demand  and  have  a  right  to  expect,  it  is  necessary  to  give 
these  companies  a  fair  return.  It  is  not  a  matter  necessarily  of 
equity,  as  I  see  it,  from  the  public  standpoint.  It  is  a  matter  of 
self-interest.  The  average  man  will  have  to  realize  that  the  giving 
to  the  owner  of  the  street  railway  a  fair  return  is  not  a  gratuity  or 
charity,  but  it  is  just  as  much  to  his  interest  as  it  is  to  the  owner's 
interest,  if  he  wants  to  get  good  car  service  or,  indeed,  for  any 
length  of  time,  any  car  service  worthy  of  the  name.  He  has  to  do 
that.  The  ordinary  man  thinks  to  give  the  owner  a  raise  of  fare  is 
the  same  thing  as  giving  a  beggar  a  quarter.  At  least,  many  people 
feel  that  way.  They  do  not  realize  that  their  interest  is  fully  as 
great  as  that  of  the  security  holder. 

Therefore,  I  heartily  agree  with  the  view  that  the  companies  must 
get  sufficient  revenues,  but  what  I  want  to  point  out.  if  I  can,  is  that 
in  getting  these  revenues  there  are  practical  difficulties,  and  without 
wearying  3'ou,  I  hope,  with  the  details  of  these  difficulties,  I  want  to 
develop,  if  I  can,  the  extent  to  which  they  enter  into  the  problem 
that  you  are  considering. 

To  begin  with  things  which,  perhaps,  are  well  known  to  all  of  us, 
when  6-cent  fares  were  instituted,  we  had  a  theoretical  increase  of 
20  per  cent  in  the  rate,  but  very  few  companies  got  a  20  per  cent 
increase  in  revenue.  The  revenue  increase  that  you  can  generalize — • 
and  the  value  of  generalizations  about  increases  is  very  limited, 
except  as  indicating  a  trend — but  if  you  can  generalize,  the  increase 
in  revenue,  from  a  20  per  cent  increase  in  rates,  was  about  10  per  cent, 
the  difference  is  due  to  the  falling  off  in  riding. 

The  CHAIRMAN.  Have  you  studied  the  comparative  results  of  a 
sufficient  number  of  companies  to  form  that  conclusion  ? 

Mr.  CON  WAY.  I  think  I  have;  yes,  sir. 

Some  time  ago  I  collected  all  of  the  data  that  I  could  get  together 
and  published  an  article  in  the  Electric  Railway  Journal  at  their 
request  for  a  review  on  the  special  results  on  the  6-cent  fares. 

The  CHAIRMAN.  What  was  the  date  of  that  article? 

Mr.  CONWAT.  It  was  printed  about  a  year  ago,  or  a  little  more, 
perhaps.  It  was  based  upon  the  commission's  reports  largely. 

The  CHAIRMAN.  How  many  plants  did  you  study  for  the  purpose 
of  making  that  report? 

Mr.  CONWAY.  My  recollection  is  that  it  was  something  over  75 
companies  for  which  I  could  get  official  statistics. 

The  CHAIRMAN.  All  right.     You  may  proceed. 

Commissioner  MEEKER.  Over  what  length  of  time  did  your  studies 
run  ? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       957 

Mr.  Cox  WAT.  Of  course,  that  varied,  depending  on  the  company. 

I  took  the  first  increases  in  Massachusetts,  where  the  6-cent  move- 
ment began,  and  then  followed  it  through,  taking  the  experience  of 
the  companies,  one  after  another,  which  raised  fares. 

Commissioner  MEEKER.  Do  you  think  the  time  was  long  enough 
so  that  the  first  resentment  against  the  raise  in  fare  was  done  away 
with,  so  that  they  could  get  it  back  to  normal  conditions  ? 

Mr.  Cox  WAY.  That  was  true  to  some  extent.  Of  course,  in  refer- 
ence to  later  cases,  it  was  not  so. 

Commissioner  SWEET.  Would  you  not  admit  that  your  figure  may 
be  a  little  bit  low  if  you  brought  it  down  to  date,  because  of  the 
tendency  on  the  part  of  the  public  to  become  accustomed  to  the 
change  and.  for  that  reason,  might  acquiesce  in  the  arrangement  ta 
get  more  revenue? 

Mr.  Cox  WAY.  There  are  so  many  things  that  enter  into  these  com- 
parisons, Mr.  Commissioner,  that  any  comparison  concerning  the 
influence  of  a  rate  of  fare  over  a  period  of  months  is  very  dangerous.. 
For  instance,  you  have  the  influence  of  the  war,  or  the  cessation  of 
the  war;  you  have  the  influence  of  the  influenza  epidemic;  a  com- 
parison of  the  severe  winter  year  before  last  with  the  mild  winter 
of  last  year;  you  have  the  presence  or  the  absence  of  the  soldiers,, 
which  has  an  effect  upon  evening  riding,  by  girls  going  out,  etc. 
I  have  heard  many  street-railway  operators  say,  and  I  think  there 
is  a  great  deal  of  truth  in  it,  that  the  only  one  true  comparison  is. 
what  happened  just  before  the  rate  was  raised  and  what  happened 
lust  after,  because,  when  you  get  away  from  there,  there  are  a  lot  of 
influences  that  you  can  not  measure. 

Xow,  we  all  know,  taking,  I  suppose,  the  average  of  the  companies,, 
there  is  about  a  5  per  cent  increase  in  travel,  as  a  normal  increase. 
That  is  true  of  the  country  as  a  whole,  as  shown  by  census  figures. 
It  runs  pretty  nearly  true  to  form  with  a  lot  of  the  properties  that 
I  have  studied.  In  two  years  you  will  have  a  10  per  cent  increase 
in  traffic,  comparing  the  receipts  of  to-day  with  the  6-cent  fares,, 
with  the  receipts  of  two  years  ago  with  5-cent  fares. 

Commissioner  SWEET.  In  1918,  instead  of  there  being  any  increase 
in  travel,  there  was  an  actual  dropping  off? 

Mr.  Cox  WAY.  In  some  companies  that  was  true.  In  other  cases,, 
there  was  a  tremendous  increase  of  riding. 

Commissioner  SWEET.  It  has  been  a  very  unfortunate  period  in 
which  to  measure  accurately  the  effect  of  increased  fares,  has  it  not  f 

Mr.  COXWAY.  That  is  absolutely  correct. 

Xow,  take  the  matter  of  the  7-cent  fare.  As  a  general  rule,  a  7-cent 
fare,  with  a  large  group  of  lines,  would  give  you  from  15  to  25  per 
cent  increase.  Xow.  how  is  that  increase  made  up?  It  is  an  average, 
and  it  is  a  good  deal  like  the  life  of  a  man.  When  you  say  the  average 
life  of  a  man  is  05  years,  we  include  the  fellow  who  dies  at  21  and  the 
man  who  dies  at  M),  and  all  those  who  died  at  intervening  ages. 

I  made  a  very  careful  study  concerning  the  effect  of  7-cent  fares 
on  the  Public  Service  Railway  Co.  That  property,  as  I  say,  covers 
practically  the  whole  State  of  Xow  Jersey.  You  have  every  condition 
there  and  all  sorts  of  lengths  of  riding,  differing  widely  as  regards 
the  length  of  the  ride,  and  their  average  was  about  15  to  10  per  cent 
for  the  property;  but  when  you  come  to  study  that,  in  so  far  as  it 
affects  particular  routes,  you  find  the  widest  divergent  conditions, 


958       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

and  if  each  of  these  separate  routes  had  been  a  separate  company, 
you  could  have  found  instances  where  the  increase  had  been  nothing, 
where  there  had  been  an  actual  loss  in' travel;  so  with  a  line  earning 
less  money  on  7  cents  than  it  did  on  5  cents,  it  would  offset  some  other 
line  where  they  would  earn  a  theoretical  increase  of  40  per  cent. 

That  is  why  I  say  generalizations  are  dangerous.  I  took  two 
months  which,  after  a  careful  study  of  all  the  surrounding  facts  and 
previous  history  of  the  company,  were  found  to  be  typical.  I  found 
that  lines  under  1  mile  in  length  showed  not  only  a  loss  in  travel,  but 
the  loss  was  so  great  it  showed  a  loss  in  money.  I  found  that  lines 
operating  from  1  to  2  miles  showed  a  lower  ratio  of  loss  than  those 
which  were  shorter,  except  where  there  was  active  jitney  competition. 

Twelve  lines  out  of  the  thirteen  lines  falling  within  this  group 
showed  an  increase  of  revenue 

Commissioner  SWEET.  That  is,  from  1  to  2  miles? 

Mr.  CON  WAY.  From  1  to  2  miles,  although  the  increases  in  most 
cases  were  slight. 

Lines  varying  from  2  to  3  miles  in  length  show  mixed  results.  An 
analysis  of  the  figures  seem  to  indicate  that  the  variation  is  due  to 
differences  in  the  average  length  of  ride  and  to  the  presence  or  ab- 
sence of  jitney  competition.  Taken  as  a  whole,  these  lines  show  'up 
no  better  than  the  shorter  lines. 

In  this  comparison,  I  had  the  advantage  of  a  very  accurate  pas- 
senger count,  which  was  taken  at  considerable  expense,  and  which, 
in  substance,  showed  the  exact  length  of  the  journey  of  the  pas- 
sengers on  the  line.  Each  passenger  getting  on  the  cars  wras  given 
a  slip,  on  which  was  noted  where  he  boarded  the  car,  and  he  wrote 
down  where  he  was  going  to  leave  the  car,  and  where  he  was  going 
to  ride  on  a  transfer  if  he  got  a  transfer.  So  we  not  only  knew  what 
happened,  but  we  were  able  to  ascertain  the  proportion  of  people 
riding  a  half  mile,  three-quarters  of  a  mile,  a  mile",  a  mile  and  a 
quarter,  etc. 

Commissioner  SWEET.  If  you  had  crowded  cars,  how  could  you 
get  people  to  do  that  ? 

Mr.  CONWAY.  We  had  no  trouble.  During  the  war  we  had  as 
many  as  180  people  on  one  car,  and  we  got  over  95  per  cent  of  the 
people  to  fill  out  the  slips.  We  were  taking  this  check  at  the  order 
of  the  commission,  and  the  public  felt  it  was  their  duty  to  cooperate. 
It  sounds  almost  unbelievable,  but  it  can  be  done.  The  reason  they 
took  the  check  was  to  work  out  the  zone  system  and  get  data  relating 
to  the  traffic;  but  I  used  the  opportunity  to  study  the  7-cent  fare 
question,  and  to  see  what  the  possibilities  of  the  flat  increases  were. 

In  general,  on  these  lines  which  I  have  just  described,  from  2  to  3 
miles  in  length,  \vhere  the  average  ride  exceeded  1£  miles,  and  where 
jitney  competition  was  not  present,  the  net  results  were  a  considerable 
increase  in  revenues. 

When  the  group  of  lines  ranging  from  3  to  4  miles  in  length  is 
reached,  a  distinct  improvement  is  noticed.  Certain  lines  in  this 
Igroup,  as,  for  example,  the  First  line  (central  division),  are  not 
comparable,  because  of  rerouting.  The  gains  secured  on  Harrison, 
Park  Avenue,  and  a  number  of  other  lines,  are  minimized  because 
of  active  jitney  competition ;  but,  taking  all  things  into  consideration, 
the  loss  of  riding  on  these  lines  was  not  nearly  as  great  as  on  the 


PKOCEEDIXGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       959 

shorter  routes,  and  the  reason  was  that  there  was  a  larger  propor- 
tion of  people  taking  rides  of  a  mile  or  more. 

When  we  got  to  the  lines  of  4:  miles  in  length,  we  found  a  still 
greater  improvement,  and  so  on,  as  the  length  of  line  increased  and 
the  average  length  of  line  increased. 

Xow,  generally  speaking,  the  result  seemed  to  show  that  the  7-cent 
fare  was  driving  most  of  the  passengers  riding  a  mile  or  less  off  the 
cars.  On  a  particular  day  we  checked  some  lines  under  5  cents,  and 
then  we  checked  the  same  lines  under  7  cents,  and  got  some  data  and 
compared  the  results.  The  long  riders  stayed  with  }rou  and  the 
7-cent  fare  drove  away  a  considerable  part  of  the  short-distance 
riders,  especially  those  riding  less  than  a  niile. 

The  CHAIRMAN.  Does  that  hold  true  more  fully  in  these  congested 
areas? 

Mr.  CON  WAY.  Yes.  In  the  rural  districts  they  rode,  I  suppose, 
because  the  sidewalks  were  not  there,  and  you  had  less  jitney  com- 
petition, although  in  the  smaller  towns,  such  as  Plamfield  and  some 
of  the  other  smaller  communities,  like  New  Brunswick,  and  towns 
of  ten  or  fifteetn  or  twenty  thousand  people,  the  results  were  rather 
disappointing.  People  walked. 

The  most  disquieting  thing  in  many  respects  was  the  effect  of  the 
7-cent  fares  on  the  jitnevs.  The  7-cent  fare  became  effective  October 
15.  1018.  From  the  1st  of  October,  1918,  to  the  1st  of  June,  1919, 
the  jitney  business  increased  100  per  cent  in  the  actual  number  of 
passengers  handled  by  jitneys,  as  shown  by  our  checks. 

In  the  city  of  Bridgeport  you  have  the  most  hopeless  condition 
I  have  ever  seen  with  reference  to  the  jitneys.  The  jitneys  in 
Bridgeport,  in  April  of  this  year,  when  we  made  a  very  careful 
check  of  the  matter,  were  handling  just  a  little  under  two-thirds  of 
the  total  people  riding,  either  on  trolleys  or  jitneys,  in  the  city. 
They  have  a  G-cent  fare  there.  The  jitneys  are  charging  5  cents. 
With  the  jitneys  you  have  a  large  amount  of  short-distance  travel 
in  the  city. 

The  figures  on  Waterbury,  Hartford,  and  New  Haven,  where  the 
average  journey  is  greater,  shows  a  much  more  healthy  condition; 
but  my  point  is  that,  with  a  1-cent  differential  throwing  more  than 
htilf  of  the  total  business  of  the  city  to  the  jitneys,  it  is  idle  to  talk 
about  7.  8,  9,  or  10-cent  fares.  It  is  just  an  exercise  in  arithmetic. 
Yon  might  as  well  close  up  shop  and  stop  operating,  and  let  the  jit- 
IWYS  haul  all  the  business. 

Mr.  WAKEKX.  That  is  a  flat  fare? 

Mr*  Cox  WAY.  A  flat  fare;  yes. 

This  Connecticut  company,  operating  over  the  whole  State  of 
Connecticut,  sliowed  less  than  0.8  of  1  ]>er  cent  passenger  revenue 
under  increased  fares  for  the  first  12  months  of  operation  uuder 
Mich  fares. 

Mr.  WAJRREX.  What  were  those  12  months? 

Mr.  CONWAY.  The  fare,  was  put  in  effect  in  October,  1917.  That 
would  carry  it  up  to  the  fall  of  1918. 

Commissioner  GADSDEX.  That  was  very  much  unproved  later, 
though,  according  to  the  testimony  of  their  expert,  Mr.  Storrs,  before 
tho  commission. 

Mr.  Cox  WAY.  That  is  true. 


960       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  WARREN.  In  Massachusetts,  in  that  same  relative  period, 
•where  fares  were  not  changed,  as  I  recall  the  figures,  in  communities 
similar  to  those  in  Connecticut,  like  Worcester,  and  cities  in  the 
western  part  of  the  State,  it  showed  an  actual  decrease  in  traffic. 

Mr.  CON  WAY.  Yes;  but  those  companies  with  6-cent  fares,  as  I 
remember  it,  did  not  show  any  increase  in  revenue. 

Mr.  WARREN.  Well,  take  Springfield.  Their  fares  were  increased 
on  a  different  plane,  and  they  showed  a  very  gratifying  increase. 

Mr.  CON  WAY.  The  point  I  want  to  make  is  this:  You  have  various 
factors  that  have  to  be  considered,  which  I  want  to  lay  before  you 
as  controlling  elements,  I  think,  in  helping  to  work  out  a  solution 
of  this  question.  • 

In  the  first  place,  there  is  a  large  amount  of  the  street-railway 
business  which  is  what  I  call  convenience  riding.  It  is  not  necessity 
riding.  I  refer  to  the  man  whose  journey  is  less  than  a  mile.  He 
can  walk,  and  he  will  walk,  when  you  get  to  a  certain  point  with  your 
fare. 

In  some  cities,  taking  the  country  as  a  whole.  I  think  you  now  get 
better  results  from  the  6  cents  than  you  did  two  years  ago.  People 
are  used  to  it ;  they  expect  it,  and  they  think  it  is  fair.  There  is  not 
any  of  that  spit*  walking,  as  I  sometimes  call  it — walking  to  spite  the 
company.  Six  cents  does  not  mean  much.  Men  wrill  pay  6,  7,  8,  9, 
or  10  cents  for  cigars  and  everything  else,  and  they  are  used  to  it. 

The  city  of  Sehenectady,  for  example,  showed  a  theoretical  in- 
crease of  20  per  cent  when  they  put  the  6-cent  fare  in,  while  some 
cities  very  similar  to  that,  in  New  York  State,  did  not  show  anything 
like  that  wrhen  they  put  the  6-cent  fare  in.  But  I  am  not  talking,  in 
most  cases,  for  the  immediate  future,  about  6-cent  fares.  They  are  al- 
most as  out  of  date  as  5-cent  fares  are.  The  thought  that  I  want  to 
leave  in  your  minds  is  what  is  going  to  be  the  effect  of  the  10-cent  fares 
and  the  9-cent  fares.  That  is  where  the  fare  equation  is  being  carried 
by  this  labor  development  that  is  here  and  ahead  of  us.  What  is 
that  going  to  do  with  the  companies  in  the  little  towns,  where  every- 
body lives  within  15  minutes  of  their  work,  and  walking  is  easy,  and 
what  is  going  to  be  the  effect  of  it  on  the  amount  of  riding  in  the 
big  cities? 

I  have  some  interesting  figures,  which  I  got  just  before  I  left  Phil- 
adelphia, from  Boston,  concerning  the  effect  of  various  raises  there. 
Their  lines,  in  the  first  few  days  of  10-cent  fares,  showed  approxi- 
mately 60  per  cent  increase  over  the  5-cent  revenue.  Eight-cent  fares, 
which  were  in  effect  in  December,  1918,  to  June,  1919,  showed  from 
36  to  46  per  cent  increase  over  the  5-cent  revenues.  The  7-cent 
averages  ran  from — well,  I  will  leave  out  October,  when  they  had 
the  influenza  epidemic — from  12  to  21  per  cent  increase  over  the  5- 
cent  fares. 

Xow,  Boston,  from  my  knowledge  of  the  property,  and  from  gen- 
eral knowledge  of  other  cities,  ought  to  show  much  better  results 
with  these  high  fares  than  any  city  I  know  of,  because  of  the  fact 
that  there  is  very  little  riding  in  the  shopping  district  of  Boston,  the 
cars  are  all  run  underground,  a  large  part  of  the  surface  tracks  are 
pulled  up  in  the  center  of  town,  and  yet  there  they  do  not  get  a 
theoretical  increase. 

Mr.  WARREN.  There  is  no  jitney  competition  there. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       961 

Mr.  CON  WAY.  There  is  no  jitney  competition  there.  The  long- 
distance riders  are  flocking  to  the  railroad  trains,  to  a  point  where 
they  are  embarrassing  the  railroads,  taking  advantage  of  the  com- 
mutation rates,  and  a  great  deal  of  walking  has  developed. 

Now,  these  are  facts  which  we  can  not  ignore.  The  increase  in 
fares  drives  a  continually  larger  number  of  people  away,  and  I 
think  it  would  be  unfortunate  if  the  impression  grew  up  in  your 
minds  that  it  is  a  matter  of  an  arithmetical  average — that  by  divid- 
ing the  operating  expenses  by  the  number  of  people  and  getting  a 
result,  and  saying  that  all  you  have  to  do  is  put  the  fare  up  to 
that  level  and  you  solve  the  problem.  It  is  very  far  from  being 
that,  with  the  high  costs  of  the  immediate  future,  as  I  see  it. 

Now,  on  the  other  hand,  if  I  am  correct  in  my  belief  that  the  com- 
panies should  be  allowed  to  quickly  readjust  their  fares  to  take  care 
of  these  increasing  expenses,  the  halter  should  be  taken  off,  and 
they  should  be  told  to  go  ahead  and  try  to  work  this  out,  put  in  any 
change  in  rates,  and  allow  the  commissions  to  revise  and  corrert  any 
inequalities  later  on. 

I  do  not  mean  to  infer  that  the  companies  should  not  increase 
their  rates  by  increasing  the  flat  unit  of  fare.  There  are  only  two 
ways  to  get  this.  One  is  a  flat  increase  in  the  unit  of  fare,  and  the 
other  is  some  sort  of  a  zone  system. 

Now.  speaking  generally,  if  you  are  to  face  that  emergency,  you 
will  have  to  have  a  simple  remedy;  and  a  simple  remedy  is  to 
increase  your  flat  unit  of  fare ;  and  that,  I  think,  is  what  the  indus- 
try will  nave  to  do. 

Now,  whether  that  will  solve  the  question  is  a  far  more  serious 
matter.  Whether  10-cent  fares,  with  loss  of  riding  that  it  occa- 
sions, is  the  answer,  is,  in  my  opinion,  a  far  less  settled  question ;  but 
this  much  I  am  certain  about:  A  zone  system,  applied  under  condi- 
tions of  heavy  urban  traffic,  such  as  you  have  in  our  large  cities,  is 
in  this  country  still  in  an  experimental  stage. 

Last  fall  and  winter  I  visited  every  city  in  the  United  States 
in  which  there  was  anything  approaching  a  zone  system.  The  zone 
system  was  successfully  applied  on  interurban  and  suburban  lines, 
but  when  you  came  to  putting  it  in  under  strictly  urban  conditions, 
such  as  travel  in  the  large  cities,  you  have  to  answer  that  it  has 
never  been  successfully  done. 

The  CHAIRMAN.  Not  even  in  Europe? 

Mr.  COXWAY.  It  has  been  done  in  Europe:  yes.  sir. 

Mr.  WAKUEX.  But  not  in  this  country? 

Mr.  COXWAY.  Not  in  this  country.  And  I  want  to  make  this 
point:  There  is  a  vant  difference  between  operating  conditions,  such 
as  I  understand  them  to  be.  in  Europe,  and  as  they  are  in  this 
country. 

In  the  Public  Service  Railway  investigation  we  had  an  unusual 
opportunity  to  get  a  comparison.  Sir  Robert  Stanley,  the  first  presi- 
dent of  the  British  Board  of  Trade  and  a  member  of  the  British 
Cabinet,  left  the  general  managership  of  the  Public  Service  Railway 
Co.  to  go  to  England  and  manage  the  London  omnibus,  tramway, 
and  underground  system.  lie  knew  the  Public  Service  property, 
which  is  typical,  I  think,  of  citv  properties:  he  had  operated  suc- 
cessfully with  a  zone  system.  But  Sir  Robert  Stanley  would  not 


962       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

say,  when  the  question  was  put  up  to  him,  that  that  method  of  fare 
collection,  which  successfully  worked  in  London,  would  work  in 
Newark,  or  Jersey  City.  There  are  differences  which  have-  to  be 
dealt  with. 

Now,  there  is  another  thing:  I  heard  a  gentleman  say  here  last 
night  that  he  would  solve  this  matter  by  taking  these  street  railways, 
and  he  would  shorten  the  5-cent  ride  to  a  radius  of  3  miles,  and  then 
if  you  ride  beyond  that  3  miles  you  would  pay  another  5  cents.  Now, 
without  considering  the  sociological  features  at  all,  he  probably  had 
in  mind  one  instance;  but  from  my  knowledge  of  the  Connecticut 
properties  in  places  like  Hartford,  New  Haven,  Waterbury,  and 
Bridgeport,  I  sat  here  and  smiled,  because  I  realized  that  that  was 
no  solution  at  all  for  those  properties.  Practically  the  whole  town 
comes  within  the  3-mile  radius;  and  to  say  that  it  should  be  3  miles 
for  5  cents  is  just  as  foolish  as  to  say  you  ought  to  haul  a  man  over 
the  municipal  area  for  5  cents.  There  is  no  relation  whatever  to  it. 
The  cost  of  operation  of  a  property,  as  the  chairman  knows,  differs  to 
a  considerable  extent  from  other  properties  under  the  same  commis- 
sion jurisdiction. 

Now,  the  zone  system,  to  be  applied,  must  not  be  ready-made  and 
put  on  as  he  suggested.  It  is  the  result  of  a  careful  study  of  the 
riding  habit  of  the  community,  of  the  number  of  people  taking  rides 
of  varying  lengths.  Some  idea  of  the  amount  of  work  that  is  involved 
is  conveyed  by  the  experience  in  this  Public  Service  Raihvay  inves- 
tigation. That  investigation  was  begun  on  the  last  day  of  July,  1918. 
The  company  was  ordered  to  present  its  report  on  or  before  January 
1,  1919,  four  months  later.  The  traffic  engineers  of  the  commission 
worked  with  us  in  this  investigation.  We  invited  them  in.  We  asked 
their  help.  We  wanted  them  to  know  what  was  being  done,  and 
wanted  their  advice.  We  had  over  175  people  at  one  time  working 
there,  trying  to  get  it  done,  and  the  best  we  could  do  was  to  present 
the  report  on  the  llth  day  of  March,  the  commission  having  extended 
the  time  twice.  That  was  about  eight  months.  Now,  when  we  have 
a  25  or  30  or  40  per  cent  wage  increase  to  face,  you  can  not  work  out 
something  that  is  going  to  take  eight  months  before  you  have  the 
answer.  That  is  why  I  say  the  immediate  answer  is  to  give  the  com- 
panies latitude,  to  let  them  put  in  anything  which  seems  to  be  fair 
and  which  meets  the  emergency.  That  is  the  first  thing  that  must  be 
done  as  an  emergency  solution,  and  then,  if  the  commissions  want  to 
value  the  properties — which  I  think  they  should,  if  they  have  any 
doubt  about  the  value  of  the  properties — and  investigate  the  fairness 
of  this  proposal,  assuming  that  the  companies  make  it  a  permanent 
scheme,  let  them  do  it  afterwards.  If  a  better  solution,  such  as  the 
zone  system,  can  be  worked  out,  let  that  be  done;  but,  in  the  mean- 
time, allow  the  company  to  live. 

Now,  I  have  confidence  that  eventually  a  solution  will  be  found. 
I  do  not  believe  that  anybody  understands  or  clearly  sees  the  exact 
lines  of  that  solution  of  the  fare  question  to-day.  My  judgment  is 
that  if  the  matter  of  fare  collections  can  be  solved,  I  think  we  will 
have  gone  a  long  way  toward  the  solution  of  it.  Some  sort  of  zone 
system  is  going  to  be  the  eventual  solution,  but  that  is  in  the  future. 
It  is  not  an  accomplished  fact.  In  the  meantime,  the  companies  must 
be  allowed  to  get  this  money  as  best  they  can. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       963 

The  CHAIRMAN.  You  think  the  zone  system  requires  a  long  study 
of  each  particular  plan? 

Mr.  CON  WAT.  Exactly.  You  can  not  have  any  made-to-orcler  solu- 
tion of  it. 

Mr.  WARREN.  Well,  a  flat  rate  could  be  put  into  effect  at  once; 
could  it  not  ? 

Mr.  CON  WAY.  That  is  something  that  the  public  understands. 

Mr.  WARREN.  And  whether  the  Boston  trustees  have  treated  the 
situation  in  the  wisest  way  or  not — and  personally,  as  a  Boston  man, 
I  have  a  great  deal  of  doubt  as  to  whether  they  have,  as  to  whether 
a  study  of  the  situation  would  not  have  developed  a  plan  to  bring  in 
more  revenue — yet  it  is  a  fact  that  in  the  first  two  days  of  the  10-cent 
fare,  involving  a  raise  of  2  cents  on  top  of  the  previous  raises,  and 
in  the  very  daj's  when  whatever  spite  walking  must  be  evidenced  was 
in  effect,  they  were  increasing  the  revenue  60  per  cent  over  the  old 
5-cent  fare. 

Mr.  CONWAT.  That  is  the  statement  that  is  made. 

Mr.  WARREN.  And  appreciably  over  the  8-cent  fare  also? 

Mr.  CONWAT.  Yes,  sir. 

The  CHAIRMAN.  Gov.  Foss  said  yesterday  that  the  10-cent  fare 
caused  a  loss  of  $4,000  a  day.  Where  did  he  get  those  figures? 

Mr.  CONWAT.  I  don't  know. 

I  have  here,  and  perhaps  it  would  be  well  to  read  it  into  the  record, 
this  letter,  dated  July  18,  from  the  general  auditor  of  the  Boston 
Elevated  Eailway  Co.  I  wrote  to  Mr.  Neal,  the  president  of  tho 
company,  asking  him  for  figures  concerning  the  effect  of  various 
increases  in  fares,  feeling  that  it  might  be  of  interest  to  you.  The 
general  auditor,  Mr.  Reed,  writes  me  as  follows: 

As  Mr.  Neal  has  been  very  busy  in  connection  with  the  strike  of  our  em- 
ployees he  has  asked  me  to  answer  your  letter  of  July  16.  I  believe  the  in- 
closed statement  will  give  you  the  information  desired. 

Regarding  the  rates  of  fare  I  would  say  that  up  to  July  31,  1918,  we  had  a 
universal  5-cent  fare;  from  August  1,  1918,  to  November  30,  1918.  a  7-cent 
fare;  from  December  1,  1918,  to  July  9.  1919,  an  8-cent  fare,  and  from  July 
10,  1919,  a  10-cent  fare  has  been  in  operation.  It  is  too  early  to  determine  the 
real  effect  of  the  10-cent  fare,  as  it  was  in  operation  but  a  few  days  before 
the  strike,  and  because  of  unusual  conditions.  Opinions  vary  as  to  what  the 
result  will  be,  hut  we  eventually  hope  for  an  increase  of  GO  to  65  per  cent  as 
compared  with  the  5-cent  fare. 

As  you  probably  know,  our  universal  fare  allows  a  transfer  without  charge 
iH'tween  surface  and  surface  cars  and  between  surface  and  rapid  transit,  or 
vice  versa. 

Now,  if  we  take  this  Boston  illustration,  as  I  read  this  letter,  from 
July  31,  1918,  to  the  10th  of  July,  1019,  they  had  5  cents,  then  7 
cents,  then  8  cents,  and  then  10  cents.  Now,  they  were  already  under 
public  trustees,  and  they  ran  a  big  deficit  that  had  to  be  assessed  to 
the  community  under  the  service -at -cost  act.  Is  it  not  clear  to  every- 
one's mind  that  you  can  not  expect  the  Public  Utilities  Commission 
to  reconsider  a  ca.se  four  or  five  times  in  a  year?  And  yet  that  is 
what  has  to  l>e  done.  This  industry,  as  I  said,  and  I  think  some  of 
you  thought,  perhaps,  I  was  overstating  it,  is  in  tho  experimental 
stage.  To  my  mind,  the  immediate  trouble  is  more  serious  than  that 
which  confronted  the  industry  in  the  early  nineties  and  late  nighties, 
when  the  agitation  was  on  as  to  whether  you  should  have  horse  cars 
or  electric  care.  That  was  a  mechanical  problem.  If  one  person 
solved  it,  it  was  solved  for  evetybody,  but  as  the  chairman  has  said, 


964       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION 

the  solution  here  differs  with  almost  every  property.  You  have  here 
an  economic  question  to  solve.  And  the  thought  I  want  to  leave- 
with  you  is  that  there  is  a  very  serious  doubt  in  my  mind  with  refer- 
ence to  at  least  a  large  percentage  of  these  companies,  whether  it 
is  practicable  to  get  a  rate  of  fare  which  will  give  you  enough  money 
to  pay  all  of  these  costs  and  to  carry  this  tax  burden,  this  paving 
burden,  and  all  these  other  things.  This  industry,  in  other  words, 
has  to  reorganize  itself,  and  in  that  process  of  reorganization  it  has 
to  have  a  chance  to  thrash  around,  to  try  a  lot  of  experiments,  just 
as  is  being  done  everywhere — put  in  a  rate,  and  if  it  does  not  workr 
take  it  out  and  put  another  one  in,  because  it  is  only  by  these  ex- 
periments that  we  are  ever  going  to  get  the  information  which  is 
necessary  to  work  out  a  solution.  If  the  commissions  are  going  to 
be  required  by  public  opinion  to  hold  hearings  lasting  four  or  five 
months,  to  make  valuations  and  take  a  year's  time  to  make  one 
change,  why,  gentlemen,  the  situation  is  hopeless. 

The  CHAIRMAN.  Now,  assuming  that  a  great  many  commissions 
do  raise  rates  and  that  the  people  are  induced  to  travel,  and  it  does 
not  bring  in  revenue  enough  to  pay  the  operating  expenses  and  fixed 
charges,  then  what  have  you  got  to  do? 

Mr.  CONWAY.  Then  you  have  pretty  nearly  reached  the  end  of 
private  ownership  and  private  operation  of  the  business. 

Mr.  WARREN.  Do  you  mean  if,  after  experimenting,  they  can  find 
no  wa}r? 

Mr.  CONWAY.  That  is  what  I  understood  him  to  mean. 

The  CHAIRMAN.  Do  you  believe  in  public  subsidy  of  a  private 
corporation  ? 

Mr.  CONWAY.  I  do  not.     I  think  in  principle  it  is  vicious. 

The  CHAIRMAN.  Then,  if  these  public  utilities  can  not  maintain 
themselves,  the  solution  is  government  ownership? 

Mr.  CONWAY.  I  would  not  go  that  far;  but  I  do  say  we  ought  to 
give  the  matter  of  private  ownership  a  thorough  trial,  and  private 
operation.  Let  the  initiative  of  the  operator  have  free  play.  If  he 
can  not  work  out  a  problem,  then  he  has  a  property  for  sale.  I  do- 
not  think  it  makes  any  difference  to  him  whether  the  buyer  is  to  be 
the  junkman  or  whether  it  is  going  to  the  municipality,  if  he  is 
satisfied  he  is  through  and  he  can  not  W7ork  it  out;  but  that  is  the  last 
resort,  in  my  opinion — public  ownership.  I  think  a  substitute,  in 
general  principle,  is  bad,  because  I  am  a  believer  in  individual 
initiative,  and  in  giving  a  reward  for  efficiency,  and  in  giving  the 
railroads  freedom  to  work  out  the  best  methods. 

Mr.  WAKREN.  But  don't  you  think  it  may  be  of  such  importance 
to  maintain  the  service  that  the  company  can  not  work  out  its  prob- 
lem, and  yet  it  is  a  case  where  the  road  ought  not  to  be  discon- 
tinued, and  that  in  the  interest  of  the  public  a  subsidy  might  be 
advisable  pending  a  determination  of  whether  the  public  would  in 
some  way  take  over  the  property? 

Mr.  CONWAY.  I  think  that  is  true ;  yes.  In  other  words,  during 
these  critical  days,  in  which,  perhaps,  discouragement  may  come 
because  a  solution  has  not  yet  been  found,  it  would  pay  the  public 
to  support  the  companies,  at  least  for  a  sufficient  period  of  time^ 
that  the  entire  problem  be  understood  by  all  parties  and  the  most 
advantageous  solution  found,  no  matter  what  may  be  the  solution 
determined  upon. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       965 

Mr.  WARREN.  Could  you  say  just  a  word — I  do  not  want  to  pro- 
long your  examination  unduly — but  from  your  study  of  rate  regula- 
tion as  applied  by  municipal  authorities  and  State  authorities,  what 
would  you  consider  the  better  method  of  treating  that  subject? 

Mr.  CONWAY.  Oh,  generally  speaking,  there  is  no  doubt  in  my 
mind  that  State  regulation,  through  a  utility  commission,  is  better 
than  municipal  regulation. 

In  the  first  place,  the  State  commission,  assuming  the  same  set 
of  men  are  doing  the  regulating,  will  do  better  work  than  those 
men  would  as  municipal  commissioners.  The  State  commissioner,  if 
he  gets  in  there  knowing  nothing  about  the  business,  and  unfor- 
tunately many  of  them  do  come  to  their  positions  in  that  way,  is 
educated ;  he  can  not  sit  there  day  after  day  and  listen  to  cases  and 
to  witnesses  dealing  with  these  matters  without  getting  a  pretty 
good  education  in  the  course  of  a  few  years  on  the  question.  Now, 
you  take  a  councilman  or  a  mayor.  There  is  only  one  out  of  three 
or  four  or  a  half  dozen  of  them  that  ever  has  a  rate  matter  to 
consider.  They  come  there  without  very  much  knowledge — and  it 
is  certainly  true  that  in  that  respect  a  little  knowledge  is  a  dangerous 
thing — when  they  have  any,  and  they  have  no  trained  advisers,  such 
as  the  engineers  and  accountants  of  the  commission.  The  cities  have 
no  trained  lawyers,  such  as  counsel  of  the  commission,  that  can  bring 
out  the  facts:  and  the  consequence  is  that  justice  is  not  done  because 
of  a  lack  of  knowledge  of  the  judges.  You  might  as  well  put  a 
layman  on  the  bench  and  expect  him  to  administer  justice  in  muni- 
cipal regulation. 

Commissioner  SWEET.  I  would  like  to  ask  a  few  questions.  Prof. 
Conway.  I  think  you  have  given  us  some  very  valuable  informa- 
tion, but  really  it  is  very  discouraging  as  a  whole,  especially  your 
final  conclusion ;  at  least,  it  would  seem  so  to  me. 

Do  you  think  it" would  be  possible  to  induce  the  public  authorities 
of  the  various  municipalities  of  the  United  States,  or  State  com- 
missions, to  throw  the  doors  open  as  wide  as  you  suggest  and  give 
the  companies  a  free  hand  to  place  the  fares  wherever  they  please, 
right  off,  as  an  immediate  measure? 

Mr.  CONWAY.  It  certainly  will  never  be  done  unless  somebody 
suggests  it  to  them. 

Commissioner  SWEET.  Well,  would  it  be  done  if  it  were  suggested? 

Mr.  CONWAY.  Perhaps  not,  but  this  far,  Mr.  Commissioner.  I 
think  it  will  help:  The  average  commissioner,  I  believe,  except, 
perhaps,  where  it  affects  his  own  home  town,  his  own  neighbors, 
wants  to  (lo  the  right  thing.  Now,  if  they  hold  these  cases  up,  you 
go  in  and  talk  to  them  in  their  private  offices,  or  you  meet  thorn  on 
the  street,  and  they  will  freely  admit  that  these  prolonged  hearings 
are  not  fair  to  the  company,  but  they  will  say  to  you,  "  We  must  give 
everybody  in  the  community  all  the  time  he  wants  to  talk  himself  to 
death,  or  he  will  go  out  and  howl  that  the  commission  sat  on  him 
and  would  not  give  him  a  fair  hearing." 

Commissioner  SWEET.  That  is  true,  isn't  it? 

Mr.  CONWAY.  Yes,  sir;  and  it  moans  hundreds  of  volumes  of 
testimony. 

Commissioner  SWEET.  Yes. 

Mr.  CONWAY.  Most  of  which  is  utter  nonsonso.  Now.  his  time 
is  frittered  away  on  these  things.  My  observation  is  that  the  moment 


966       PROCEEDINGS  OF  FEDEEAL  ELECTRIC  RAILWAYS  COMMISSION. 

the  rate  goes  in  it  is  a  nine-day  wonder  if  it  does  not  outrage  the 
community  because  it  is  so  ill-advised  and  poorly  conceived.  When 
you  come  to  the  trial  of  the  case,  the  newspapers  in  Pennsylvania 
give  it  very  little  notice.  My  observation  is  that  most  of  the  time 
is  taken  up  with  the  disputes  about  facts,  where  you  have  no  guide. 
In  one  city  a  6-cent  fare  is  going  to  give  you  an  18  per  cent  increase 
and  in  another  city  an  8  per  cent.  Instead  of  spending  time  on  those 
questions,  why  not  put  it  in  and  see  what  it  gives  you  ? 

Commissioner  SWEET.  As  I  understand  it,  in  Pennsylvania,  where 
the  rate  can  be  changed  practically  at  the  option,  temporarily  at 
least,  of  the  company,  by  putting  it  in 

Mr.  Cox  WAY.  Filing  a  new  tariff. 

Commissioner  SWEET.  Pending  a  decision? 

Mr.  COM  WAY.  Yes. 

Commissioner  SWEET.  Even  there  an  effort  has  been  made  in  every 
case  that  has  arisen  so  far  to  make  a  specific  rate,  and  it  must  be. 
There  has  been  no  instance,  has  there,  where  the  door  has  been 
thrown  wide  open  and  the  company  allowed,  at  its  own  sweet  will, 
to  place  the  fare  wherever  it  pleased? 

Mr.  CONWAY.  Yes;  that  is  the  situation.  Take  the  case  of  the 
Pittsburgh  Railways  Co.  Before  the  6-cent  fare  wTent  into  effect 
the  commission  held  hearings  and  allowed  the  6-cent  fare  to  go  in 
but  required  the  company  to  sell  two  tickets  for  11  cents,  instead 
of  11  tickets  for  55  cents,  as  they  wanted  to  do.  Now,  since  then 
the  company  has  twice  changed  the  rate,  and  the  matter  has  not  yet 
been  decided. 

Commissioner  SWEET.  But  if  I  understand  you  right,  the  State 
commission,  of  its  own  motion,  could  put  a  veto  on  that? 

Mr.  CONWAY.  No ;  except  it  went  through  the  process  of  determin- 
ing the  justice  of  the  rate.  What  the  State  did  was  to  immediately 
begin  a  valuation  of  the  property. 

Commissioner  SWEET.  It  goes  into  effect  immediately? 

Mr.  CONWAY.  Yes. 

Commissioner  SWEET.  But  could  not  the  State  commission,  with- 
out waiting  for  a  complaint,  decide  against  it? 

Mr.  Cox  WAY.  Not  without  getting  the  facts.  In  other  words,  they 
can  not  just  arbitrarily  say  that  the  rate  is  excessive.  They  have  to 
have  evidence  to  support  it. 

Commissioner  SWEET.  But  still  that  could  be  done  in  a  very  formal 
and  brief  way,  could  it  not? 

Mr.  CONWAY.  Well,  you  would  have  to  satisfy  the  courts. 

Commissioner  SWEET.  Well,  laying  aside  the  situation  in  Penn- 
sylvania and  Connecticut,  and  taking  other  States  where'  they  have 
no  provision  of  that  kind 

Mr.  CONWAY.  Yes. 

Commissioner  SWEET.  Don't  you  anticipate  that  it  would  be  a  very 
difficult  thing,  indeed,  to  bring  about  a  situation  that  would  permit 
the  companies  to  place  their  fares  wherever  they  saw  fit  ? 

Mr.  CONWAY.  Mr.  Commissioner,  my  owrn  judgment  is  that  the 
commissions  themselves  are  coming  to  this  view.  Let  me  illustrate : 

The  last  issue  of  Public  Utilities  Reports,  annotated,  contains  the 
opinion  of  the  Illinois  Commission  denying  the  application  of  the 
surface  lines  in  Chicago  for  6-cent  fares.  These  newspaper  clippings 
that  I  received  before  coming  to  Washington  yesterday  contain  what 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       967 

represent  to  be  an  interview  with  the  chairman  of  the  Illinois  Com- 
mission, in  which  he  says  that,  without  any  hearing,  he  is  indi- 
vidually prepared  to  allow  the  companies  to  advance  their  fares 
enough  to  take  up  these  extra  wages. 

Mr.  WARREN.  Who  said  that? 

Mr.  CON  WAT.  The  chairman  of  the  Illinois  Commission  is  quoted 
as  saying  it  by  two  newspapers. 

Commissioner  SWEET.  As  related  to  what  point? 

Mr.  CONWAT.  To  Chicago. 

Commissioner  SWEET.  To  what  point  have  they  raised  the  fare  ? 

Mr."  CONWAT.  He  does  not  know  yet,  because  they  have  not  gotten 
the  wages.  He  is  willing  to  give  the  companies  immediate  relief  to 
the  extent  of  the  raise  in  wages,  but  he  is  careful  to  say  that  that  is 
his  individual  view. 

Commissioner  SWEET.  As  a  measure  of  relief,  don't  you  think  some- 
thing should  be  done  to  prevent  jitney  competition? 

Mr.  CON  WAY.  It  should  be  done;  yes,  sir.  I  do  not  know  how  far 
you  can  go  with  it.  The  Connecticut  company,  as  an  instance,  con- 
cerning which  I  think  there  is  no  more  friendly  public  feeling  any- 
where than  is  found  by  that  company  in  the  State  of  Connecticut; 
it  is  surprising  how  little  animus  there  is  to  that  company,  probably 
because  the  trustees  are  operating  it- 
Commissioner  SWEET.  Do  you  think  the  State  should  regulate 
them,  the  same  as  a  street  railway  ? 

Mr.  CONWAT.  That  would  do  it. 

I  might  tell  you  what  happened  in  that  Connecticut  case,  showing 
how  difficult  it  is  to  manage  the  jitney  situation.  The  Legislature 
of  Connecticut,  at  the  instance  of  the  governor,  appointed  a  special 
committee  to  study  the  problem  of  the  street  railways  in  Connecticut, 
and  they  recommended  various  forms  of  relief.  Among  others  was 
the  putting  of  the  jitneys  under  the  control  of  the  utility  commis- 
sion. Xow,  the  legislature  considered  all  of  these  measures,  and  gave 
them  nothing.  They  did  report  out  a  jitney  bill  which  had  teeth 
in  it,  and  which  put  the  jitneys  under  the  control  of  the  utility 
commission.  The  Street  Railway  Union;  the  American  Federation 
of  Labor,  with  which  the  street-railway  men  were  affiliated;  the 
jitney  operators  ran  excursions  from  the  sister  cities  in  Connecticut; 
they  rode  in  jitneys  from  Bridgeport  and  Hartford,  and  they  got  a 
clique,  and  they  took  the  galleries  the  day  that  bill  came  up  for  con- 
sideration, anfl  they  made  so  much  noise  that  you  could  hardly  tell 
what  was  going  on.  The  legislature  evidently  thought  that  this  was 
aroused  public  opinion.  The  bill  was  emasculated.  The  value  of  it 
is  very  debatable. 

Commissioner  SWEET.  I  have  nothing  further. 

Mr.  WARREN.  Thank  you  very  much.  Prof.  Conway. 

I  have  one  other  witness,  Mr.  Chairman. 

STATEMENT  OF  ME.  HALFORD  ERICKSON. 

Mr.  WARREN.  Your  full  name,  Mr.  Erickson,  is  Hal  ford  Erickson? 
Mr.  ERICKSON.  Yes,  sir. 

Mr.  WARREN.  You  wore  formerly  chairman,  I  think,  of  the  Wis- 
consin Railroad  Commission! 


968       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

Mr.  ERICKSON.  I  was  a  member  of  the  commission  for  11  years, 
and  chairman  part  of  the  time. 

Mr.  WARREN.  Yes.  That  is,  as  a  matter  of  fact,  the  Public  Utility 
Commission  or  the  Public  Service  Commission  of  the  State  of  Wis- 
consin ? 

Mr.  ERICKSON.  Yes. 

Mr.  WARREN.  Otherwise  called  the  railroad  commission? 

Mr.  ERICKSON.  It  has  jurisdiction  over  railroads  and  all  other 
public  utilities,  including  street  railways. 

Mr.  WARREN.  Now,  you  have  made  a  pretty  thorough  investiga- 
tion of  the  street-railway  situation,  have  you  not  ? 

Mr.  ERICKSON.  I  have  had  occasion  to  go  into  it  from  time  to  time 
quite  fully,  as  fully  as  I  was  able  to  under  the  circumstances,  both 
on  the  commission  and  since. 

On  the  commission  we  had  to  appraise,  prescribe  accounting,  audit 
the  books  of  every  street-railway  company,  and  make  rates  for  every 
street  railway  in  the  State.  Since  I  got  out  of  the  commission  we 
have  appraised  about  seven  or  eight  hundred  millions  of  dollars  of 
utility  property,  audited  their  books,  and  made  rates  for  a  large  pro- 
portion of  them.  I  suppose  of  that,  15  or  20  properties  represent 
street-railway  properties. 

Mr.  WARREN.  As  a  matter  of  fact,  have  you  not  made  a  very  care- 
ful preparation  or  statement  on  this  situation  in  reply  to  a  question- 
naire from  the  Chamber  of  Commerce  of  the  United  States  ? 

Mr.  ERICKSON.  Some  time  ago  the  Federal  Chamber  of  Commerce 
asked  me  to  testify  in  some  hearings  that  they  had  here  in  Wash- 
ington. I  was  not  able  to  get  there,  but  I  prepared  a  rather  lengthy 
statement  on  the  street-railway  situation,  based  upon  the  analysis 
of  the  accounts,  valuations,  etc.,  of  some  30  or  35  roads  or  more,  part 
of  which  we  had  to  appraise  ourselves,  and  based  upon  as  many 
other  facts  as  I  could  get  hold  of.  The  greater  portion  of  the  paper, 
however,  was  devoted  to  the  indeterminate  permit,  which  I  was  re- 
quested to  testify  on,  in  addition  to  a  sort  of  survey  of  the  situation 
as  a  whole. 

Mr.  WARREN.  I  propose,  if  I  may,  to  leave  a  copy  of  that  with  the 
commission,  because  I  think,  in  view  of  Mr.  Erickson's  broad  ex- 
perience and  varied  experience,  it  would  be  a  very  valuable  contribu- 
tion to  this  investigation. 

You  have  also  prepared  some  data  for  this  investigation,  Mr. 
Erickson  ? 

Mr.  ERICKSON.  Yes ;  I  have.  I  have  had  a  very  short  time  on  that, 
but  I  used  the  facts  as  to  the  conditions  of  the  railroads  which  I  dug 
up  at  the  previous  hearing  and  presented  them  in  a  different  light, 
and  then,  in  this  case,  I  went  into  State  versus  local  regulation. 

Mr.  WARREN.  Which  we  asked  you  especially  to  consider? 

Mr.  ERICKSON.  Yes.  In  addition  to  that,  I  have  also  summarized 
the  results  of  very  extensive  investigations  as  to  the  cost  upon  which 
capital  can  be  had.  Part  of  that  investigation  was  carried  on  in  con- 
nection with  the  work  of  the  Newlands  committee — I  mean  the  con- 
gressional committee — and  part  of  it  has  been  carried  on  in  connection 
with  other  rate  cases.  That  investigation  embraced  practically  every 
railroad  in  the  country,  and  public  utility,  the  securities  of  which 
were  listed,  and  the  leading  manufacturing  plants  throughout  the 
country. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       969 

Mr.  WAKREX.  You  have  a  memorandum  of  this  last  study;  have 
you  ? 

Mr.  ERICKSOX.  Yes. 

Mr.  WARREX.  "Will  you  give  the  commission  briefly,  and  still  so 
that  you  will  do  the  matter  justice,  what  you  found  with  reference 
to  the  street  railways  and  with  reference  to  the  cost  of  capital,  be- 
fore you  take  up  the  question  of  the  study  of  municipal  control  ? 

Mr.  ERICKSOX.  I  took  the  operating  results  of  some  35  roads  rep- 
resenting the  conditions  before  the  war,  or  1914  and  1915.  I  also 
went  back  several  years,  as  far  as  to  1894. 

Without  going  into  detail,  I  might  say  that  in  1915,  the  cost  per 
ride,  per  passenger,  without  anything  for  return,  without  anything 
for  depreciation,  amounted  to  3.6  cents.  Eight  per  cent  on  the  value 
of  the  property  amounted  to  2.5  cents,  making  at  that  time  the  cost 
of  every  ride  over  6  cents,  if  tlie  road  should  have  received  reasonable 
returns.  That  was  before  the  war. 

From  1910  to  1915,  the  net  earnings  fell  33  per  cent,  approximately 
34  per  cent  on  these  35  or  40  leading  roads.  The  reason  for  the  bad 
condition,  of  course,  in  1914  and  1915,  is  almost  entirely  due  to.  high 
prices.  Prices  have  been  steadily  rising.  They  had  increased  about 
50  per  cent  from  1896  to  1915;  that  is,  for  commodities  alone,  and 
about  40  or  45  per  cent  for  labor.  Those  increases  had  been  gradually 
going  down.  The  conditions  of  the  street-railway  companies  were 
fairly  good  up  to  1910  from  1900,  but  at  that  time  the  increase  in 
prices  worked  very  fast.  Since  that  time,  conditions  began  to  grow 
worse.  From  1915  to  1919,  of  course,  we  know  what  the  situation  has 
been.  During  the  intervening  time,  prices  have  doubled  for  both 
labor  and  materials  and  supplies.  As  a  matter  of  fact,  on  many  of 
them  they  have  more  than  doubled  since  1915.  In  1918,  the  cost  per 
passenger  per  ride  was  4.8  cents,  without  including  enough  for  depre- 
ciation, without  including  anything  for  return  on  the  investment. 
If  you  add  2.5  cents  for  return  on  the  investment,  you  have  a  cost  per 
passenger  of  7.3  cents.  That  represents  the  conditions  of  about  35  or 
40  leading  roads  in  the  country. 

Mr.  WARREX.  In  1918? 

Mr.  ERICKSOX.  In  1918. 

Commissioner  SWEET.  It  is  still  worse  now;  is  it  not? 

Mr.  ERICKSOX.  It  is  still  worse  now,  because  prices  have  kept  on 
increasing.  Since  that  time,  however,  a  few  reliefs  have  been  gotten 
through  occasional  increases  in  rates;  so  that  the  average  rate  now 
is  slightly  more  than  5  cents,  not  a  great  deal  more,  but  slightly 
more.  At  that  time,  it  stood  at  about  5  cents  per  ride. 

Mr.  WARREX.  But,  as  far  as  costs  are  concerned,  conditions  are  a 
great  deal  worse  ? 

Mr.  ERICKSOX.  The  costs  are  now  higher  than  they  were  in  1918 
by  perhaps  as  much  as  7  or  8  per  cent. 

Mr.  WARREX.  And  that  is  regardless  of  this  60  cents  an  hour 
wage  scale? 

Mr.  ERIC-KSOX.  Yes,  sir. 

Mr.  WARREX.  Which  has  been  adopted  in  the  case  of  a  few  com- 
panies? 

Mr.  ERICKSON.  Since  my  figures  were  made,  most  of  the  increases 
in  wages  authorized  by  the  Federal  Labor  Board  have  been  put  into 
effect— not  all  of  them,  but  a  great  many  of  them — some  of  the 

160G430— 20 C2 


970      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

greatest  ones,  because  my  figures  ended  partly  with  July,  1918.    For 
some  of  the  15  roads  they  were  carried  up  to  January  1,  1019. 

Mr.  WARREX.  Those  roads,  you  think,  were  fairly  typical  of  the 
industry  ? 

Mr.  ERICKSON.  They  were  fairly  typical.  They  were  located  in 
Minnesota,  Wisconsin,  Illinois,  Indiana,  Ohio,  and  a  great  many  in 
Massachusetts,  many  in  New  York,  many  in  the  South,  some  west  of 
the  Mississippi  River,  including  Omaha,  St.  Louis,  Kansas  City,  and 
many  of  the  other  leading  cities  in  the>  country. 

The  CHAIRMAN.  Do  you  include  the  lines  of  the  Twin  Cities  and 
Milwaukee  ? 

Mr.  ERICKSOX.  Yes,  sir;  those  were  all  included.  Duluth,  also — 
not  Superior,  but  Duluth. 

Commissioner  SWEET.  Are  they  strictly  city  service,  or  do  they 
include  interurbans? 

Mr.  ERICKSOX.  There  is  hardly  a  railroad  in  the  country  that  does 
not  have  a  suburban  business  besides  the  city  business. 

Commissioner  SWEET.  Yes. 

Mr.  ERICKSOX.  Almost  every  road;  I  suppose  three-fourths  of  the 
lines  'go  beyond  the  city  limits  into  the  suburbs  and  into  adjoining 
towns  and  cities.  Of  course,  they  include  the  entire  line,  the  city  part 
as  well  as  the  suburban  part.  I  did  not  have  time  to  separate  the 
figures  by  political  units  or  divisions.  They  do  not  include  inter- 
urban  roads,  however. 

Commissioner  SWEET.  That  is  what  I  mean. 

Mr.  ERICKSOX.  They  include  urban  and  suburban  roads. 

Commissioner  SWEET.  Yes. 

Mr.  ERICKSOX.  In  1915  the  roads  were  earning  about  half  as  much 
for  returns  as  it  was  necessary  to  earn  in  order  to  secure  capital, 
based  upon  market  conditions.  In  1919,  or  1918,  the  roads  were  earn- 
ing very  little  more  than  the  operating  expenses.  Some  roads  were 
earning  some  more,  but  others  less,  and  on  the  average  not  much 
more  than  perhaps  a  fraction  of  a  cent,  on  the  average,  than  the 
operating  expenses. 

Commissioner  SWEET.  Without  allowing  anything  for  deprecia- 
tion or  interest  on  investment? 

Mr.  ERICKSOX.  Without  allowing  any  more  for  depreciation  than 
was  included  in  the  accounts,  which  I  would  say  was  about  half,  but 
nothing  on  return  whatever.  Perhaps  35  per  cent  was  included  in 
the  accounts  for  depreciation— not  more  than  that — of  what  should  be 
allowed. 

Commissioner  SWEET.  Then,  Mr.  Erickson,  the  street  railways  of 
the  country  as  a  whole,  taking  these  typical  roads  that  you  have  ex- 
amined, have  in  their  physical  properties  been  getting  in  worse  and 
worse  condition  as  time  has  progressed? 

Mr.  ERICKSOX.  Since  1910 ;  yes.  Their  condition  was  bad  from  1890 
to  1900  because  the  industry  was  in  its  infancy,  but  it  grew  better  up 
to  1900.  It  kept  growing  still  better  up  to  about  1908  and  1910. 
Then  the  situation  was  again  reversed;  and  owing  to  the  high  prices 
of  labor  and  material,  and  owing  to  the  increases  in  the  length  of  line, 
and  owing  to  demands  for  better  service  which  were  made,  it  has  been 
growing  worse. 

Commissioner  SWEET.  Are  you  speaking  now  of  the  financial  condi- 
tion? 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       971 

Mr.  ERICKSON.  I  am  speaking  of  the  financial  condition  exclusively. 

Commissioner  SWEET.  What  about  their  physical  condition  during 
this  period  ? 

Mr.  ERICKSON.  Their  physical  conditions  have  been  fairly  well  kept 
up.  They  were  until  1914  and  1915.  The  necessary  improvements 
have  been  made  since,  of  course.  They  have  had  to  be  made,  but 
the  full  improvements  have  not  been  made  since  1914  and  1915.  They 
have  slumped  wherever  they  could.  That  is  the  size  of  it.  They 
have  had  to,  and  there  are  a  great  many  deferred  maintenance  charges 
to  be  taken  care  of  as  soon  as  they  get  on  their  feet  again. 

Commissioner  SWEET.  If  that  process  should  have  continued  for 
several  years,  would  it  have  had  any  bearing  upon  the  question  of  the 
safety  of  the  public  ? 

Mr.  ERICKSON.  Yes ;  and  the  service  would  go  to  pieces.  If  it  con- 
tinues very  much  longer,  you  will  have  little  or  no  service  at  all.  It 
will  go  to  pieces.  The  cars  will  be  in  such  condition  that  they  will 
not  be  safe.  Power  houses  will  not  be  able  to  furnish  the  necessary 
power  for  the  driving  of  the  cars. 

Mr.  WARREN.  Did  you  mention  the  decrease  in  net  earnings  between 
1910  and  1915,  Mr.  Erickson? 

Mr.  ERICKSON.  Yes;  I  stated  that  the  decrease  at  that  time  in  net 
earnings  amounted  to  about  33  per  cent;  in  fact,  nearly  34  per  cent. 

Mr.  WARREN.  And  did  you  state  the  increase  in  the  investment  per 
revenue  passenger  ? 

Mr.  P^RICKSON.  Showing  the  effect  of  the  increase  in  the  price  of 
labor  and  material,  and  showing  the  effect  of  the  unproductive  im- 
provements, from  1910  to  1915,  I  have  a  few  figures  here  that  I  hap- 
pened to  get  together  on  that  question. 

For  instance,  the  investment  per  passenger  ride,  in  1910  or  there- 
abouts, was  about  20  cents.  In  1915  it  had  increased  to  very  nearly 
28  cents,  showing  that  the  fixed  charges  per  passenger  have  had  to 
increase  because  you  had  more  property  per  passenger  to  take  care  of. 
That  is  due  to  increases  in  prices.  It  is  due  to  improvements  de- 
manded, but  it  did  not  bring  in  any  proportionate  amount  of  returns. 

The  cost  of  getting  capital — 

Mr.  WARREN.  Yes;  I  wish  you  would  take  that  up  and  say  some- 
thing on  the  cost  of  capital. 

Mr.  ERICKSON.  Yes;  I  will  briefly  state  what  we  found. 

Utilities  before  the  war  had  to  earn  about  8  per  cent  on  the  full 
value  of  the  physical  property,  including  the  going  value,  in  order  to 
attract  the  necessary  capital.  Bonds,  for  instance,  if  they  bore  f>  per 
cent,  would  not  sell  at  par  unless  there  was  more  property  by  a  good 
doal  behind  thorn  than  their  par  value.  And  unless  they  woiv  pro- 
tected by  net  earnings  that  amounted  to  at  least  twice  as  much  as 
the  interest  charges.  Stocks  were  in  the  Kami'  position.  They  had 
to  have  property  behind  them.  Six  per  cent,  stock  had  to  sell  at  par. 
They  had  to  have  net  earnings  behind  them  that  amounted  to  10  or 
12  or  14  per  cent.  If  they  did  not  have  those  earnings  behind  them, 
neither  bonds  nor  stocks  would  sell  at  par;  that  is  on,  say,  a  (>  per 
cent,  basis. 

That  means  this — that  the  cost  of  capital  in  the  utility  field  is 
measured  not  by  the  income  basis  upon  which  the  securities  are  sell- 
ing, but  the  cost  is  measured  by  what  you  must  have  iu  the  way  of 


972      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

net  earnings  behind  the  securities,  in  order  that  they  may  sell  on 
a  normal  basis. 

I  investigated  also  from  time  to  time,  and  particularly  in  1914, 
1915,  and  1916,  the  income  basis  on  which  mortgages  were  selling,  in 
some  of  our  leading  cities.  A  farm  mortgage  on  a  good  farm,  well 
located,  could  not  cover  more  than  one-half  of  a  good  farm,  in  order 
to  sell  on  6  per  cent  income  basis.  That  may  be  likened  to  the  bonds 
covering  half  of  the  property.  A  second  farm  mortgage,  covering 
at  least  the  investment,  would  not  sell  on  a  6  per  cent  basis,  unless 
they  received  10  or  12  per  cent  as  interest.  In  other  words,  the 
security  was  not  good  and  demanded  compensation  for  the  risk. 
That  may  be  likened  to  the  stocks  that  come  on  top  of  the  bonds. 

The  result  was  that  the  cost  of  money  on  a  farm,  up  to  the 
full  value  of  the  farm,  was  over  8  per  cent  on  the  full  value,  the 
same  as  the  cost  of  money  or  capital  in  the  public-utility  field 
amounted  to  over  8  per  cent. 

Those  investigations  were  carefully  made,  based  upon  thousands 
of  illustrations,  covering  not  only  the  income  accounts  and  the  value 
of  the  property,  but  upon  their  market  price  for  five  or  six  years. 
I  had  at  least  eight  or  nine  men  working  on  this  investigation  alone. 
I  realized  that  the  cost  of  capital  in  the  utility  and  railroad  field 
was  measured  by  what  you  had  to  have  in  order  to  get  capital,  and 
I  tried  to  ascertain  that;  and  it  is  for  that  purpose  that  that  in- 
vestigation was  carried  on.  The  results  that  I  gave  you  are  in  sub- 
stance what  I  found.  Of  course  they  cover  files  of  routine  matter 
which  I  have  not  here,  but  which  I  have  in  my  files  in  my  Chicago 
office. 

The  CHAIRMAN.  Did  the  data  which  you  filed  with  the  United 
States  Chamber  of  Commerce  contain  the  same  details  on  that 
matter  ? 

Mr.  ERICKSON.  The  details  are  given  fairly  closely  here  in  this 
brief  statement  that  I  will  hand  you,  and  also  somewhat  more  fully 
in  the  statement  made  to  the  chamber  of  commerce,  but  more  fully 
still  in  the  report  I  made  to  the  attorneys  before  the  Newlands 
committee.  I  do  not  think  those  figures  are  available,  but  I  will 
furnish  you  a  more  detailed  summary,  if  you  would  want  to  have  it. 

The  CHAIRMAN.  I  have  the  report  of  the  Newlands  committee. 

Mr.  ERICKSON.  Oh,  you  have?  Well,  that  is  in  that  report.  It 
covers  in  detail  practically  all  of  the  leading  railway  systems,  all 
the  leading  utilities  and,  besides  that,  I  have  a  fairly  full  record  of 
practically  all  the  leading  manufacturing  industries.  I  have  a  de- 
tailed report  covering  100  typewritten  pages;  and  I  should  be  glad 
to  send  you  a  copy  of  it  if  you  would  like  to  have  it. 

The  CHAIRMAN.  Thank  you. 

Mr.  ERICKSON.  I  have  not  that  here,  though,  but  I  have  it  in 
Chicago,  and  would  be  glad  to  forward  it  to  you. 

The  CHAIRMAN.  I  think  it  would  be  useful,  and  we  would  appre- 
ciate it,  if  it  is  convenient  for  you. 

Mr.  ERICKSON.  Yes ;  I  will  send  it  in  to  you. 

The  street-railway  situation  is  such  that  something  will  have  to 
be  done,  and  it  will  have  to  be  done,  in  my  judgment,  through  the 
action  of  the  State.  Owing  to  regulation  of  utilities,  the  street  rail- 
ways themselves  can  not  remedy  the  situation.  They  are  powerless 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       973 

to  do  what  should  be  done.  It  can  only  be  done  by  permission  of  the 
State  and,  in  some  cases,  of  the  city  authorities. 

Xow,  that  means  that  the  State  will  have  to  take  action ;  the  regu- 
lating powers  will  have  to  take  action.  It  means  further  that  if  the 
powers  of  the  State  commissions  are  not  sufficient  now  they  will  have 
to  be  broadened  out,  and  perhaps  temporary  assistance  will  have  to 
be  granted,  subject  to  what  may  have  to  be  done  later  on;  but,  in 
my  judgment,  it  has  to  be  done  through  the  State  commission  or 
through  the  supervision  of  a  State  commission. 

I  was  asked  to  say  something  on  State  versus  local  regulation. 
I  have  prepared  something  on  that,  and  I  suppose  I  can  give  you  a 
synopsis  of  it.  I  can  omit  the  details  and  refer  to  my  notes,  and  give 
you  what  has  been  my  experience  in  that  matter  while  I  was  on  the 
commission  and  afterwards.  In  doing  so,  in  order  to  show  the 
necessity  of  State  regulation  I,  of  course,  have  gone  into  details  as 
to  what  is  necessary  in  order  to  provide  adequate  service  at  reason- 
able rates,  and  perhaps  I  could  as  well  omit  that  since  it  is  in  the 
report,  anyway,  and  confine  myself  to  comments. 

Mr.  WARREN.  I  should  like  to  have  the  report,  if  that  could  go 
into  the  record,  and  have  Mr.  Erickson  now  cover  some  of  the  im- 
portant points. 

The  CHAIRMAN.  Whatever  contribution  Mr.  Erickson  makes  to 
this  subject  is  valuable. 

Mr.  WARREN.  I  expect  so,  and  I  feel  it  should  be  in  the  record. 

The  report  of  Mr.  Erickson  is  as  follows : 

STKEHT    RAILWAY    SITUATION. 

Electric  street-railway  transportation  is  of  comparatively  recent  develop- 
ment. 

In  1900  it  comprised  only  1C  per  cent  of  the  track  mileage  and  7  per  cent 
of  the  traffic. 

In  1894,  when  long-distance  transmission  was  more  fully  perfected,  it  began 
to  develop  very  rapidly,  and  soon  became  the  prevailing  method  of  street  railway 
transportation. 

The  financial  situation  of  the  street  railways  during  the  past  25  years  has 
varied  from  doubtful  up  to  fair  and  down  again  to  doubtful  or  bad. 

I  Hiring  the  first  part  of  this  transition  period  much  property  had  to  be 
destroyed  or  discarded  and  replaced  by  new  and  different  equipment.  The 
investment  grew  faster  than  the  earning.  All  this  tended  to  keep  investors 
away.  About  1900  this  had  changed  somewhat,  and  for  some  years  the  earn- 
ings grew  somewhat  faster  than  the  investment.  This  had  a  strong  tendency 
to  draw  capital  into  the  street-railway  field.  Many  of  the  underlying  bonds 
even  advanced  into  the  investment  class. 

About  1910,  however,  the  conditions  again  began  to  change  in  the  opposite 
direction.  Since  about  that  time  the  investment  and  the  operating  expenses 
have  increased  faster  than  the  earnings.  At  the  outbreak  of  the  war  most 
roads  were  earning  less  than  it  was  necessary  to  earn  to  attract  all  the  new 
capital  that  was  needed. 

A  close  analysis  of  the  income  accounts  and  of  the  operating  and  other  sta- 
tistics of  many  leading  street  railways  discloses  some  of  the  main  reasons  for 
the  serious  financial  straits  in  which  most  of  the  electric  street  railways  now 
find  themselves. 

From  1910  to  191H,  owing  to  the  fact  that  the  operating  expenses  increased 
faster  than  the  gross  earnings,  the  net  earnings  declined  about  '.K\  per  cent. 

During  this  period,  further,  the  investment  per  passenger  advanced  from 
nearly  20  cents  to  close  to  28  cents.  This  increase  of  about  40  per  cent  In 
the  Investment  per  passenger  is  largely  due  to  increases  In  prices  of  material 
and  labor  and  to  the  fact  that  during  this  period  many  improvements  in  the 
service  have  been  required,  the  cost  of  which  has  uot  been  offset  by  increases 
in  the  density  of  traffic. 


974      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

In  1914-15  the  operating  expenses  alone,  without  including  sufficient  amounts 
for  depreciation,  averaged  about  3.6  cents  per  passenger.  During  the  same 
period,  8  per  cent  on  the  investment  for  interest  and  profits  averaged  about  2.5 
cents  per  passenger.  This  made  the  total  cost  per  passenger  about  6.1  cents.  The 
average  rate  of  fare  per  passenger  during  this  period  averaged  5  cents  or  slightly 
]esa 

The  principal  reason  why,  for  electric  street  railways,  the  expenses  and  charges 
have  thus  increased,  is  found  in  the  increases  that  have  taken  place  in  prices  of 
material  and  labor.  From  1897  to  1915  the  wholesale  price  on  commodities  in- 
creased about  50  per  cent,  while  the  prices  on  labor  increased  about  43  per  cent. 

The  situation  arising  from  such  increases  in  the  operating  expenses  and 
charges  was  also  greatly  aggravated  by  the  fact  the  length  of  the  haul  increased 
and  by  the  further  fact  that,  as  time  went  on,  continually  increasing  demands 
for  better  and  more  comfortable  service  had  to  be  met.  Long  hauls  are  more 
costly  than  short  hauls  and  good  service  is  more  costly  than  poorer  service.  In 
the  face  of  such  increases  in  the  cost  of  the  service  the  number  of  passengers 
per  car-mile  decreased  rather  than  increased.  The  rate  of  fare  also  remained  the 
same  as  it  was. 

The  facts  just  given  apply  mostly  to  conditions  that  existed  for  some  time  up 
to  the  beginning  of  war.  Since  the  war  started  the  conditions  in  the  street- 
railway  world  have  steadily  grown  worse.  From  1914  to  1919  the  prices  on 
commodities  and  labor  have  about  doubled,  the  length  of  the  hauls  have  kept 
on  increasing  and  so  have  the  operating  expenses  and  fixed  charges.  In  the  face 
of  all  this  it  is  only  recently  that  a  few  of  the  worst  situated  roads  were 
reluctantly  granted  certain  small  increases  in  the  rate  of  fare. 

The  operating  expenses  alone  increased  from  3.6  cents  per  passenger  in  1914 
to  4.8  cents  per  passenger  in  1918.  This  is  an  increase  of  1.2  cents,  or  about  33 
per  cent  in  the  operating  expenses  per  passenger.  The  cost  of  the  capital  has  also 
increased.  But  if  no  allowance  is  made  for  this  increase  in  the  cost  of  the  capital, 
and  if  it,  therefore,  is  placed  at  the  prewar  figure  of  2.5  cents  per  passenger,  the 
total  cost  per  passenger  in  1918  was  about  7.3  cents  for  each  ride. 

During  the  war  the  situation  became,  in  fact,  so  bad  that  road  after  road  had 
to  be  granted  increases  in  rates  in  order  that  they  would  be  able  to  keep  \ip  the 
service. 

The  conditions  which  created  the  bad  situation  before  the  war,  and  especially 
during  the  war,  are  still  with  us. 

Prices  of  labor  and  material  are  not  declining  greatly,  nor  are  they  likely  to 
fall  much  as  long  as  our  supply  of  money  and  credit  remains  as  great  as  is  now 
the  case.  Gold  production  is  about  as  great  as  ever.  During  the  war  the  imports 
of  gold  exceeded  the  exports  by  over  one  billion  dollars.  The  available  credit  and 
asset  currency  supplies  are  twice  as  great  now  as  before  the  war. 

It  is  true  that  these  increases  in  the  prices  of  materials  and  labor  applies  to 
other  industries  as  well  as  to  street  railways  and  other  public  utilities.  Here, 
however,  the  resemblance  ends.  Public  utilities,  like  other  industries,  have  not 
often  been  able  to  meet  increasing  costs  on  what  they  buy  by  increases  in  the 
prices  on  what  they  sell. 

Public  utilities  have  to  buy  all  the  capital,  material,  supplies  and  labor  which 
they  use  in  the  open  competitive  market.  But  the  prices  on  the  service  which 
these  utilities  sell  is  subject  to  regulation.  Their  prices  are  fixed  by  the  gov- 
ernment. In  many  cases,  these  prices  are  the  same  now  as  before  the  war. 

When  all  the  facts  are  considered  it  will  be  found  that  at  present  and  for 
several  years  in  the  past  the  street  railways  have  not,  as  a  rule,  been  earn- 
ing a  fair  living. 

They  have  had  to  pay  the  ruling  wage.  They  have  also  had  to  meet  the 
most  urgent  repairs  and  renewals,  but  few  roads  have  been  able  to  keep  up 
their  equipment  as  well  as  they  would  have  done  had  the  earnings  been  ade- 
quate. Few,  if  any,  roads  have  beside  these  and  other  necessary  outlays  been 
able  to  earn  fair  returns  on  the  investment. 

It  is  often  said  that  low  prices  increase  the  sales  and  that  the  cost  per  unit 
of  service  decreases  as  the  volume  of  business  increases.  It  is  further  said 
that  this  applies  with  special  force  in  the  street  railway  field,  because  in 
this  field  only  a  part  of  the  expenses  tend  to  vary  with  variations  in  the  amount 
of  business  done. 

It  is  true  that  the  law  of  increwsing  returns  or  decreasing  cost  applies  to 
the  street-railway  traffic  the  same  as  it  does  to  other  industries  where  rela- 
tively large  investments  are  required.  But  this  law  while  important  is  sub- 
ject to  many  qualifications.  In  such  industries  the  fixed  charges  and  other 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       975 

costs  per  unit  of  service  are  rapidly  increasing  as  long  as  the  investment 
remains  the  same.  But  when  the  capacity  of  the  existing  equipment  is  reached 
and  when  additional  investments  are  needed  for  handling  the  growing  tniffic. 
then  it  is  usually  found  that  the  cost  of  the  additional  equipment  is  out  of 
proportion  to  the  aiiHHiut  of  traffic  that  can  be  had.  The  amount  of  traffic, 
for  instance,  that  has  grown  too  great  for  one  track  is  not  often  even  nearly 
large  enough  for  the  full  use  of  two  tracks.  Yet  the  second  track  has  to  hip 
put  in ;  and  it  is  also  well  known  that  two  tracks  cost  nearly  twice  as  much  as 
one  track.  When  the  second  track  has  been  put  in,  the  interest  charges  prr 
unit  of  service  become  much  greater  than  they  were  while  only  one  track  wa  ? 
used.  This  increase  in  the  interest  charges  per  unit  is  also  likely  to  become 
permanent  even  after  the  traffic  has  so  grown  as  to  fully  utilize  both  tracks, 
for  it  is  well  known  that  double-track  lines  do  not  or  can  not  as  a  rule  handle 
twice  as  much  traffic  as  single-track  lines. 

Troubles  of  this  nature  have  greatly  aggravated  transportation  conditions 
in  this  country  during  the  past  decade.  While  there  was  too  much  traffic  for 
the  existing  facilities,  there  was  not  enough  traffic  to  equally  fully  occupy  the 
facilities  after  they  had  l>een  extended.  New  extensions  must  always  be  some- 
what out  of  proportion  to  the  amount  of  business  that  is  immediately  available. 

Adequate  street-car  service  is  a  necessity.  Without  it  no  city  of  any  con- 
siderable size  can  possibly  grow  and  prosper.  Good  street-car  service,  how- 
ever, can  not  in  the  long  run  be  had  unless  the  earnings  are  high  enough  to 
bring  the  necessary  capital  into  the  street-railway  field.  When  the  choice  lies 
between  good  service  at  reasonable  rates,  on  the  one  hand,  and  poor  service 
at  too  low  rates  on  the  other,  it  is  to  the  best  interest  of  all  that  the  former 
should  be  preferred. 

A  living  wage  in  any  industry  consists  of  earnings  that  are  high  enough  to 
attract  all  the  capital  and  all  other  factors  of  production  that  are  required  in 
the  business. 

In  the  street-railway  and  public-utility  fields  this  means  that  under  normal 
conditions  the  earnings  must  be  high  enough  to  yield  reasonable  returns  for 
the  operating  expenses  including  taxes,  depreciation,  and  interest  and  profit 
on  the  fair  value  of  the  plant  and  the  business.  Reasonable  returns  are  rep- 
resented by  fair  prices  of  all  the  labor,  services,  materials,  supplies,  and  other 
things  that  are  needed,  as  well  as  by  fair  prices  for  the  capital  employed  and 
for  the  enterpriser  or  employer. 

For  several  years  up  to  the  time  of  the  war  such  reasonable  returns  were 
ordinarily  covered  by  earnings  that  were  high  enough  to  meet  all  other  ex- 
penses and  charges  and  leave  a  balance  of  about  8  per  cent  on  the  fair  value 
of  the  plant  and  the  business  for  interest  and  profits  thereon. 

During  the  war  the  cost  of  the  factors  of  production  including  the  capital 
was  as  stated  greatly  increased,  and  these  costs  still  remain  at  high  levels.  It 
is  possible,  however,  that  during  the  near  few  years  there  will  be  some  fall  in 
the  cost  of  investment  'capital,  although  it  is  doubtful  whether  for  many  years 
this  cost  will  fall  as  low  as  to  the  prewar  point. 

The  conditions  upon  which  capital  can  be  had  or  securities  sold  are  about  as 
follows : 

The  property  and  earnings  behind  the  investment  must  be  sufficient  to  afford 
the  necessary  protection  against  risks,  and  to  also  constitute  adequate  com- 
pensation for  the  use  of  capital  employed,  and  for  the  work  and  responsi- 
bilities assumed  by  the  employer  and  investor. 

Investments  in  bonds,  in  order  to  be  safe,  n,ust  have  behind  them  much  more 
property  than  their  par  value,  and  much  greater  net  earnings  than  the  interest 
charges  on  the  bonds. 

Stocks,  in  order  to  be  fairly  safe  or  to  come  in  the  investment  class,  must 
have  behind  them  at  least  as  much  property  as  their  par  value,  and  much 
greater  net  earnings  than  the  ordinary  G  per  cent  of  7  per  cent  dividends  that 
may  be  paid  thereon. 

Without  such  margins  of  safety  as  these,  the  securities  are  speculative  rather 
than  investment  propositions. 

The  fact  that  Investment  securities  must  be  protected  by  more  property  than 
their  par  value  and  by  much  greater  net  earnings  than  the  ordinary  interest 
and  dividend  charges  shows: 

1.  That  the  cost  of  capital  is  represented  by  the  amount  of  the  net  earnings 
that  are  required  in  order  that  the  securities  thus  representing  the  capital  may 
sell  on  the  ordinary  investment  or  income  basis,  and 

2.  That  the  rates  charged  by  a  utility  for  the  service  it  furnishes  must  in 
the  long  run  be  high  enough  to  yield  such  net  earnings. 


976      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 


The  investment  conditions  in  these  respects,  which  prevailed  for  several 
years  prior  to  the  war,  may  be  further  summarized  as  follows: 

Investors,  in  order  to  purchase  5i  per  cent  to  6*  per  cent  bonds  at  par,  re- 
quired among  other  things: 

1.  That  such  bonds  should  not  amount  to  more  than  about  two-thirds  of  the 
value  of  the  assets  behind  them. 

2.  That  the  net  earnings  of  the  issuing  company  should  amount  to  not  less 
than  twice  as  much  as  the  interest  charges  on  such  bonds. 

3.  That  the  past  record  and  future  prospects  of  the  utility  should  be  good  or 
at  least  very  fair. 

4.  That,  in  taking  the  securities  on  such  income  bases  as  those  given,  the 
investors  would  not  assume  the  cost  of  such  discount,  commissions,  and  other 
selling  and  issuing  expense  as  had  to  be  met  when  the  securities  were  first  put 
on  the  market. 

Such  bonds  as  these  represent  for  the  most  part  the  class  of  investment  bonds 
which  were  available  for  new  capital  at  the  time. 

The  comparatively  few  available  underlying  issues  which  were  better  pro- 
tected than  this  were  selling  at  somewhat  higher  prices  and  lower  yields. 

The  many  junior  issues  bearing  the  same  rates  of  interest  but  which  were 
less  well  protected  than  this  were  selling  at  lower  prices,  and  higher  yields  or 
often  much  below  par. 

Investors  in  order  to  purchase  6  per  cent  to  7  per  cent  stocks  at  about  par  at 
that  time  required : 

1.  That  the  par  value  of  such  stocks  should  not  amount  to  more,  or  as  much 
as,  the  amount  by  which  the  value  of  the  assets  exceeded  the  par  value  of  the 
bonds  which  come  ahead  of  such  stocks. 

2.  That  the  net  earnings  of  the  company  which  were  available  for  returns  or 
dividends  on  such  stocks  should  amount  to  from  more  than  half  again  to  fully 
twice  as  much  as  the  regular  dividends. 

3.  That  in  addition  to  this  the  amount  by  which  the  net  earnings  for  the 
stock  exceeded  the  regular  dividends  be  used  for  strengthening  the  equities 
behind  the  stock  and  for  occasional  extra  dividends  thereon. 

4.  That  the  future  prospects  of  the  company  appear  to  be  good  or  at  least 
fair. 

In  taking  the  stock  on  these  bases  the  investor  did  not  assume  the  cost  of 
discounts,  commissions,  or  other  selling  expenses. 

Less  well-protected  stocks  than  this  bearing  the  same  rates  of  dividends  sold 
at  lower  prices  and  higher  yields  or  below  par.  Better  protected  stocks  with 
similar  dividend  rates  sold  at  higher  prices  and  lower  yields,  or  sometimes 
above  par. 

AVhen  both  bonds  and  stocks  are  outstanding,  the  bonds  are,  of  course,  much 
safer  than  the  stocks.  Among  the  reasons  for  this  are  that  bonds  have  the 
first  claim  on  the  entire  property  and  on  the  entire  net. earnings;  that  all  just 
claims  of  the  bondholder  must  be  satisfied  before  the  stockholder  gets  anything ; 
that  the  bonds  have  foreclosure  privileges  when  the  interest  charges  thereon 
are  not  paid. 

The  facts  thus  given  represented  normal  investment  conditions  in  the  utility 
field  for  the  period  involved.  For  a  plant  earning  8  per  cent  on  its  fair  value, 
of  which  60  per  cent  was  represented  by  bonds,  and  40  per  cent  by  stocks,  the 
situation  was  as  follows : 


Assets. 

Rate, 
earned. 

Rate, 
paid. 

Interest 
dividends. 

Par 
price. 

Bonds         

$60,000 

Per  cent. 
13.3 

Per  cent. 
6.0 

$3,600 

$100 

40,000 

11.1 

11.1 

4,400 

100 

Total                   

100,000 

8.0 

8.0 

8,000 

100 

Farm  mortgages  bearing  interest  at  from  5*  to  6i  per  cent  will  not  often 
sell  for  as  much  as  par  if  they  amount  to  more  than  one-half  as  much  as  the 
value  of  the  farm,  and  if  the  farm  is  not  well  located  and  well  managed. 

Second  farm  mortgages,  covering  the  remaining  half  of  the  value  of  the 
farm,  will  not  sell  at  par  unless  the  interest  received  thereon  amounts  to  from 
10  per  cent  to  12  per  cent 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.       977 

First  mortgages  of  this  kind  on  farms  resemble  the  bonds  which  were,  say, 
one-half  the  value  of  a  utility. 

Second  farm  mortgages  of  the  kind  mentioned  resemble  the  second-mortgage 
bonds  or  even  stock,  which  cover  the  remaining  half  of  the  value  of  a  utility 
plant. 

The  cost  of  obtaining  capital  in  the  public  utility  for  several  years  up  to 
the  beginning  of  the  war  may  be  further  illustrated. 

Twelve  representatives  20  to  30  year  first-mortgage  bond  issues  covering 
gas.  electric,  and  street-railway  plants  brought  out  before  the  war  and  bearing 
interest  at  the  rate  of  5  per  cent  were  placed  on  the  market  at  prices  under 
which  they  yielded  the  investors  from  something  over  5$  per  cent  to  more 
than  6  per  cent.  The  cost  to  the  issuing  companies,  when  discounts,  com- 
missions, and  other  expenses  averaging  about  7  per  cent  are  included,  amounted 
to  about  6i  per  cent.  These  issues  did  not  cover  more  than  about  one-half 
of  the  book  values  of  the  property  and  were  protected  by  net  earnings  that 
averaged  considerably  more  than  twice  as  much  as  the  amounts  required  for 
interest  on  the  bonds. 

During  the  same  period  fifteen  25  to.  30  year  representative  second-mortgage 
bonds  covering  similar  properties  bearing  rates  at  5  and  6  per  cent  were  offered 
at  prices  which  would  net  investors  about  6.7  per  cent.  On  these  bonds  the 
discounts  and  selling  expenses  amount  to  about  8  per  qent  on  the  par  value 
of  the  bonds.  These  costs  when  pro  rated  on  the  life  of  the  bonds  brought  the 
cost  of  the  capital  to  the  utilities  up  to  over  7  per  cent.  These  issues  were 
protected  by  half  again  as  much  property  as  their  par  value  and  by  net  earn- 
ings that  amounted  to  about  twice  as  much  as  the  interest  charges. 

The  situation  with  respect  to  older  Issues  is  about  as  follows:  A  group  of 
twenty-seven  5  per  cent  first-mortgage  bonds,  most  of  which  are  underlying 
liens  upon  the  whole  property  and  all  of  which  are  underlying  liens  upon  at 
least  a  part  of  the  property,  were  taken  in  the  1916  markets  by  investors  at 
prices  upon  which  the  approximate  yield  was  5i  per  cent.  There  was  out- 
standing about  $170,000,000  of  these  securities,  back  of  which  stood  a  book 
value  of  nearly  $420,000,000.  It  is  clearly  indicated  by  these  figures  that  these 
issues  cover  much  less  than  one-half  of  the  book  value  of  these  properties. 
Net  earnings  available  for  these  issues  amounted  to  over  $27,500,000,  of  which 
sum  only  $10,320,000  was  absorbed  by  interest  and  sinking-fund  charges, 
leaving  an  excess  for  safety  of  $17,180,000.  Interest  charges  on  these  bonds 
were  thus  earned  2.7  times  over,  and  the  margin  of  safety  was  63  per  cent. 

A  small  group  of  long-term  4  per  cent  bonds  whose  security  is  rated  highly 
were  similarly  demanded  by  investors  at  a  price  to  yield  approximately  5.09 
I«r  cent.  The  average  income  available  annually  for  the  past  five  years  was 
three  times  the  interest  requirements. 

Another  group  of  about  40  utility  bond  issues,  protected  on  the  average  by 
not  far  from  twice  as  much  property  and  earnings  as  the  face  value  of  the 
bonds  and  interest  charges  thereon,  have  sold  at  prices  on  which  the  yield 
averaged  over  6  per  cent.  The  cost  to  the  utilities,  however,  when  all  dis- 
counts, commissions,  outlays,  and  deductions  of  about  8  per  cent  are  included, 
increased  this  figure  considerably,  or  to  about  7  per  cent. 

A  group  of  11  collateral  trust  securities,  8  bearing  5  per  cent  interest,  2 
bearing  4  per  cent,  were  issued  to  the  extent  of  nearly  $120,000,000.  The 
security  of  these  issues  is  rated  high  by  Moody.  These  issues  yield  approxi- 
mately 5.84  per  cent  on  an  average  price,  and  the  interest  is  covered  three 
times  by  the  income  available  on  a  five-year  average  basis. 

A  great  many  five-year  note  issues  have  of  late  years  been  offered  at  prices 
which  would  yield  Investors  from  6  per  cent  to  7.5  per  cent.  In  many  of  these 
cases  the  issues  bear  interest  at  6  per  cent.  The  discounts  and  other  expenses 
amounting  to  about  10  per  cent  make  the  cost  to  the  utilities  in  practically 
all  cases  more  than  8J  per  cent  per  annum.  Many  such  note  issues  were 
undertaken  for  the  purpose  of  postponing  comprehensive  refinancing  plans  to 
a  time  when  long-time  securities  would  find  a  market,  and  when  it  is  exj>ected 
that  the  money  market  will  be  easier  so  tht  permanent  long-time  mortgages 
or  bonds  could  be  offered  at  a  less  financial  sacrifice. 

Several  preferred  stocks  protected  by  ample  assets  and  by  net  earnings 
amounting  to  from  10  per  cent  to  30  per  cent  thereon  have  sold  at  prices  on 
which  they  yielded  from  a  little  less  than  7  per  cent  to  about  8  per  cent.  With 
discounts  and  other  expenses  the  capital  obtained  on  these  issues  cost  the 
utilities  at  least  1  per  cent  more  than  this.  Twenty-nine  preferred  stocks 


978      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

amounting  to  about  $170,000.000,  protected  by  earnings  that  amounted  to  2$ 
times  the  ordinary  direct  dividend  charges  sold  on  a  7  per  cent  to  an  8  per 
cent  income  basis. 

The  public-utility  securities  which  have  thus  far  been  discussed  belong  in 
large  part  to  these  large  utilities  which  are  fairly  well  known  and  for  whose 
securities  there  is  a  fairly  well  developed  market.  They  represent  the  leading 
listed  and  unlisted  securities  in  all  stock  exchanges  and  prominent  markets 
upon  which  reliable  data  can  be  secured.  They  are  mainly  of  an  active  class, 
although  some  are  included  which,  though  somewhat  active,  are  of  proven 
worth. 

All  of  these  facts  clearly  show  that  for  several  years  up  to  the  earlier  years 
of  the  var  the  utilities,  as  has  been  stated,  could  not  obtain  all  the  capital 
they  needed  on  normal  terms  and  conditions  unless  the  net  earnings  for  re- 
turns on  the  investment  amounted  to  at  least  8  per  cent  on  the  fair  value  of 
the  plant  and  the  business. 

These  facts  show  further  that  during  the  same  years  the  net  earnings  for 
returns  did  not  on  the  'average  amount  to  much  more  than  about  half  of  this 
or  to  only  about  4  per  cent. 

It  is  further  disclosed  that  the  unsatisfactory  conditions  in  which  the  street 
railways  found  themselves  at  the  beginning  of  the  war  have  steadily  grown 
worse  since  then.  During  the  past  two  years  they  have  earned  but  little  more 
than  enough  to  cover  the  operating  expenses. 

It  is  clear  to  all  that  this  is  a  situation  that  can  not  last.  No  one  will  con- 
tinue to  render  service  at  a  loss.  Unless  the  street  railways  are  allowed  to 
earn  reasonable  returns,  the  service  is  certain  to  become  so  bad  as  to  be  un- 
bearable. The  choice  therefore  lies  between  good  service  at  reasonable  rates 
and  poor  service  that  is  gradually  growing  worse  at  the  existing  rates.  As 
good  street-car  service  is  indispensable  in  all  growing  cities  the  choice  is  plain. 

As  the  street  railways  are  subject  to  government  regulation  and  have  but 
little  control  over  the  growing  costs  of  operation,  they  are  themselves  utterly 
unable  to  remedy  the  situation  without  the  active  and  comprehensive  assist- 
ance from  the  regulating  commissions  or  bodies.  Such  assistance  is  not  easily 
obtained.  Some  of  the  principal  reasons  for  this  are  found  in  the  attitude 
of  the  city  authorities  in  these  matters,  and  in  the  conflicting  powers  and  other 
relations  that  often  exist  as  between  the  State  commissions  and  the  local 
authorities.  It  is  highly  important  that  these  obstacles  be  removed  and  that 
full  power  to  deal  with  the  situation  be  placed  in  the  hands  of  whatever  body 
or  commissions  which  from  every  point  of  view  is  in  the  best  position  to  most 
promptly,  most  fairly,  and  most  effectively  straighten  out  the  situation.  If 
State  regulation  through  utility  commissions  is  the  best  agency  for  this  pur- 
pose, this  is  also  the  means  that  should  be  adopted.  If  local  regulation  is  a  bet- 
ter medium  then  this  should  be  chosen.  In  order  to  shed  some  light  on  these 
matters  these  two  methods  of  regulation  will  be  discussed  at  some  length. 

STATE  VERSUS  LOCAL  REGULATION. 

The  power  to  regulate  service,  prices,  and  other  conditions  is  vested  in  the 
State  and  not  in  the  municipality  or  in  any  subdivision  of  the  State.  Such 
State  regulation  may  take  the  form  of  specific  legislation  to  be  enforced,  if 
need  be,  either  through  the  regularly  established  legal  machinery  or  through 
such  administrative  bodies  as  the  railroad  and  public-utility  commissions. 
The  State  may  also  delegate  such  regulation  to  any  of  the  local  units  of  which 
the  State  is  made  up,  such  as  cities,  etc.  When  the  regulation  of  public  utilities 
is  delegated  to  the  local  units  it  is  usually  carried  out  through  franchise  and 
ordinary  provisions  mostly  without  any  regular  department  for  administering 
f.uch  regulation. 

The  purpose  of  the  regulation  of  public  utilities  is  mostly  to  see  to  it  that 
r.uch  utilities  furnish  adequate  service  at  reasonable  rates,  and  that  excessive 
amounts  of  securities  are  not  issued  by  them. 

While  it  is  generally  admitted  that  such  regulation  of  public  utilities  is  neces- 
sary in  public  interest,  there  are  differences  of  opinion  as  to  what  form  of  regu- 
lation is  preferable  or  best  from  this  point  of  view.  Some  prefer  regulation 
through  State  legislation  and  commission ;  others  hold  that  such  regulation 
shotild  be  delegated  or  intrusted  to  the  municipality  actually  served  by  the 
utility. 

The  purpose  herein  is  to  present  a  few  facts  which  may  throw  some  light  upon 
whether  State  or  local  regulation  is  the  best  or  most  advantageous  from  the 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      979 

point  of  view  of  public  interest.  To  this  end  the  nature  of  regulation,  and  the 
kind  of  work  that  is  required  in  properly  administering  it  will  be  briefly  out- 
lined. The  past  experience  under  the  two  methods  of  regulation  and  other  facts 
and  conditions  will  also  be  touched  upon. 

The  service,  in  order  to  be  adequate,  must,  as  a  rule,  conform  to  certain 
standards  which  have  been  developed  from  experience  and  which  are  subject 
to  change  with  changes  in  the  conditions. 

In  the  street-ralway  service  the  tracks  must  be  safe  and  well  maintained. 
They  must  also  be  located  on  the  streets  where  most  needed  and  extended  from 
time  to  time  with  the  growth  of  the  city.  Other  street-railway  equipment  must 
be  up  to  date  and  well  kept  up  with  respect  to  both  the  safety  and  the  comfort 
of  the  public.  (Jars  must  be  run  as  often  as  necessary  to  accommodate  the 
traffic.  The  routing,  loading,  and  headway  of  cars  as  a  whole  as  well  as  at 
different  times  of  the  day,  are  matters  that  can  not  be  safely  passed  upon  with- 
out elaborate  traffic  and  other  studies  or  investigations. 

The  gas  used  for  cooking,  lighting,  and  heating  must  have  the  proper  heating 
value  or  qualities,  be  comparatively  free  from  sulphur,  and  be  delivered  under 
proper  pressure.  The  meters  by  which  the  gas  is  measured,  in  order  to  be 
accurate,  must  also  be  tested  at  frequent  intervals. 

In  the  case  of  electric  utilities  the  voltage  must  be  comparatively  constant, 
the  meters  frequently  tested  and  the  lamps  renewed  whenever  necessary.  The 
equipment  generally  must  also  be  well  kept  up  and  provided  with  many  neces- 
sary safety  devices. 

The  telephone  equipment  must  be  adequate,  up  to  date,  and  well  kept  up.  The 
operators  must  be  competent  and  numerous  enough  for  good  service.  Telephone 
companies  must  also  be  made  to  keep  pace  with  the  progress  in  the  art  and  with 
the  growth  of  the  community  served. 

Waterworks  must  have  sufficient  pressure  for  both  tire  and  domestic  service. 
The  water  must  be  pure  and  the  meters  accurate.  Tbe  supply  of  water  must  also 
l>e  adequate.  The  mains  must  be  properly  extended  and  the  equipment  up  to 
date  and  well  maintained. 

All  of  the  requirements  for  good  service  which  have  thus  been  outlined  and 
a  great  many  other  requirements  to  that  end  as  well,  must  be  determined  by  ex- 
haustive and  careful  investigations,  developed  into  proper  rules  and  standards 
and  then  carefully  explained  to  all  concerned.  Wlieu  these  service  rules  nnd 
standards  are  put  into  effect  they  must  also  be  enforced  by  competent  Inspectors, 
aided  by  proper  recording  and  other  scientific  instruments.  To  develop  and  pro- 
mulgate such  standards  and  rules  and  to  properly  enforce  them  when  put  in 
effect  requires  technical  training  and  experience. 

Service  standards  and  rules  of  this  kind  vary  with  the  size  of  the  city,  tho 
state  of  the  art,  and  with  other  conditions.  The  standards  required  for  good 
service  must  be  much  more  comprehensive  and  much  more  or  carefully  en- 
forced for  the  larger  cities  than  for  tlie  smaller  ones.  The  standards  and  rules 
thus  required  at  one  stage  in  the  progress  of  the  industry  are  often  out  of  place 
when  the  next  stage  is  ushered  in.  As  the  cities  keep  on  growing  and  as  new 
inventions  and  new  methods  are  constantly  appearing,  it  also  follows  that  the 
standards  of  service  must  be  almost  constantly  modified  or  changed.  In  the 
State  where  I  hapi>encd  to  l>e  connected  with  this  work,  many  rnles,  for  such 
reasons  as  those  given,  had  to  he  changed  by  the  end  of  tin*  second  year  after 
their  adoption.  These  clianges  tend  to  considerably  increase  the  work  and  dilii- 
culties  involved  in  keeping  up  and  enforcing  good  service. 

In  order  to  determine  what  constitutes  reasonable  rates  or  charges  for  utility 
service,  it  is,  among  other  things,  necessary  to  determine  the  fair  value  of  th« 
l»ant  and  its  business,  what  constitute  reasonable  returns  for  interest  and  de- 
preciation thereon,  as  well  as  what  constitutes  fair  allowances  for  the  rest  of 
the  operating  expenses  and  charges,  and  many  other  facts. 

Among  the  facts  and  evidence  that  must  be  obtained  nnd  considered  in  de- 
termining the  fair  value  of  the  plant  is  the  original  cost  and  the  cost  of  re- 
production of  the  so-called  physical  property,  and  the  amount  of  deprecia- 
tion that  has  accrued  therein.  The  fair  value  of  the  business  of  the  plant  is 
usually  determined  from  the  original  cost  of  developing  the  Mime  ns  well  as 
from  the  estimated  cost  of  reproducing  the  business  at  the  time  of  the  appraisal. 
In  addition  to  this  there  are  also  many  other  faicts  and  conditions  that  must 
be  given  consideration. 

In  order  to  ascertain  the  original  Investment  in  the  plant  and  the  original 
cost  of  developing  its  business,  engineering  and  accounting  analysis  of  the 
property  and  books  of  the  plant  are  neeeswiry.  Investment  outlays  must  be 


980      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

separated  from  renewals  and  repair  items.  Information  must  be  obtained  as 
to  what  the  prices  of  labor  and  material  were  at  the  time  the  different  units 
were  put  into  the  plant.  In  fact,  all  investment  and  operating  accounts  must 
be  carefully  examined  and  analyzed  as  well  as  measured  in  the  light  of  what 
is  reasonable  under  the  circumstances. 

The  work  of  ascertaining  the  cost  of  reproduction  and  the  amount  of  de- 
preciation that  has  accrued  in  the  physical  property  requires  complete  inven- 
tories of  the  property,  and  careful  pricing  of  each  part  or  item  thereof,  as 
well  as  full  data  as  to  the  age,  service  life,  and  actual  condition  of  such  prop- 
erty. To  this  end  further  complete  price  lists  of  all  elements  of  cost  and  de- 
tailed inspection  of  the  property  as  well  as  full  information  as  to  the  char- 
acter of  its  use  and  upkeep  and  as  to  the  state  of  the  art  are  also  needed. 

In  order  to  determine  the  original  cost  of  developing  the  business  of  the 
plant  and  the  probable  cost  of  reproducing  the  same  under  existing  conditions, 
much  information  and  many  facts  are  necessary.  The  financial  history  of  the 
company  as  disclosed  by  its  books  and  records  and  in  other  ways  must  be 
known.  This  is  also  true  of  what  constitutes  reasonable  allowances  for  the 
operating  expenses  and  charges  including  interest  and  profits  on  the  investment 
at  the  different  stages  during  the  development  of  the  business.  Facts  must 
also  be  had  which  show  how  long  it  would  take  to  reproduce  the  plant  and  the 
business  at  the  time  of  the  appraisal,  and  what  would  be  the  relation  between 
the  expenses  and  the  earnings  at  each  stage  during  the  time  required  for  the 
reproduction  of  the  business,  and  numerous  other  facts  and  conditions. 

In  order  to  know  what  are  reasonable  amounts  for  the  operating  expenses 
including  depreciation  and  returns  for  interest  and  profits  on  the  investment  a 
great  deal  of  information  is  needed.  Statistics  showing  the  cost  of  operation 
of  different  plants  under  varying  conditions ;  familiarity  with  operating  con- 
ditions and  equipment,  experience  with  or  a  thorough  understanding  of  operat- 
ing methods  and  practices  enables  one  to  properly  pass  upon  the  operating 
expenses.  Information  as  to  the  cost  and  probable  service  life  of  the  depreci- 
able property,  the  nature  of  its  use  and  upkeep,  and  the  state  of  the  art 
places  one  in  position  to  say  how  much  should  be  set  aside  annually  for  the 
renewal  of  worn-out  or  discarded  property.  Knowledge  of  financial,  industrial, 
and  investment  conditions  and  of  the  general  trend  of  events  enables  one  to 
estimate  the  amounts,  or  rates,  or  prices  at  which  capital  and  the  enterprise 
can  be  had. 

When  the  total  cost  of  the  service  has  thus  been  ascertained  and  adjusted 
to  probable  future  conditions,  it  is  necessary  to  so  apportion  the  various  items 
of  which  this  total  is  made  up  that  proper  costs  per  unit  of  service  for  each 
class  of  customer  can  be  obtained  and  equitable  rate  schedules  built  up. 

In  order  that  the  facts  ne  ded  to  pass  upon  the  cost  value  of  the  plants  and 
their  business  and  the  cost  of  the  service  performed  may  be  available,  it  is 
necessary  that  the  accounts  and  records  kept  by  the  utilities  be  as  complete 
and  correct  as  w^ll  as  uniform  throughout  the  State.  It  is  further  necessary 
that  such  accounts  and  records  should  be  regularly  audited  and  inspected. 
Without  proper  groupings  of  the  different  expense  items  the  total  cost  can  not 
be  properly  apportioned  between  the  different  branches  and  classes  of  the 
service.  Without  uniformity  in  such  groupings  the  figures  for  dffferent 
plants  can  not  be  fairly  or  accurately  compared.  Without  audits  irregulari- 
ties of  one  kind  or  another  are  certain  to  creep  into  the  results.  Until  uni- 
form and  correct  classifications  of  accounts  are  made  effective,  those  are  few 
who  so  group  their  expenses  and  charges  that  they  become  safe  basis  for  rates 
for  the  service. 

The  conditions  which  affect  the  charges  for  the  service,  like  the  conditions 
which  affect  the  quality  of  the  service,  are  almost  constantly  changing.  Changes 
in  prices  of  material  and  labor  affect  the  value  of  the  plant  as  well  as  the 
cost  to  it  of  furnishing  the  service.  The  cost  per  unit  of  the  service  may  also 
be  greatly  affected  by  changes  in  the  volume  of  the  business.  New  inventions, 
the  adoption  of  new  methods,  and  variations  in  municipal  and  other  re- 
quirements may  also  lead  to  similar  results.  Competitive  and  commercial 
conditions  also  play  their  part  in  affecting  the  rates;  and  this  is  even  true 
of  the  different  seasons  of  the  year. 

Much  of  the  information  that  is  needed  in  rate  making  Is  also  required  in 
connection  with  new  security  issues.  When  new  securities  are  issued  in 
order  to  provide  for  new  extensions,  it  is  necessary  to  correctly  estimate  in 
advance  the  cost  of  such  extensions.  In  this  connection,  further  correct  esti- 
mates of  the  effect  upon  the  earnings  and  the  operating  expenses  of  such 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      981 

additions  to  the  property  or  plant  are  also  necessary.  If  the  extension  is  not 
in  line  with  public  policy  it  should  not  be  built.  All  this  requires  much 
knowledge,  a  wide  experience  and  some  judgment.  This  is  also  true  of  the 
work  involved  in  fixing  all  other  conditions  and  terms  that  are  connected  with 
security  issues. 

Experience  has  taught  us  that  the  problems  of  regulation  are  so  complex 
in  their  nature,  so  far-reaching  in  their  effejet,  so  persistent  in  their  tenden- 
cies that  they  can  not  be  successfully  handled  by  any  but  the  strongest  and 
best-equipped  commissions.  Such  commissions  should  be  backed  up  by  com- 
prehensive laws  and  strong  government  as  well  as  by  adequate  appropriation 
for  the  employment  of  the  necessary  engineering,  accounting,  statistical,  and 
other  expert  services,  and  for  the  inspection  of  the  service  and  other  condi- 
tions and  practices.  Less  well-equipped  departments  than  this  will  not  be 
able  to  properly  cope  with  this  work.  Poorly  equipped  departments  may  cause 
more  harm  than  good.  For  lacking  the  necessary  information,  their  orders 
are  likely  to  go  either  too  far  or  else  not  far  enough,  and  in  these  and  other 
ways  seriously  disturb  many  sensitive  industrial  and  commercial  relations. 

It  is  apparent  from  what  has  been  said  that  the  work  of  regulation  is  by 
no  means  a  simple  task.  To  promulgate  and  administer  proper  rules  or  stan- 
dards of  service,  and  reasonable  rates  which  are  not  unjustly  discriminatory, 
should  be  the  task  of  technically-trained  men  of  wide  experience.  It  is  work 
that  requires  detailed  information  and  a  full  understanding  of  the  physical 
parts  and  condition  of  the  plant,  and  of  both  local  and  general  industrial  and 
financial  conditions.  It  requires  familiarity  with  operating  matters  and  the 
progress  of  the  industry.  It  requires  familiarity  with  values,  the  cost  of  the 
service,  both  as  a  whole  and  per  unit,  for  the  entire  plant  as  well  as  for 
each  class  of  its  customers.  It  requires  scientifically  kept  accounts  and  records, 
uniform  for  the  state  and  even  for  the  country.  It  requires  knowledge  as 
to  the  conditions  and  terms  upon  which  each  factor  of  production  can  be 
had  and  the  probable  future  tendencies  of  these  terms.  It  requires  much  other 
information  that  can  only  be  acquired  through  special  facilities,  preparation, 
and  long  experience.  The  need  for  all  this  is  not  limited  as  to  time,  but  is 
constant.  It  must  be  available  when  the  work  of  regulation  first  begins.  It 
is  needed  for  the  readjustments  that  are  necessary  with  each  of  the  changes  in 
conditions  that  take  place  so  frequently,  especially  in  growing  industries. 
Much  of  it  is  also  required  for  inspection  and  for  other  administrative  work. 

This  work  can  also  be  carried  on  much  more  cheaply  and  much  more  effec- 
tively on  a  large  scale  by  the  State  than  on  small  scales  by  each  local  unit 
or  city.  The  State  can  employ  service  experts,  appraisers,  accountants,  sta- 
tisticans  and  other  assistants  at  moderate  salaries  and  keep  them  constantly 
employed.  None  but  the  largest  cities  can  very  well  do  or  afford  this.  Most 
of  the  cities  can  not  even  afford,  or  feel  they  can  not  afford,  even  occasional 
service  of  such  experts.  The  State  has  broad  powers  and  wide  jurisdiction. 
The  information  it  obtains  covers  large  areas  and  many  plants,  and  so  does 
the  uniform  practices  and  rules  which  it  puts  into  effect  and  enforces.  Its 
powers  are  State  wide.  The  activities  of  the  city,  on  the  other  hand,  can 
not  extend  beyond  the  city  limits.  Its  powers  therefore  are  limited,  the  in- 
formation it  can  obtain  is  restricted,  and  so  are  the  rules  it  can  put  into 
effect  and  enforce.  It  is  in  its  very  nature  debarred  from  doing  and  seeking 
most  of  those  things  which  are  essential  to  effective  regulation,  economically 
administered. 

State  public-service  commissions  are  usually  equipped  with  well-eq nipped 
assistants.  They  develop,  prescribe;  and  put  into  effect  proper  standards  and 
rules  of  service,  and  through  regular  inspections  see  to  it  that  these  standards 
are  lived  up  to.  They  are  constantly  engaged  in  investigating  the  prices  of 
construction  material,  operating  supplies,  labor  and  other  services.  They  in- 
quire into  the  cost  of  capital  and  the  enterprise  as  well  as  Into  the  cost  of  the 
service,  both  as  a  whole,  and  by  classes  of  customers.  In  appraising  the  plant 
and  its  business  they  examine  the  books,  records,  and  other  sources  for  evidence 
as  to  the  original  cost  of  the  same.  They  cause  the  property  and  other  elements 
to  be  carefully  inventoried  and  priced  in  order  to  determine  the  cost  of  repro- 
duction of  the  same  such  property  and  business.  For  the  purpose  of  deter- 
mining the  questions  connected  with  the  depreciation  of  the  property,  they  obtain 
full  data  as  to  the  cost,  age,  condition,  service  life,  the  state  of  upkeep  ami 
other  facts  of  the  property  involved.  They  audit  the  earnings  and  operating 
expenses  of  the  plant  and  see  to  it  that  the  uniform  accounting  systems  which 
they  have  prescribed  are  adhered  to.  They  study  general  and  local  condi- 


982       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

tions,  operating  methods,  construction  projects,  and  other  facts  and  practices. 
The  facts  thus  gathered  and  the  knowledge  thus  obtained  become  the  basis  upon 
which  the  work  of  regulation  is  carried  on. 

Under  local  regulation  such  work  is  not  often  carried  on.  It  is  mostly 
regarded  as  too  costly.  For  all  but  perhaps  the  very  largest  cities  this  is  also 
true.  Franchise  and  ordinance  provisions  alone  do  not  mean  much.  They 
are  either  out  of  date  and  unenforcible  soon  after  enacted,  or  the  means  for 
enforcing  them  are  lacking.  Legislation,  in  order  to  be  of  value,  must  be  prac- 
tical as  well  as  enforced.  Franchises  run  for  long  periods  of  years.  The  regu- 
lating provisions  therein,  even  if  proper  at  the  time  the  franchise  is  enacted, 
are  usually  out  of  date  in  a  year  or  two  thereafter.  Even  when  these  pro- 
visions are  subject  to  revision  from  time  to  time  the  situation  is  not  greatly 
improved.  For  it  is  usually  found  that  such  revisions  are  neither  as  frequent 
as  is  necessary,  nor  properly  made  when  it  is  attempted  to  make  them.  Local 
regulation  therefore  mostly  means  no  regulation. 

That  legislation  alone,  without  proper  supervision  and  enforcement,  will  not 
accomplish  all  that  is  needed  in  the  way  of  regulation  is  fully  shown  by  experi- 
ence. When  the  need  for  railway  regulation  first  appeared,  the  States  tried 
to  meet  this  demand  by  direction  legislation  without  provisions  for  the  enforce- 
ment of  these  laws.  The  results  were  far  from  satisfactory.  It  was  soon  dis- 
covered that  the  laws  could  not  be  made  flexible  enough  to  meet  every  changing 
condition.  It  was  also  found  that  these  laws,  even  when  just,  would  not  be 
lived  up  to  unless  enforced  through  inspection.  These  and  other  conditions 
ultimately  led  to  the  establishment  of  fully-equipped  railroad  commissions. 

This  experience  has  also  been  repeated  in  the  rest  of  the  utility  field  outside 
of  the  steam  railways.  When  the  need  for  regulation  of  municipal  utilities  was 
first  felt,  the  State  usually  delegated  the  power  of  such  regulation  to  the  munic- 
ipality. These  units  in  turn  attempted  to  bring  about  better  conditions  through 
franchise  and  ordinance  provisions  without  adequate  provisions  for  their 
enforcement.  These  efforts  fell  short  of  their  purpose.  When  the  question  of 
adequate  regulation  and  its  proper  enforcement  was  fully  inquired  into  it  was 
found  to  be  too  costly  and  too  complicated  to  be  undertaken  by  single  mu- 
nicipalities. As  the  situation  grew  worse  it  finally  came  to  such  a  pass  that 
the  State  had  to  step  in  and  take  full  charge.  The  State  then  did  in  the 
municipal  utility  field  what  it  had  already  done  in  the  railway  field.  It 
enacted  proper  utility  laws  and  provided  for  their  administration  and  enforce- 
ment through  State  utility  commissions. 

The  failure  of  franchise  or  local  regulation  is  not  only  shown  by  the  causes 
which  led  to  the  establishment  of  State  commissions,  but  it  is  further  emphasized 
by  the  conditions  which  the  State  commissions  found  when  they  took  hold  of 
the  work.  When  the  State  commissions  thus  took  hold,  the  standards  of  serv- 
ice, if  any  such  standards  existed  at  all,  were  mostly  either  bad  or  out  of  date. 
The  service  itself  was  usually  bad  either  as  a  whole  or  in  spots.  It  would  have 
been  much  worse  than  it  was  had  ths  standards  and  rules  laid  down  been  com- 
plied with.  The  rates  were  in  the  same  fix.  They  were  seldom  adjusted  upon 
any  scientific  basis.  Unjust  discriminations  were  often  encouraged,  if  not 
demanded  by  the  cities  themselves.  Favored  customers  received  either  free 
or  reduced  rates. 

The  cities  as  such  often  paid  nothing,  or  else  much  less  than  they  should 
pay,  for  such  street-railway,  water,  light,  power,  and  phone  service  as  they 
used,  thus  throwing  an  undue  burden  upon  the  rest  of  the  customers.  Little 
or  no  efforts  were  made  by  the  city  toward  having  such  rates  established  as 
would  tend  to  develop  the  service  and  reduce  its  cost.  The  result  was  that 
the  rates  in  effect  were  often  such  as  to  retard  rather  than  promote  proper 
business  developments. 

State  regulation  is  not  perfect— no  human  institution  is.  State  commissions 
have  made  mistakes.  In  their  work  they  have  often  gone  too  far  in  construing 
every  doubtful  point  in  favor  of  the  public.  They  have  often  misjudged  or" 
failed  to  give  sufficient  weight  to  the  long-continued  upward  tendency  in  the 
prices  of  both  material  and  labor.  The  result  is  that  many  of  their  orders 
have  been  unjust  and  have  bordered  upon  confiscation.  There  have  also  been 
mistakes  the  other  way.  For  it  is  no  doubt  possible  to  pick  out  orders  in 
which  the  commissions  may  have  been  more  liberal  to  the  utility  than  to 
the  public.  Occasional  shortcomings  of  this  kind,  however,  must  be  expected. 
On  the  whole,  State  regulation  has  been  much  fairer  and  much  more  equitable 
than  local  regulation.  This  conclusion  is  so  well  sustained  by  experience  and 
public  records  that  further  details  here  are  superfluous. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION".      983 

But  the  heavy  cost  and  lack  of  requisite  facilities  and  the  other  shortcom- 
ings that  have  thus  been  mentioned  are  not  the  only  obstacles  in  the  way  of  effec- 
tive and  fair  local  regulation. '  There  are  also  important  questions  of  juris- 
diction to  be  considered.  Cities  and  other  units  have  no  jurisdiction  beyond 
their  boundaries.  One  city  can  not  interfere  with  conditions  in  another  city 
or  unit,  even  when  they  adjoin  each  other  and  are  served  by  the  same  utilities. 

Utilities,  on  the  other  hand,  often  operate  in  more  than  one  municipality.  In 
nearly  all  cities  many  of  the  street-car  lines  extend  beyond  the  city  limits 
into  the  suburbs,  villages  or  towns.  Intemrban  lines  operate  over  the  tracks 
of  urban  and  suburban  lines  and  handle  business  thereon.  Over  90  per  cent 
of  the  telephone  companies  and  not  far  from  one-half  of  the  gas  and  water 
plants  serve  more  than  one  local  unit.  Electric  transmission  lines?  fed  by 
hydraulic  and  other  electric-power  stations  extend  all  over  most  of  the  States 
and  serve  from  one  to  as  many  as  50  or  more  communities. 

As  local  units  have  nothing  to  say  beyond  their  boxindaries,  many  utilities 
would  have  to  be  regulated  by  as  many  bodies  as  the  units  they  serve  if  the 
local  principle  of  control  should  be  carried  out.  This  would  obviously  be  so 
impracticable  that  even  the  most  ardent  supporters  of  local  control  shrink  from 
advocating  it. 

A  State  commission,  on  the  other  hand,  not  only  has  the  necessary  jurisdic- 
tion over  each  of  the  units  served,  but  it  is  in  position  to  view  the  situation 
in  a  much  broader  light,  and  is  better  equipped  for  such  regulation  from  every 
other  point  of  view  than  local  units. 

Regulating  bodies  representing  the  smaller  units  are  also  much  more  likely 
to  be  influenced  in  their  work  by  political  considerations  than  is  the  case  with 
commissions  which  represent  the  entire  State.  The  first  and  principal  duty 
of  a  regulating  body  is  to  do  equal  justice  to  all  without  special  favors  to  any- 
one. This  principle  is  sound.  But  it  is  not  always  in  harmony  with  the  interest 
of  politicians  or  political  groups  and  factions.  Servility  to  political  'nterests 
is  as  bad  as  servility  to  financial  or  other  special  interests.  Few  decisions  are 
likely  to  be  sound  that  are  based  on  political  considerations.  It  is  the  duty  of 
the  State  to  do  its  best  to  keep  undue  influences  away  from  the  commissions; 
and  this  is  much  more  easily,  accomplished  under  State  than  under  local  systems 
of  regulation.  If  the  principle  is  sound  that  only  such  duties  should  be  dele- 
gated to  the  local  unit  as  such  unit  can  do  better  than  the  State,  then  it  is 
also  clear  that  the  regulation  of  utilities- is  a  function  that  should  not  be  dele- 
gated to  local  units. 

The  local  imits  do  not  often  use  their  power  of  such  regulation  even  when 
they  have  it.  This  is  well  illustrated  in  Wisconsin  where  in  the  premises  the 
locality  has  about  as 'much  power  in  such  matters  as  the  State  commission. 
In  this  State,  in  the  face  of  this,  the  cities  or  units  themselves  seldom  endeavor 
to  make  any  use  of  this  power.  Whenever  they  have  occasion  to  complain  of 
company  utility  practice  they  usually  bring  their  case  to  the  State  commission. 
Whether  this  course  is  taken  because  it  is  felt  that  the  State  commission,  which 
is  fully  equipped  for  such  work  and  much  more  free  from  local  prejudices,  can 
best  straighten  out  the  trouble,  or  whether  it  is  done  merely  in  order  to  avoid 
work  and  expense  is  not  always  disclosed.  The  chances  are  that  when  actu- 
ally faced  with  complicated  and  laborious  work  involved  the  local  authorities 
do  not  find  it  to  their  liking  and  hence  prefer  to  shift  it  to  the  State  commission. 
Many  local  authorities  take  this  course,  even  at  the  very  time  they  are  ac- 
tively engaged  in  denouncing  State  interference  in  what  they  choose  to  call  local 
questions. 

It  is  often  said  that  the  regulation  of  municipal  utilities  through  a  State 
commission  is  undemocratic  and  deprives  the  i>eople  of  power  which  is  theirs  by 
right.  This  charge  is  baseless.  All  power  of  government,  and  consequently  of 
regulation,  is  vested  in  tlie  State.  The  city  is  simply  a  creature  of  the  State, 
given  certain  powers  for  the  purpose  of  aiding  the  State  in  its  functions.  The 
duty  to  regulate  r-^sts  In  the  State  and  must  be  carried  out  through  the  State 
legislature.  This  legislature  may  delegate  this  duty  to  either  the  city  council  or 
to  a  State  commission.  It  will  so  delegate  it  to  the  one  of  these  two  bodies  that 
Is  expected  to  give  the  best  service  and  render  the  most  assistance.  If  regula- 
tion is  delegated  to  or  carried  out  through  a  State  commission,  this  course  is 
taken  because  this  method  has  been  bound  to  be  the  best.  Tan  anyone  truth- 
fully say  that  a  city  council  Is  more  democratic  than  a  State  legislature?  Both 
nre  elected  by  the  people  and  roHjxmsible  for  their  acts  to  the  people. 

In  thus  considering  the  source  and  nature  of  regulation,  the  character  and 
scope  of  the  work  involved  therein,  the  cost  of  properly  administering  it,  the 


984      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

equipment  that  is  necessary  to  that  end,  the  jurisdiction  required,  past  experi- 
ence in  these  matters,  and  other  conditions,  the  Conclusion  would  seem  inevitable 
that  from  the  point  of  view  of  public  interest  State  regulation  is  better  and  more 
advantageous  than  local  control. 

It  has  been  found  that  for  several  years  prior  to  the  earlier  years  of  the  war, 
owing  to  increasing  cost  of  operation,  to  increasing  length  of  the  hauls,  and  to 
improvements  in  the  service,  the  net  earnings  in  the  street-railway  field  had 
been  gradually  declining  until,  on  the  whole,  they  did  not  amount  to  more  than 
about  one-half  as  much  as  the  cost  at  which  the  capital  could  be  had ;  that  the 
situation  since  that  time  has  been  rapidly  growing  worse  until  it  has  reached 
a  point  where  these  roads  were  not  earning  much  more  than  the  operating  ex- 
penses ;  that  since  these  conditions  have  only  been  partially  relieved  through  in- 
creases in  rates  or  otherwise,  the  electric  street-railway  situation  is  now  such 
that  public  interest  demands  that  drastic  measures  be  adopted  or  steps  taken 
that  will  place  these  roads  in  such  a  financial  position  that  they  can  obtain 
such  capital  as  they  need  on  normal  terms  and  be  placed  in  position  to  continue 
to  render  good  service ;  that  because  they  are  subject  to  regulation,  the  existing 
situation  can  not  be  remedied  by  the  roads  themselves  without  active  and  com- 
prehensive assistance  from  the  government  itself  through  its  regulating  agen- 
cies; that  because  of  the  nature  of  such  regulation  and  of  the  character  of  work 
involved  therein  and  because  of  many  other  conditions,  the  best  fitted  for  this 
important  work  is  the  State  public-utility  commission. 

Assuming  that  the  utility  commissions  have  or  are  given  all  the  power  and 
all  the  facilities  that  are  necessary  in  order  to  straighten  out  the  street-railway 
situation,  the  question  immediately  arises  as  to  just  how  to  proceed  in  this  work. 
Several  courses  may  suggest  themselves.  They  may  adhere  tc  the  usual  prac- 
tice in  rate  cases,  and  proceed  to  investigate  the  service  and  determine  its 
needs ;  to  determine  the  value  of  the  plant  and  its  business ;  what  constitutes 
reasonable  allowances  for  the  operating  expenses,  including  depreciation  and 
interest  and  profits  on  the  fair  value  of  the  plant  and  the  business ;  to  determine 
whether  a  flat  or  uniform  rate  or  whether  zone  rates  will  best  meet  the  situa- 
tion ;  to  investigate  all  other  facts  and  conditions  that  are  involved  in  the  situa- 
tion or  have  a  closer  bearing  upon  it.  When  this,  work  has  been  completed  it 
should  put  into  effect  and  enforce  such  rates  as  are  reasonable  xmder  the  cir- 
cumstances, and  which,  under  normal  conditions  and  for  adequate  service,  are 
high  enough  to  encourage  the  necessary  capital  and  other  factors  of  production 
to  come  into  the  electric-railway  field.  The  rate  fixed  in  this  way  would  just 
about  cover  the  cost  of  the  service.  It  would,  in  fact,  be  a  service-at-cost  rate. 
Hates  which  are  higher  than  necessary  to  obtain  the  capital  and  other  factors 
of  production  are,  m  fact,  the  lowest  service-at-cost  rates  at  which,  in  the  long 
run,  the  service  can  be  had. 

While  this  is  the  usual  way  in  which  the  commissions  proceed  in  rate  cases, 
and  in  which  service-at-cost  rates  are  established,  the  work  involved  therein  is 
so  comprehensive  as  to  require  more  time  than  can  always  be  safely  allowed 
for  this  purpose.  This  is  especially  true  of  such  readjustments  in  the  rates 
once  established  in  above  manner  which  becomes  necessary,  because  of  the 
changes  that  take  place  in  the  cost  of  the  service  and  in  other  conditions.  In 
order  to  avoid  such  delays,  the  order  of  the  commission  might  go  far  enough  to 
provide  for  a  so-called  sliding  scale  of  rates,  which  rates  would  automatically 
change  with  changes  in  the  cost  of  the  service.  When  the  operating  expenses 
increased  so  as  to  leave  less  for  depreciation  and  interest  than  the  amount  de- 
termined upon,  the  rates  would  go  up.  When  the  operating  expenses  fell  so 
as  to  leave  more  for  depreciation  and  interest  than  the  amounts  determined 
upon  for  these  purposes,  the  rates  would  move  downward. 

Such  rates  would  be  true  cost-of-service  rates.  The  rates  first  established  in 
this  manner  would  cover  the  cost  of  the  service  as  it  stood  at  the  time.  These 
rates  would  remain  unchanged  as  long  as  they  yielded  the  prescribed  returns. 
They  would  automatically  rise  when  the  cost  increased  and  the  net  earnings 
for  returns  declined  below  the  prescribed  level.  They  would  automatically 
fall  when  the  cost  of  operation  fell  and  the  net  earnings  rose  above  the  pre- 
scribed level.  Such  rates,  if  fairly  applied,  would  automatically  and  fairly 
meet  all  necessary  changes  in  the  cost  of  operation,  whether  these  changes  were 
brought  about  by  changes  in  the  prices  of  labor  and  material  or  by  additions  to 
the  plant  and  the  amount  of  business  obtained  from  new  extensions  of  the  lines. 
Such  an  arrangement  further  would  relieve  the  commissions  from  at  least  a  part 
of  the  work,  controversies,  and  other  complications  that  are  certain  to  arise 
in  connection  with  all  rate  changes  that  are  made  under  prevailing  methods. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      985 

It  would  operate  promptly  as  well  as  automatically  and  would  therefore 
prevent  many  unjust  and  embarrassing  delays.  Through  proper  examinations 
and  supervisions  of  the  accounts,  records,  and  other  practices,  such  sliding- 
scale  service-at-cost-rate  arrangements  can  also  be  equitably  applied  without 
any  material  increases  in  the  cost  of  regulation. 

The  additional  amount  of  work  involved  in  so  extending  and  broadening 
the  orders  of  the  commission  that,  besides  provisions  for  a  service-at-cost  rate 
to  apply  under  existing  conditions,  these  orders  would  also  provide  for  such 
sliding  scales  of  .rates  as  those  outlined  is  not  great.  This  extra  work  would 
largely  consist  of  determining  how  much  the  rates  should  be  changed  with 
changes  in  the  cost.  Under  zone  rates  and  ticket  systems,  this  extra  work 
would  also  have  to  be  extended  so  as  to  cover  the  form  of  the  rate  schedules 
or  the  proportion  in  which  each  specific  rate  or  part  of  a  rate  should  be 
effected  by  the  change  in  the  cost.  This  extra  work  might  also  have  to  in- 
clude a  somewhat  closer  supervision  over  the  accounts  and  records  of  the 
plants,  and  over  certain  other  practices  and  rules  than  would  otherwise  be 
necessary.  Such  work  as  this,  however,  the  commissions  are  already  equipped 
for  doing. 

All  other  questions  involved  in  rate  making,  such  as  the  valuation  of  the 
plant  and  its  business;  the  determination  of  what  constitutes  fair  allowances 
for  the  operating  expenses,  including  depreciation  and  the  returns  upon  such 
valuation ;  the  cost,  as  a  whole  and  per  unit,  for  each  branch  and  class  of 
service ;  the  forms  of  rates  under  which  the  varying  cost  can  best  be  met,  and 
under  which  the  service  can  best  be  expanded,  are  about  the  same  in  all  rate 
investigations.  Owing  to  the  experience  obtained  under  regulation  the  work 
of  determining  such  values,  costs  including  returns,  and  rates  is  also  well 
understood,  and  so  are  the  conditions  and  facts  upon  which  such  values,  costs 
and  rates  are  founded.  There  is  no  part  of  the  work  involved  in  developing, 
applying  and  operating  such  sliding  rate  schedules  as  those  outlined  above  that 
can  not  be  safely  entrusted  to  the  State  commission.  In  fact,  such  State  com- 
missions, through  experience  in  such  matters  and  because  of  their  facilities  for 
dealing  with  them,  are  not  only  the  best  equipped  but  the  most  logical  bodies 
for  promulgating  such  rates,  and  for  supervising  of  their  operation. 

Whenever  this  is  deemed  advisable,  service-at-cost  arrangements,  in  which 
such  sliding  scale  provisions  as  those  outlined  above  are  embodied,  can  also  be 
so  extended  that  the  cities  themselves  become  parties  thereto.  Under  the  super- 
vision of  the  State  commissions,  the  city  and  the  company  can  enter  into  a 
contract  in  which  rates  are  agreed  upon  that  will  yield  such  amounts  for  the 
operating  expenses  and  for  depreciation  and  interest  upon  the  fair  value  of  the 
plant  and  the  business  as  are  necessary  to  attract  all  the  factors  of  production, 
including  capital ;  that  in  order  that  the  amounts  or  rates  for  depreciation  and 
returns  agreed  upon  may  be  maintained,  will  automatically  rise  and  fall  with 
rises  and  falls  in  the  operating  expenses.  Under  such  agreements,  such  ques- 
tions as  the  value  of  the  plant  and  the  business ;  the  cost  of  the  operations ; 
the  rates  to  be  allowed  for  depreciation  and  interest  on  a  fair  valuation ;  the 
specific  rates  to  be  put  into  effect:  the  relation  between  the  changes  in  these 
rates  and  changes  in  the  cost;  the  form  of  the  rate  schedules,  and  other  facts, 
can  be  determined  either  by  the  State  commission  alone  or  jointly  by  the 
State  commission,  the  city  and  the  company.  Under  such  agreements  the  city 
is  expressly  made  one  of  the  parties  to  both  the  service-at-cost-rate  schedules 
and  the  sliding-scale  arrangements  therein.  Whether  this  would  be  of  any  ad- 
vantage depends  very  largely  upon  the  attitude  of  the  city.  Where  the*  city 
authorities  desire  to  take  a  hand  in  the  making  of  such  contract  and  to  be- 
come direct  parties  of  the  same  it  may  be  a  plan  that  is  worth  trying. 

It  is  obvious  that  service-at-cost  rates  of  this  kind  which  embody  sliding- 
scale  provisions  such  as  those  outlined  may  offer  many  advantages.  Such  ar- 
rangements, if  carefully  entered  into  and  strictly  complied  with,  would  greatly 
reduce  the  risks  involved  in  the  business  and  would  therefore  also  tend  to  lower 
the  cost  at  which  capital  can  be  had.  When  once  fully  understood  and  entered 
into,  it  is  also  likely  that  such  agreements  would  be  more  cheerfully  complied 
with  than  is  the  case  with  agreements  and  orders  in  which  sliding-scale  provi- 
sions of  this  kind  are  not  included. 

Mr.  EKICKSON.  The  power  to  regulate  is  vested  in  the  State.     It  is 
inherent  in  the  State.     It  may  be  delegated  by  the  State  either  to  a 
State  commission,  or  it  may  be  delegated  to  a  local  unit,  but  it  is 
State  regulation  in  either  case.     It  must  come  from  the  State. 
1(50043°— 20 03 


986      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

The  question,  as  I  understand  it,  in  most  cases,  is  whether  State 
regulation  or  local  regulation  is  preferable,  whether  the  State  should 
grant  this  power  to  a  State  commission  or  to  the  local  unit.  A  careful 
analysis  or  what  is  required  of  regulation,  the  equipment  you  must 
have  to  properly  provide  for  adequate  service,  to  properly  provide 
for  reasonable  rates,  and  have  it  when  you  need  it,  is  so  complicated 
and  so  costly  as  to  be  really  out  of  the  question  for  a  local  community. 
It  is  a  matter  that  must  be  in  the  hands  of  a  larger  unit,  where  you 
can  keep  people  constantly  employed,  where  you  have  all  past  expe- 
rience to  be  guided  by,  in  order  to  have  it  done  properly.  I  have 
commented  on  that,  and  I  do  not  know  but  what  I  may  be  pardoned 
for  reading  from  my  notes  briefly,  as  I  think  I  can  shorten  the  matter 
up  if  I  may  be  permitted  to  do  that. 

The  CHAIRMAN.  Do  it  in  your  own  way,  Mr.  Erickson. 

(Mr.  Erickson  herewith  read  part  of  statement  above  recorded.) 

Mr.  ERICKSOX.  But  the  heavy  cost  and  lack  of  requisite  facilities 
and  the  other  shortcomings  that  have  thus  been  mentioned  are  not 
the  only  obstacles  in  the  way  of  effective  and  fair  local  regulation. 

It  has  been  found  in  Wisconsin,  and  many  other  States  where  I 
have  investigated  it,  that  most  of  rlie  street-ear  lines  in  the  cities  go 
beyond  the  city  lines,  into  the  suburbs.  The  city,  of  course,  would 
not  have  jurisdiction  except  within  its  boundaries,  leaving  the  other 
out  of  the  question,  unless  some  outside  body  took  hold  of  the  out- 
lying property. 

Ninety  per  cent  of  the  telephone  companies  operate  in  more  than 
one  unit;  over  one-half,  or  very  nearly  one-half,  of  the  water  and 
gas  companies  extend  beyond  the  city  limits  into  the  suburbs;  trans- 
mission lines  are  now  operating  all  over  the  State  in  often  as  many 
as  50  towns.  Now,  to  have  local  regulation  in  each  one  of  these  units 
seems  almost  absurd.  One  company,  for  instance,  might  have  to  be 
regulated  by  50  local  commissions  or  bodies.  That,  of  course,  is  out 
of  the  question. 

Political  influences  also  cut  much  more  of  a  figure  in  local  regula- 
tion than  in  State  regulation.  In  almost  every  city,  you  have  fac- 
tions which  are  very  powerful  within  the  city  but  are  not  so  when 
they  come  to  affect  State  conditions. 

The  first  and  principal  duty  of  a  regulating  body  is  to  do  equal 
justice  to  all  without  special  favors  to  anyone.  This  principle  is 
sound.  But  it  is  not  always  in  harmony  with  the  interest  of  poli- 
ticians or  political  groups  and  factions.  Servility  to  political  in- 
terests is  as  bad  as  servility  to  financial  or  other  special  interests. 
Few  decisions  are  likely  to  be  sound  that  are  based  on  political  con- 
siderations. It  is  the  duty  of  the  State  to  do  its  best  to  keep  undue 
influences  away  from  the  commissions,  and  this  is  much  more  easily 
accomplished  under  State  than  under  local  systems  of  regulation. 
If  the  principle  is  sound  that  only  such  duties  should  be  delegated 
to  the  local  unit  as  such  unit  can  do  better  than  the  State,  then  it  is 
also  clear  that  the  regulation  of  utilities  is  a  function  that  should  not 
be  delegated  to  local  units. 

(Mr.  Erickson  again  read  from  statement  as  above  recorded.) 

Mr.  ERICKSON.  Local  regulation  very  often  fails  to  do  equal  justice 
to  all  parts  of  the  city.,  and  particularly  as  between  the  utility  and  the 
public. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      987 

In  the  State  of  Wisconsin,  the  local  units,  in  the  first  instance, 
have  as  much  power  as  the  State  commission.  Nevertheless,  hardly 
any  of  them  ever  attempt  to  exercise  it.  When  they  have  a  com- 
plaint, it  always  comes  to  the  State  commission. 

The  CHAIRMAN.  Do  you  think  under  your  law  the  State  commis- 
sion and  the  local  tribunals  have  concurrent  jurisdiction  ? 

Mr.  ERICKSON.  Concurrent  jurisdiction. 

The  CHAIRMAN.  But  as  a  matter  of  fact  they  always  refer  the 
questions  to  the  State  commission  ? 

Mr.  ERICKSON.  I  know  of  very  few  cases  where  the  local  unit 
attempted  to  do  anything  for  itself,  without  throwing  the  burden 
upon  the  State  commission.  The  reasons  probably  were  these — that 
they  wanted  to  avoid  the  work,  that  it  looked  too  big  for  them;  it 
felt  they  could  not  afford  experts  to  do  the  work,  and  hence  it  had 
to  be  done  by  the  State  commission.  In  a  few  cases  they  did  some- 
thing, like  ordering  wires  underground,  or  extensions,  which  after- 
wards was  found  to  be  unconstitutional  and  thrown  over  by  the 
courts,  but  even  such  cases  as  those  are  not  numerous.  The  work  was 
always  thrown  on  the  State  commission. 

Mr.  WARREN.  Suppose  the  local  tribunal  did  take  up  the  work, 
there  would  still  be  a  finding  of  the  State  commission? 

Mr.  ERICKSON.  Yes. 

Mr.  WARREN.  While  concurrent,  it  was  not  final? 

Mr.  ERICKSON.  It  had  tjiis  advantage  in  favor  of  the  State  com- 
mission, that  the  State  commission  could  pass,  in  the  first  instance, 
upon  the  act  of  the  local  unit,  and  offset  it,  if  it  found  it  to  be  un- 
reasonable. We  have  a  few  cases  where  that  was  done,  but  not  very 
many,  and  in  all  cases  where  the  State  commission  overturned  the 
ruling  of  the  local  body,  the  State  commission  was  upheld  by  the 
co  i  ills. 

The  CHAIRMAN.  Does  your  law  specifically  provide  that  an  appeal 
can  be  taken  from  an  order  of  regulation  or  an  ordinance  of  a  local 
tribunal  to  the  State  commission? 

Mr.  ERICKSON.  It  provides  that  if  it  comes  to  the  State  commission, 
it  can  pass  upon  it. 

The  CHAIRMAN.  But  there  is  no  machinery  provided  by  which  they 
could  take  a  direct  appeal? 

Mr.  ERICKSON.  No. 

The  CHAIRMAN.  To  the  State? 

Mr.  ERICKSON.  Yes;  an  appeal  can  be  taken  by  the  aggrieved  city 
to  the  commission. 

The  CHAIRMAN.  Oh,  it  can? 

Mr.  ERICKSON.  Yes.  It  has  also  been  said  that  State  regulation  is 
undemocratic.  Well,  State  regulation,  of  course,  must  be  exer- 
cised through  the  State  legislature,  the  same  as  local  regulation  ha? 
to  be  exercised  through  the  city  council.  Both  the  State  legislature 
and  the  city  council  are  elected  by  the  people ;  and  I  do  not  see  how 
they  can  be  any  different  in  the  point  of  view  of  one  thing — on? 
more  undemocratic  than  the  other.  The  local  commission  would  ho 
responsible  to  the  city  council.  The  State  commission  is  responsible 
to  the  State  legislature,  and  both  are  elected  by  the  people.  The 
commissions  in  both  cases  are  responsible  to  the  legislative  body  for 
their  acts.  I  do  not  see  that  there  can  be  anything  in  that  statement, 
that  one  is  more  democratic  than  the  other.  I  looked  into  it  very 


988      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

carefully  from  that  point  of  view,  because  that  argument  was  raised 
very  frequently  in  our  State,  but  it  does  not  seem  to  me  to  have  any 
foundation.  So  that,  on  the  whole,  State  regulation  is  not  only  more 
in  line  with  public  interest,  but  State  commission  regulation  has 
behind  it  the  necessary  equipment,  the  necessary  power  to  do  what 
ought  to  be  done,  not  only  in  reducing  rates  if  that  is  necessary,  but 
in  raising  rates  if  that  is  necessary,  which  is  the  case  to-day. 

Assuming  that  the  utility  commissions  have,  or  are  given,  all  the 
power  and  all  the  facilities  that  are  necessary  in  order  to  straighten 
out  the  street-railway  situation,  the  question  immediately  arises  as 
to  just  how  to  proceed  in  this  work.  Several  courses  may  suggest 
themselves.  They  may  adhere  to  the  usual  practice  in  rate  cases, 
and  proceed  to  investigate  the  service  and  determine  its  needs;  to 
determine  the  value  of  the  plant  and  its  business;  what  consti- 
tutes reasonable  allowances  for  the  operating  expenses  including 
depreciation  and  interest  and  profits  on  the  fair  value  of  the  plant 
and  the  business;  to  determine  whether  a  flat  or  uniform  rate  or 
whether  zone  rates  will  best  meet  the  situation;  to  investigate  all 
other  facts  and  conditions  that  are  involved  in  the  situation  or  have 
a  closer  bearing  upon  it. 

When  this  work  has  been  completed  it  should  put  into  effect  and  en- 
force such  rates  as  are  reasonable  under  the  circumstances,  and  which 
under  normal  conditions  and  for  adequate  service  are  high  enough 
to  encourage  the  necessary  capital  and  other  factors  of  production  to 
come  into  the  electric-railway  field.  The  rate  fixed  in  this  way  would 
just  about  cover  the  cost  of  the  service.  It  would  in  fact  be  a  service- 
at-cost  rate.  Rates  which  are  no  higher  than  necessary  to  obtain  the 
capital  and  the  other  factors  of  production  are  in  fact  the  lowest 
service-at-cost  rates  at  which,  in  the  long  run,  the  service  can  be  had. 

While  this  is  the  usual  way  in  which  the  commissions  proceed  in 
rate  cases,  and  in  which  service-at-cost  rates  are  established,  the  work 
involved  therein  is  so  comprehensive  as  to  require  more  time  than  can 
always  be  safely  allowed  for  this  purpose.  This  is  especially  true  of 
such  readjustments  in  the  rates  once  established  in  above  manner 
which  become  necessary,  because  of  the  changes  that  take  place  in  the 
cost  of  the  service  and  in  other  conditions. 

Now,  as  you  know,  wages  have  increased,  as  well  as  the  prices  of 
material.  You  will  require  quick  remedies  to  meet  those  conditions. 
A  sliding-scale  arrangement  Avould  seem  to  be  the  fairest  method  of 
meeting  them.  The  commission  could  extend  its  order  so  as  to  include 
a  sliding-scale-rate  arrangement,  by  which  the  rates  rose  when  the 
cost  rose,  and  fell  when  the  cost  fell.  Of  course,  there  is  a  little  work 
in  working  out  that,  but  that  is  not  very  difficult  to  rate  makers  or 
to  commissions,  with  all  the  help  they  have. 

The  CHAIRMAN.  Do  you  think  the  State  commissions,  under  the 
laws  as  they  now  stand,  have  the  power  to  make  an  order  for  the 
sliding  scale  of  rates? 

Mr.  ERICKSON.  Some  of  them  have.    Most  of  them  have  npt. 

The  CHAIRMAN.  How  about  Wisconsin? 

Mr.  ERICKSON.  Wisconsin  could  do  it  in  a  way;  but  it  is  not  ex- 
pressly granted  to  us. 

The  CHAIRMAN.  Ordinarily,  the  obligation  of  a  commission  is  to  fix 
a  just  and  reasonable  rate? 

Mr.  ERICKSON.  Yes, 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      989 

The  CHAIRMAN.  Based  upon  the  conditions  then  before  the  com- 
mission ? 

Mr.  ERICKSON.  Yes. 

The  CHAIRMAN.  Under  those  conditions  and  under  that  State  law, 
how  can  the  commission  go  to  work  and  make  an  order  the  way  you 
suggest? 

Mr.  ERICKSON.  The  commission  will  have  to  make  a  subsequent  in- 
vestigation to  be  within  the  law,  but  the  Wisconsin  Commission  has 
the  power  to  make  a  sliding-scale  arrangement  of  another  sort.  That 
is  a  profit-sharing  arrangement.  That  is  an  arrangement  under  which 
the  rates  may  be  fixed.  All  earnings  above  a  certain  amount,  it  has 
been  regarded  as  reasonable,  should  go  to  the  State  or  to  the  city,  and 
under  that  they  can  probably  make  such  an  arrangement  as  we  have 
in  mind,  but  most  conditions  will  have  to  be  given  additional  power, 
I  think. 

The  CHAIRMAN.  That  is  what  I  thought. 

Mr.  ERICKSON.  Some  commissions  could,  under  the  arrangement  I 
speak  of,  probably,  but  the  safer  thing  would  be  additional  legisla- 
tive powers;  and  still  I  am  not  entirely  certain  or  clear  on  that.  That 
will  have  to  be  looked  up.  Well,  such  sliding-scale  arrangements  have 
many  advantages.  They  operate  automatically.  They  relieve  the  com- 
mission of  a  great  deal  of  work — that  is,  actual  work,  not  of  super- 
vision— and,  of  course,  it  throws  upon  the  commission  a  certain  amount 
of  additional  work,  on  the  other  hand.  It  is  also  possible  that  ar- 
rangements of  that  kind,  once  having  been  made  and  bound  fair,  rate 
changes  occurring  under  them  would  be  more  generally  accepted  by 
the  public  than  otherwise  would  be  the  case.  That  is  particularly  true 
in  some  cases,  if  it  should  be  found  necessary — I  do  not  advocate  it 
or  urge  it — to  make  the  city  a  party  to  the  arrangement.  The  city, 
under  the  final  say  of  the  commission,  in  some  cases,  might  be  a  party 
to  the  contract,  in  case  contracts  are  necessary  to  carry  it  out,  but  that 
seems  superfluous.  However,  it  might  be  necessary  in  some  cases,  and, 
if  necessary,  it  might  avoid  a  good  deal  of  trouble.  It  will  give  the 
city  what  it  sometimes  cherishes.  It  will  give  them  a  voice  in  the  mat- 
ter, though  not  a  final  decision. 

The  situation  is  such  that  something  will  have  to  be  done  fairly 
promptly,  and  it  seems  that  recommendations  along  these  lines 
might  be  a  great  deal  of  help  to  the  State  commissions  in  working1 
out  those  problems,  particularly  as  to  a  sliding-scale  arrangement; 
and  if  prices  are  going  to  continue  to  rise,  or  even  if  they  fall,  some- 
thing of  that  kind  is  probably  needed  as  a  safeguard,  because  a  full 
investigation  before  each  rate  change  requires  too  much  time.  Even 
the  readjustment  of  a  value  requires  too  much  time. 

State  commissions,  of  course,  while  they  are  better  than  local  com- 
missions, are  not  perfect  in  every  way.  Many  have  made  serious 
mistakes.  The  Wisconsin  Commission  did.  We  felt  in  1908,  1909, 
and  1910  that  prices  had  risen  about  as  far  as  they  would.  We  used 
the  prices  of  that  time  as  a  basis  for  decisions.  It  was  found  that 
by  1912  and  1913  the  rates  we  made  were  too  low.  They  did  not 
yield  the  requisite  return.  That  was  true  in  1912,  one  or  two  years 
after  we  had  made  the  decisions.  Well,  local  conditions  were  such 
that  it  was  difficult  for  us  to  amend  our  orders  without  rather  long 
drawn  investigations.  In  the  meantime  the  utilities  were  earning 
less  than  they  should  earn.  Capital  began  to  draw  away  from  these 


990      PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION". 

utilities.  The  cost  of  getting  capital  increased,  the  service  was  en- 
dangered, although  it  was  upheld  in  many  cases  by  allowing  capital 
to  suffer.  So  I  say  the  State  commissions  are  not  free  from  errors. 

There  may  also  be  instances  where  they  have  gone  too  far  in  favor 
of  the  utility;  so,  though  I  think  there  are  very  few,  there  may  be 
some.  No  human  institution  is  perfect;  but  a  State  commission  is 
safer  than  local  regulation,  because  it  has  the  jurisdiction,  it  has 
the  power  to  do  things,  it  has  a  broader  view  of  the  field  and  is  able 
to  look  at  matters  upon  a  very  much  wider  scale  than  the  local  unit. 

The  local  unit  stands  in  the  forest  and  sees  the  trees  around  it. 
The  State  commission  is  up  on  the  knoll,  and  can  see  the  whole 
forest  from  it;  and  if  the  State  commission  wants  to  do  justice,  it 
is  in  position  to  do  it.  That  .is  not  very  often  true  of  the  local 
unit.  It  has  not  the  facilities.  It  has  not  the  nfoney.  It  has  not 
the  equipment  for  it. 

Mr.  WARREN.  Mr.  Erickson,  I  judge  from  what  you  have  said, 
and  also  from  the  memorandum  which  I  took  the  opportunity  to 
examine,  that  you  are  of  the  opinion  that  street  railways,  generally 
speaking,  are  in  a  very  desperate  situation  at  this  time  ? 

Mr.  ERICKSOX.  Yes,  sir ;  35  of  the  leading  roads  are  not  now  earn- 
ing more  than  operating  expenses — very  little  more,  if  any. 

Mr.  WARREX.  I  judge  also  that  you  think  the  sliding  scale  could  be 
administered  sometimes,  in  some  cases,  only  after  further  legisla- 
tion by  the  State  commissions  ? 

Mr.  ERICKSOX.  I  think,  perhaps,  further  legislation  would  be 
necessary.  I  am  not  entirely  clear  on  that,  but  the  chances  are  that 
the  action  of  most  commissions  might  be  questioned,  unless  their 
power  was  broadened  or  extended. 

Mr.  WARREX.  And  if  further  legislation  is  necessary,  and  even 
if  it  is  not,  the  adoption  of  such  a  sliding  scale  would  involve  con- 
siderable time,  would  it  not  ?  Or.  let  me  put  it  in  another  way :  Do 
you  think  that  those  States,  where  the  authority  of  the  commissions 
to  adopt  the  sliding  scale  is  questioned,  could  adopt  it  quickly  enough 
to  afford  the  relief  which  many  of  these  companies  need  ? 

Mr.  ERICKSOX.  Well,  I  think  a  reasonable  rate  should  be  put  into 
effect — what  is  estimated  to  be  a  reasonable  rate — first,  and  allowed 
to  stand  while  all  these  other  matters  are  being  worked  out.  A 
sliding-scale  arrangement  does  not  require  a  long  time.  It  is  pos- 
sible that  very  few  commissions  would  need  very  much  equipment 
or  additional  representation  to  carry  it  out.  Some,  I  know,  would 
need  it. 

Mr.  WARREX.  About  the  only  sliding  stale  that  could  be  adopted 
and  put  into  effect  quickly  would  be  one  which  was  based  on  the 
present 'rates  of  fare;  would  it  not? 

Mr.  ERICKSOX.  I  think  not.  "  Reasonable  rates  "  is  a  broad  term. 
Maybe  I  did  not  understand  you. 

Mr.  WARREX.  I  say,  would  not  any  sliding  scale,  in  order  to  be 
adopted  quickly,  have  to  be  made  up  on  whatever  a  particular  com- 
pany's present  scheme  of  fares  happened  to  be  ?  If  the  company  to- 
day is  charging  6  cents,  they  could  file  a  sliding  scale  going  up 
Cx.  7,  8,  9,  and  10,  or  going  down,  but  they  could  not  adopt  a  sliding 
scale  for  a  zone  system  without  taking  more  time  than  is  available  ? 

Mr.  ERICKSOX.  Before  the  sliding  scale  can  be  made  operative,  you 
will  have  to  have  a  reasonable  scale  based  upon  existing  conditions. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      991 

That  is  absolutely  necessary.  Then,  when  the  reasonable  rate  is  estab- 
lished, you  can  supplement  it  by  sliding-scale  provisions,  and  not 
before,  very  well. 

The  CHAIRMAN.  Does  your  sliding  scale  presuppose  a  determination 
of  the  fixed  charges?  In  other  words,  does  the  sliding  scale  about 
which  you  are  speaking  provide  for  a  certain  amount  to  be  paid  upon 
bonds  and  upon  the  stock  ? 

Mr.  ERICKSOX.  The  sliding  scale  such  as  I  have  in  mind  provides 
for  a  reasonable  return  upon  the  fair  value  of  the  property. 

Mr.  WARREX.  That  is,  for  the  cost  of  service  ? 

Mr.  ERICKSOX.  That  represents  the  cost  of  service.  The  cost  of 
service  in  any  business  is  a  reasonable  return  after  all  the  factors  for 
labor,  for  material,  for  depreciation,  for  returns  upon  investment, 
such  as  will  bring  these  factors  into  the  business,  such  as  will  bring 
you  what  additional  capital  you  need. 

The  CHAIRMAX.  But  in  the  Cleveland  plan,  the  money  to  be  paid 
for  the  bonds  and  stock  is  definitely  fixed  ? 

Mr.  ERICKSOX.  Yes. 

The  CHAIRMAX.  And  it  can  not  be  changed  unless  the  contract  is 
changed.  Now,  does  your  sliding-scale  plan  contemplate  such  an  ar- 
rangement as  that  ? 

Mr.  EEK  KSOX.  The  sliding  scale  that  I  have  in  mind  means  this : 
You  first  have  to  determine  what  is  a  fair  return  upon  the  invest- 
ment and  for  depreciation,  as  conditions  now  exist.  Then  provide 
for  as  much  as,  on  account  of  changed  conditions,  you  fail  to  enable 
the  company  to  earn  the  returns  which  you  had  agreed  uptm. 

The  CHAIRMAX.  But  under  your  plan,  the  amount  of  the  returns- 
may  vary  according  to  the  conditions,  according  to  the  cost  of  money, 
the  interest  rate,  in  certain  territory,  and  things  of  that  kind? 

Mr.  ERICKSOX.  It  may  be  that  it  will  come  to  that,  and  it  could  bo 
made  to  include  that.  However,  if  you  have  a  rate  to-day  it  would 
yield  \vhat  was  deemed  to  be  a  fair  return,  and  if  you  found  because 
of  a  sliding-scale  arrangement  the  money  could  be  had  at  a  lower  cost, 
those  facts  could  be  determined  and  the  rate  adjusted  to  cover  that, 
as  well  as  to  cover  such  additions  to  the  capital  as  are  required  for 
new  extensions,  and  such  extra  costs  of  the  service  as  were  brought 
about  by  the  new  extensions.  Those  are  questions  to  be  determined  by 
the  State  commission,  the  same  as  the  cost  of  the  operation,  and  they 
can  be.  It  is  a  question  of  work  in  either  case,  but  it  is  not  \vork 
that  can  not  be  done,  but  it  can  not  be  done  safely,  I  think,  without 
a  fairly  close  study  and  by  a  strong  commission. 

Mr.  WARREX.  Do  I  understand  that  before  that  is  done,  you  think 
some  sort  'of  immediate  relief  ought  to  be  given  the  companies  in  the 
wnv  of  an  increased  rate? 

Mr.  ERICKSOX.  Well.  I  think  that  is  absolutely  necessary  in  perhaps 
00  per  cent  of  the  cases  in  the  country,  because  they  are  now  earning 
very  little  more  than  the  operating  expenses,  and  that  can  not  go  on 
except  at  the  expense  of  the  service  and  of  the  company. 

Mr.  WARRKN.  I  am  very  much  obligated  to  you,  Mr.  Erickson. 

T  will  file  this  with  the  reporter,  Mr.  Chairman  [referring  to  Mr. 
Erickson's  report  before  the  United  States  Chamber  of  Commerce]. 

The  CHAIRMAN.  If  you  please. 

Mr.  WARREX.  I  have  a  few  documents  that  I  would  like  to  put  in 
the  record,  to  close,  so  far  as  I  can. 


992       PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION. 

There  is  a  list  of  companies  used  in  the  wage  rates  in  reference 
to  the  cost  of  labor,  Chart  C-133.  There  are  sufficient  copies  for 
all  members  of  the  board.  I  will  hand  them  around  [handing  copies 
to  the  members  of  the  commission]. 

Mr.  ETJICKSON.  I  have  summarized  most  of  the  things,  because  my 
time  was  so  short,  and  I  did  not  want  to  take  any  more  time  than 
was  necessary. 

Mr.  WARREN.  Then  I  have  here  a  document  that  I  have  referred 
to  before  three  or  four  times.  It  is  a  statement  from  the  secretary 
of  the  Public  Service  Commission  of  Massachusetts,  showing  the 
balance  sheet  at  the  end  of  1918,  with  a  deficit  of  over  $4,000.000  on 
the  aggregate  street  railways,  showing  the  revenues  and  operating 
expenses  and  other  charges,  with  a  deficit  for  the  year  of  $5,000,000, 
and  miscellaneous  data,  such  as  mileage. 

I  would  like  to  have  that  go  into  the  record. 

The  CHAIRMAN.  Yes. 

The  statement  thus  referred  to  by  Mr.  Warren  is  as  follows: 

The  attached  statement  of  assets  and  liabilities,  revenues  and  expenses  and 
miscellaneous  data,  pertaining  to  street  railways  in  Massachusetts,  is  a  true 
copy  of  the  figures  on  file  in  the  office  of  the  commission. 

Attest : 

[SEAL.]  ANDREW  A.  HIGHLANDS,  Secretary. 

Assets  and  liabilities  of  street-railway  companies  in  Massachusetts  as  of  De- 
cember 31,  1<J16. 

ASSETS. 

Cost  of  railway $118,  837,  985.  29 

Cost  of  equipment 41,707,159.13 

Cost  of  land  and  buildings 50,739,028.03 

Cost  of  other  permanent  investments 1,582,552.45 


Total  cost  of  permanent  investments $212,866,724.90 

Sinking    funds 317.  686,  80 

Miscellaneous  physical  property 1,  274,  899.  38 

Investments 2,  293,  782.  40 

Current    assets . 14,  701, 154.  01 

Deferred    assets 1,  043,  715.  54 

Unadjusted    debits 9, 162,  773.  73 

28,  794,  Oil.  86 


Grand  total 241,  660,  736.  76 


LIABILITIES. 

Common  stock 88,217,375.00 

Preferred  stock 18..673,  500.  00 

106,  890,  875.  00 

Premium  on  capital  stock - 6.  675,  651.  04 

Funded   debt 91,  547,  200.  00 

Nonnegotiable  debt  to  affiliated  companies 1,214,948.88 

Current   liabilities 27, 178,  978.  73 

Deferred   liabilities 407, 135. 17 

Unadjusted   credits 11,  846,  869. 19 

—       39,  432,  986.  09 

Appropriated    surplus 267,  567.  40 

Profit   and   loss__ //,  368,  .',91,  65 


Grand    total 241,  660,  736.  76. 


PROCEEDINGS  OF  FEDERAL  ELECTRIC  RAILWAYS  COMMISSION.      993 

Revenue*  and  expenses  of  street  railways  in  Massachusetts  for  year  ended 

December  31,  1918. 

Revenues : 

Passenger   revenue $43,  092, 044.  59 

Parlor  and  special  car  revenue 75, 157.  28 

Mail   revenue 41,  852.  84 

Express  and  baggage  revenue 175,  625.  72 

Milk   revenue 15,  437.  86 

Freight  revenue 1, 072,  329.  69 

Miscellaneous  transportation  revenue 20,  811.  87 


Total  from  transportation ?44,  493,  259.  85 

Total  revenue  from  operations  other  than  transportation 1,  245,  835.  50 

45,  739,  OD5.  35 

Operating  expenses : 

Way  and  structures $4.  876,  039.  34 

Equipment 6,  358,  450.  94 

Power 7.  G21,  089. 19 

Conducting  transportation 16,  332,  111.  33 

Traffic 41,  630. 15 

General  and  miscellaneous 4, 978,  561.  31 


Grand  total 40,  217,  SS2.  26 


Net  revenue  railway  operations 5,521,213.09 

Net  revenue,  auxiliary  operations 127,  845.  73 


Net  operating  revenue 5,  649.  058.  82 

Taxes  assignable  to  railway  operations 2,  018,  432. 13 


Operating  income 3, 630,  626.  69 

Income  from  lease  of  road 2,  651,  675.  58 

Miscellaneous  iionoperating  income 176,549.63 

2,  828,  225.  21 


Gross  income 6,  458,  851.  90 

Deductions : 

Rent  of  lease  of  roads 3,  022,  873.  70 

Interest  on  funded  debt 4, 143,  930.  47 

Interest  on  unfunded  debt 991,  309.  89 

Amortization  of  discount  on  funded  debt 58, 172.  48 

Maintenance  of  organization 10,355.94 

Miscellaneous    debits 1,091,126.42 


Total  deductions 1 9,  317,  768.  90 


Net  income 2,  858.  917.  00 

Dividends  declared • 2,  440,  834.  24 


Deficit  for  year..  5,299,731.24 

Miscellaneous  data. 

Railway  owned 2,  311.  518 

Second  main  track  owned 535.  447 


Total  main  track  owned .       2,846.965 

Sidings  and  switches  owned 204.692 


Total   track  owned 3,051.657 

Leaised  main  truck  ami  trackage  rights 596.  525 

Total  main  track  oi>erated 2.913.293 


994      PROCEEDINGS  OF  FEDEEAL  ELECTRIC  RAILWAYS  COMMISSION". 

Number  of  revenue  passengers  carried 583,  485,  256 

Number  of  free  transfer  passengers  carried 340,  394,  004 


Total  passengers  carried 923,  879,  260 


Passenger  car-miles 117,  746,  278 

Other  revenue  car-miles 2, 102,  478 


Total  revenue  car-miles 119,  848,  756 


Passenger   car-hours 11,  815, 191 

Other   revenue   car-hours 313, 152 


Total  revenue  car-hours 12, 128,  343 

Operating  revenue  per  car-mile _ cents 38. 17 

Operating  expenses  per  car-mile do 33.  56 

Operating  revenue  per  car-hour , $3.77 

Operating  expenses  per  car-hour $3.  31 

Itutio  of  operating  exi>enses  to  operating  revenues per  cent 87.  93 

Percentage  of  dividends  declared do 2.28 

The  CHAIRMAN.  Was  it  your  thought  that  Mr.  Erickson's  contri- 
bution to  the  chamber  of  commerce  should  go  into  the  record  or 
simply  be  filed  with  the  commission? 

Mr.  WARREN.  I  thought  that  it  might  go  into  the  record  in  con- 
nection with  that  balance  sheet,  which  was  taken  from  the  census 
report  for  all  of  the  companies  of  the  country,  but  if  you  think  it 
would  encumber  the  record,  it  might  as  well  be  filed. 

The  CHAIRMAN.  I  do  not  want  to  have  the  record  too  large,  of 
course. 

Mr.  WARREN.  No;  and  I  do  not. 

The  other  two  documents  are  the  combined  balance  sheet  of  the 
electric  railways  of  the  country,  made  for  the  census. 

The  CHAIRMAN.  They  ought  to  go  into  the  record. 

Mr.  WARREN.  Yes,  sir. 

The  CHAIRMAN.  And  also  the  operating  expenses? 

Mr.  WARREN.  Yes,  sir. 

(The  documents  thus  referred  to  will  be  found  incorporated  in 
this  record,  at  pages  973  to  985,  and  992  to  994.) 

Mr.  WARREN.  Then,  we  were  asked  for  the  classification  of  ac- 
counts for  electric  railways,  and  we  have  six  copies  of  those. 

We  were  also  asked  for  a  list  of  the  345  companies  responding  to 
the  American  Electric  Railway  Association's  data  sheet,  No.  186. 
This  is  shown  on  Chart  C— 100,  and  I  have  five  copies  of  that. 

We  were  also  asked  for  copies  of  the  questionnaire  which  was  sent 
to  the  member  companies  of  the  Association  for  information  concern- 
ing taxes  and  other  State,  municipal,  and  Federal  requirements;  and 
I  have  a  large  number  of  copies  of  that. 

That  concludes  our  evidence,  Mr.  Chairman,  and  we  wish  to  thank 
you  very  sincerely  for  your  kindness,  your  attention  and  your  pa- 
tience in  hearing  us  during  this  hot,  muggy  weather,  and  at  such 
great  length.  We  would  not  have  thought  of  trespassing  upon  your 
time  if  we  had  not  felt  the  very  desperate  condition  in  which  our 
companies  are  placed. 

I  assume  that  after  the  close  of  the  hearing  we  shall  have  an 
opportunity  to  present  a  summary  of  our  views  of  the  evidence,  and 
submit  a  brief. 

The  CHAIRMAN.  Surely. 


PROCEEDINGS  OF  FEDERAL,  ELECTRIC  RAILWAYS  COMMISSION.      995 

The  commission  is  very  grateful  to  you,  Mr.  Warren,  and  to  your 
associates  for  your  patient  attendance  and  close  attention  to  the  very 
important  business  before  us.  We  feel  like  apologizing  for  having 
been  with  you  from  10  o'clock  in  the  morning  until  10  o'clock  at 
night,  but  we  think  the  magnitude  of  the  problem  rather  justified 
the  action. 

We  now  stand  adjourned  until  August  4,  unless  otherwise  advised. 

(Whereupon,  at  5.30  o'clock  p.  m.,  on  July  25,  1919,  the  further 
hearing  of  this  case  was  adjourned  until  Monday,  Aug.  4,  1919,  at 
10  o'clock  a.  m.) 

o 


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